The Online Box Office Is Growing
The movie business is about to change: Apple Computer Inc. and Amazon.com Inc. are in the final stages of building online services that allow easy, legal access to potentially thousands of movies on demand.
Apple, which invigorated online music with its iTunes store, is expected to reveal plans next week to offer downloadable movies from Walt Disney Co. Amazon has agreements with at least three of the other major studios to offer movies at its online store, expected to be announced as early as Thursday.
Apple and Amazon declined comment Tuesday. Their plans, however, were confirmed by several people familiar with them. Details such as pricing and title lineups were unclear Tuesday, as was information about how the rival services will work.
But the entry of Apple and Amazon is particularly significant because they are adept at making the masses comfortable with large-scale technological shifts. Apple popularized legal music downloads and Amazon did the same for online shopping by making the process easy, fast and reliable, even for technophobes.
Analysts said the new services will almost certainly accelerate the race toward digital distribution, a transformation that is at once threatening and tantalizing to Hollywood.
Online revenue makes up a tiny -- but growing -- fraction of box-office receipts. The Internet threatens to undermine the industry’s established economics, which rely on big opening weekends, then robust DVD sales and lucrative broadcast deals. Yet traditional media companies have little choice but to follow as audiences move online and demand greater control over when and where they are entertained.
“We’re basically on the cusp of a mobile on-demand video market,” said Aram Sinnreich, managing partner with the Radar Research entertainment consultancy.
Reinforcing that view, two other companies revealed video-on-demand offerings Tuesday.
Digital recording pioneer TiVo Inc. said its 4.4 million subscribers will be able to watch the new CBS comedy “The Class” a week before the show debuts on TV. TiVo’s set-top boxes already connect over phone lines or the Internet to the company’s computers to get programming information. They also have hard drives to store recorded shows. The deal hints at TiVo’s long-term aspiration to deliver customized programming on demand.
And Sprint Nextel Corp launched a pay-per-view movie service for mobile phones. Sprint Movies streams full-length films -- including flicks from Buena Vista, Lions Gate Entertainment, Sony Pictures Home Entertainment and Universal Pictures. The movies can be viewed in their entirety or divided into chapters and watched over time. Prices range from about $4 to $6.
To be sure, the rise of online movies has been forecast for years. The first services debuted as early as 1999 but were expensive and imposed onerous restrictions to thwart piracy. Plus, movies could take hours to download over slow connections. Not surprisingly, few people signed up.
More popular have been online rental services such as Netflix Inc., which charges monthly rates between $5.99 and $29.99. Subscribers choose their movies at the website and Netflix ships them DVDs in the mail. They keep the DVDs as long as they want, then return them in postage-paid envelopes to get more.
Recently, though, the growth of high-speed connections has renewed interest in online video. Sites such as YouTube attract millions of visitors, and sales of portable video players such as Apple’s iPod and Sony Corp.'s PlayStation Portable are brisk, demonstrating that lots of people want entertained outside theaters and living rooms.
News Corp., for instance, said last month that it would start selling movies from its 20th Century Fox unit on MySpace, the enormously popular social networking site it bought last year for $580 million.
“Digital distribution and the age of it becoming a true business has finally arrived,” said Curt Marvis, chief executive of CinemaNow, one of the original Internet movie services. “It’s only been seven years I’ve been waiting.”
Apple plans to unveil its movie service Tuesday with full-length features from Disney, with which it inaugurated TV show downloads in the fall. Apple Chief Executive Steve Jobs is a Disney board member, a position he assumed when Disney bought his Pixar Animation Studios this year.
Since Apple started offering video, the company has sold more than 35 million clips, including music videos, classic TV shows and new installments of popular series such as “Desperate Housewives” and “The Office.”
Disney declined to comment Tuesday, and Apple spokesman Tom Neumayr said only, “We do not comment on rumors and speculation.”
In tandem with the movie service, Apple is expected to unveil a new version of the iPod media player.
Other major studios are still in talks with Apple, according to people with knowledge of the discussions. The studios have reservations about the digital locks Apple uses to prevent unauthorized copying. Furthermore, they don’t like Apple’s refusal to charge higher prices for new releases.
That issue has also been a contentious one between Apple and the record labels that sell their songs for a flat 99 cents on iTunes. Apple has long insisted that flat prices make online transactions easier for customers. It does the same with its video offerings, charging $1.99 per clip. Labels and studios, however, argue that new songs and movies are more valuable than older material in their catalogs.
Amazon, meanwhile, has struck deals with Warner Bros., Sony Pictures and Universal to offer features on its video service, which the company plans to announce this week.
Industry watchers said Amazon enjoyed more initial success than Apple because, in part, it has deep ties with the studios through its online DVD sales.
A spokesman for Amazon declined comment Tuesday, as did representatives of the studios.
Although the movie majors are fearful of moving too quickly and cannibalizing DVD revenue or alienating powerful retailers, they recognize that DVD sales are slowing and hope to find new income streams.
They are also mindful that the record labels were widely seen as moving too slowly to counter the spread of online piracy with reasonably priced and easy-to-use alternatives.
“There’s a lot of talk out there along the lines of, ‘We don’t want to make the same mistake the music industry made,’ ” Sinnreich said.