MODEM, COMPUTER, ACTION!
More consumers entertain online movies

By Cecily Fraser

LOS ANGELES (CBS.MW) - The film industry always wants to take center stage with U.S. consumers' entertainment spending, but making it onto computer screens is requiring more than one take.

Major efforts from the likes of CinemaNow, Intertainer and studio-backed MovieLink are gaining momentum to beam movies over the Web, experts said.

Content from so-called Internet video-on-demand can be delivered to viewers' PCs, but with home-networking infrastructure increasing, streamed movies will increasingly be seen on the living room TV set.

Still in its nascent stages, these services are making headway with consumers - especially college students -- accustomed to downloading audio, MTV video files or 30-minute television programs.

"People are getting used to the fact that they can receive content on demand and that there's a variety of devices that can deliver it," said Curt Marvis, chief executive officer of video-on-demand distributor CinemaNow. "I view 2002 as year one of when the real concept and opportunity for feature films delivered on demand to be beginning."

Converting consumers

Three-year-old CinemaNow, backed by Lions Gate Entertainment, has about 50,000 movie buffs on its site daily, most of whom come to view its free, ad-supported content such as the cult classic "Doom Generation," Marvis said.

Intertainer, which has content through relationships with Universal Pictures and Warner Bros., among others, has about 135,000 registered users.

Meanwhile, Movielink.com, a joint effort backed by Sony Pictures, Viacom's Paramount, Metro-Goldwyn-Mayer, AOL Time Warner's Warner Bros. and Vivendi Universal, is set to launch nationwide by the end of the year, according to Movielink's director of marketing Corey Weiss.

"The time is right," Weiss said. "There's an installed user base (of broadband households) out there that justifies a service of this nature."

About 15.4 percent of U.S. households will have broadband Internet access by the end of the year, up from 10.4 percent in December, according to research firm GartnerG2 said.

"The fact that the major studios are indeed rolling out their own sites is a pretty encouraging sign" for consumer adoption, said Gerry Kaufhold, an analyst at research firm InStat/MDR in Scottsdale, Ariz.

'Sit around the PC?'

The adult content industry already developed a set of services, delivered via cable modem and digital subscriber lines, that provide a viable market model to sell video over the Web, Kaufhold said.

"Now that technology is fairly well developed, it's ready to go to a family-oriented market," he said.

He expects that by 2006, about 40 percent of worldwide consumers who have high-speed Internet connections to their residences will be participating in an "on-demand" service.

Other analysts aren't as optimistic, however, and are quick to point out that the industry is still wrestling with issues related to technology, pricing and how best to convert consumers who already have a slew of choices on cable, for example.

"You don't hear people on a Friday night, saying, 'Kids, honey, let's go sit around the PC and watch a movie," said P.J. McNealy, an analyst with GartnerG2.

One of the main obstacles analysts point to is broadband service, which often falls short of the required minimum sustained bandwidth of 500 kilobits (kbps) per second or more needed to present a full-screen movie on demand, Gartner G2 said.

Intertainer, for example, is available to broadband users in the U.S. with connection speeds of 580kbps or higher.

The rollout of game consoles or digital set-top boxes that run video on demand, among other tech advances, will provide more viable streaming options to consumers going forward.

"You'll see more and more consumers go for the legitimate resources when they're out there," said Rich Taylor, vice president of public affairs for the Motion Picture Association of America

Beyond technology, legitimacy of films also is a big concern for both independent operators and movie studios that have watched the number of bootlegged copies swell online, Taylor said. As much as 600,000 films are being illegally downloaded in a given day.

"We see the Internet as an incredible opportunity to reach more consumers ... and that's what we're all about, getting the most eyeballs on a film, he said. "But no shopkeeper opens up in a neighborhood where there's widespread looting."

The industry is working to design a level of protection that satisfies all parties, including digital rights management proposals that will help soothe studios' jitters about licensing their content.

"The key issue is security and adequate protection of our copyright," said a spokesperson at Sony Pictures.

Meanwhile, pricing titles will be tricky, Kaufhold said. "Hollywood is going to be careful about how they balance putting online services up in such as way as they don't damage" agreements in the multi-billion dollar rental service.

Converting consumers

At the same time, video-on-demand providers are able to offer some decent titles based on their existing partnerships. Consumers can pay $3.99 for a 24-hour license from Intertainer.com to watch "A Beautiful Mind." Or, its registered users can choose the TV viewing package option for $7.99 a month.

Intertainer.com works with a lean marketing budget and relies heavily on word of mouth to increase awareness. "The idea you can get what you want when you want it is pretty powerful," said Jonathan Taplin, Intertainer's chief executive officer.

CinemaNow, which features a lot of martial arts films, has both a monthly $9.95 subscription service, as well as a pay-for-view offering priced between $2.99 and $4.99 a title.

Even as traffic climbs, the company is realistic about its growth going forward. "A small percentage convert into paying customers and that's indicative of the fact that' it's going to be a slow curve over time for people who are willing to pay for content over the Internet," Marvis said.

Still, CinemaNow is finding the college market provides fertile ground for video on demand. The company will conduct a trial with Duke University students this fall, hosting a CinemaNow channel that will be made available to the college's existing local area network.

As companies experiment with ways to make downloading or streaming films better, their efforts aren't any different than those directed at other earlier technologies such as DVDs, experts said.

Said Marvis: "Sometimes people forget (the movie) plays in theaters, hotel channels, home video, pay-per-view, subscription services, then syndication. There's a long lifespan for a feature firm where it generates revenue. This sort of on-demand, Net-based delivery is another iteration of a way movies can be delivered."