By Chris Marlowe

Intertainer, a pioneer in Internet on demand entertainment, said it will halt operations Wednesday while its antitrust lawsuit against the major studios plays out.

In an open letter to the company's 147,000 subscribers, chairman and CEO Jonathan Taplin promised to return. He blamed the hiatus on the anti-competitive environment fostered by having too few companies controlling the entertainment business and suggested that concerned individuals write to the FCC and the U.S. Department of Justice.

The closely held Intertainer filed suit Sept. 23 in the U.S. District Court for the Central District of California in Los Angeles, accusing Movielink and the film units of Sony, Vivendi Universal and AOL Time Warner of price fixing, conspiracy, reneging on licensing agreements and other activities in an attempt to stifle competition (HR9/25).

According to Taplin, the advances Intertainer paid were predicated on the studios making 200 films a quarter available for IP (Internet Protocol) deliver, but they actually were only providing about 10. "We came to understand that this was going to be a long, protracted lawsuit ad that it didn't make any sense to have a business model that was underwater - the gross margins were negative," Taplin said Thursday. "The more movies our customers watched, the more money we'd lose."

He is confident that Intertainer will be back up and running after the legal matter is resolved. "I think we're going to win the lawsuit because in the history of antitrust litigation against the studios, they've lost every time," Taplin said. "Whenever they try to vertically integrate and own everything, the government slaps them down."

He added that Intertainer has enough funding to survive at least three years. In the meantime, 10 of the company's 15 employees will be laid off, effective Oct. 25. All of the company's services, including supplying video-on-demand to Comcast, will be shuttered.

Taplin said that more than his company's future is at stake. "This is part of a much bigger question," he said. "Five companies controlling all the movies cannot be good."

Increasing media concentration, he added, was leading to homogeneity in what was available to the public. He recalled that Atlantic Records was able to take a chance on a then-risky Aretha Franklin back when it was an independent. "It didn't have a corporate bottom line; it only had a heart," he said. "I don't see that sort of thing happening anymore."

Other companies that deliver movies over the Internet were less certain that Taplin's company will return. MovieFlix co-founder Robert Moskovits said Intertainer's problems were the result of a fundamentally impossible business model.

"They licensed movies upfront," Moskovits sais. "We don't do it that way. We use a royalty pot method: Give us your film, you'll get a percentage of the number of times your movie is watched, and hopefully we'll all make money."

Moskovits said he did not believe that Intertainer's situation boded ill for the concept of delivering VOD over the Internet. The 4-year-old MovieFlix has 750,000 registered members, 6,300 of whom subscribe to premium MovieFlix Plus service launched a year ago. Unlike Intertainer, however, it does not provide content from the major studios in its library of 2,500 movies in all genres.

CinemeNow CEO Curt Marvis similarly declined to read Intertainer as a negative forecast. He said CinemaNow adds new customers and new content every month. "IP-on-demand is about to be a real business, and it's going to continue to be a real business with enough room for many companies," Marvis said. "We're going forward and working with the studios, and we see a future where we can continue to do that and make CinemaNow successful."

He had nothing but praise for Intertainer, particularly for its role as trailblazer, and added that there was no reason to read anything of larger significance into its problems. "It's not going to change a single thing that we're doing," Marvis said.