INTERTAINER SHUTS; CEO VOWS RETURN
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.