Commentary: Movie Downloads: Why This Model Won't Workby Michael Greeson

On April 3, six major Hollywood studios announced plans to sell movies over the Internet—not rentals, mind you, but purchases of full-length movies in digital format that consumers can download and watch anytime they chose.

This was heralded as a "watershed moment" for Movielink and CinemaNow, the two online movie services that will be selling these video downloads. Movielink offers some 300 titles for purchase, while CinemaNow lists about 75 titles. (These are just initial offerings.) Pricing for new titles is $20-$30 per download, while older titles cost around $10.



SO WHY WON'T IT WORK?

While it is noteworthy that Hollywood is finally ready to release its most prized content for Internet distribution, the model wrapped around this effort will ultimately undermine its chances of success. I will discuss two of the many reasons why this model will prove ineffective and require a significant overhaul within the first 12 months of operation.

1) Paying 99 cents for a song or $1.99 for a TV program is not analogous to spending $20-$30 for a digital copy of a movie. The studios are only too eager to point to the success of iTunes as proof of concept and to validate market timing. Yet the most relevant insight the iTunes experience offers is the one Movielink and CinemaNow are ignoring even before they sell their first download: Determine the lowest price point needed to sustain the business model, and then go one step lower. This holds for almost any Internet vendor, but certainly applies to novel Internet-based media services.

Why pay 2X for a book at Barnes & Noble when you can get the same book at Amazon.com for 1X? Why pay $16 for a new CD at Best Buy when you can get the same 10 songs for 99 cents each at iTunes? Why pay $16 for a DVD at Target when you can pay $30 for a movie download at Movielink? Oops, that didn't work out so well.

Little wonder this strategy appears so counterintuitive. Movielink and CinemaNow are (a) rationalizing their new services by appealing to a business model that is but dangerously analogous to their own, yet (b) ignoring one of the key assumptions that has made this business model such as success—that is, pricing content below that of comparable retail products.

2) The usage models that Movielink and CinemaNow permit are severely restricted. Movielink allows consumers to download the digital movie file to their PCs, copy it onto a DVD and download the DVD content onto two separate PCs. However, this DVD copy cannot be played on a regular DVD player except in those cases where the living room TV is connected to a home network.

CinemaNow is even more restrictive, only allowing the digital movie file to be played on one PC. No copies of any kind are allowed.

Are you kidding me? Why would I pay twice the price of a DVD to go through the hassle of downloading a digital movie file that can be viewed only on a PC? Movielink and CinemaNow (and the studios that dictated these business models) either believe (a) they can convert the current audience of online movie renters (those who pay $2-$5 for a rental download) to online movie buyers (at $20-$30 a pop); or (b) they can attract a new audience of users who, though not current online movie renters, will be eager to spend $20-$30 for a digital movie file they can view only on their PC.

Think of the collective mind-set, the group-think behind this strategy.



PARTING THOUGHTS

Can we be frank? If you want me to use the Internet as an entertainment conduit and the PC monitor as a viewing screen, you have to make the experience more compelling than my traditional media experiences—or make it virtually risk-free by setting the cost of this experience well below my traditional media experiences.

The strategies of Movielink and CinemaNow fail on both accounts. First, the content is not uniquely compelling; in fact, the movie titles look very similar to what I will see at my local retail store. Second, the $30 price tag is significantly higher than a DVD from my local retail store, yet I can view it only on my PC. In other words, you are asking me to take a greater risk to try out this new media experience.

These sticking points (among others) will confine the use of such services to a small group of consumers who already rent movies from these services and are willing to try the purchase option. That's hardly the market that could have been tapped if the Internet connection that enables these services could make it to the TV set—but that's another issue. ••••



Michael Greeson is founder and CEO of Diffusion Group, a Plano, Texas-based strategic research and consulting firm.