Film Studios (slowly) Explore P2p Delivery

Big film studios, wracked with content protection concerns, have been slower than any of the major content industries to take strides in digital delivery. But the latest round of studio news reveals they are taking some digital baby steps.

In March, a joint venture between Warner Bros. Home Entertainment Group and German company Arvato Mobile will bring select European consumers a new option called In2Movies, a peer-to-peer delivery system for films. Movies will be available day-and-date with physical DVDs, the price still to be determined.

Other major studios, most notably Fox, are also exploring their own digital sales initiatives.

Studios report that it is critical to explore new distribution methods. "We are always seeking . . . opportunities to make the studio's content available to audiences through as many channels, platforms and devices as possible," Warner Home Video president Ron Sanders says.

The key for studios will be making a legal P2P experience with digital rights management more attractive than illegal P2P, which has a leg up in attracting consumers.

Sanders says that according to Warner research, 1.7 million Internet users in Germany—where In2Movies will debut—downloaded 11.9 million movies, and that 20% of illegal downloaders do so on a weekly basis. He also notes that 73% of these illegal downloaders are interested in using a "paid-for" movie download service.

In2Movies—which utilizes a P2P architecture similar to BitTorrent—is intended to balance the speed and convenience of a P2P with the security of DRM-protected content.

Peter Levinsohn, president of digital media and worldwide pay TV for Fox, says that creating the right content protection system is the biggest challenge going forward with the company's electronic sales service.

"The first thing to do is to get the quality down," he notes.

In the future, legal P2P may edge illegal counterparts by offering "a different product than the physical DVD," Levinsohn says. "We'll look at adding bonus material, menus and high definition."

Though Levinsohn would not reveal any details about Fox's service, he did say it will be introduced domestically in the next six months.

Industry executives are also concerned that the day-and-date release policy of these services will cannibalize physical DVD sales. Electronic distribution of films on DVD, through video-on-demand or pay-per-view, does not typically occur until much later in a film's release cycle.

Studios, analysts and retailers agree that a distribution shift is unlikely anytime soon given the $16.3 billion value of the physical DVD business last year, according to the Digital Entertainment Group. In fact, the industry's biggest debate now is over which physical, next-generation DVD product is best for the market.

"Consumers are used to the DVD format and will take a long time to shift behaviors," Virgin Megastores national DVD manager Chris Anstey says. "But with the market for DVDs having plateaued, studios are looking for opportunities to continue to grow the home video business."

Levinsohn echoes the sentiment. "Our goal isn't to replace one business with another," he says. "It's to expand the pie."

In the United States, potential business for digital film sales is growing. Jupiter Research analyst Todd Chanko notes that there are 49.4 million broadband households in the country—44% of all TV households. That is more than half of the 82 million DVD households in the United States, according to 2005 year-end statistics from the Digital Entertainment Group.

In2Movies will also be available in Austria and German-speaking Switzerland, but is ultimately a test for Warner. Jupiter Research reports that Germany only has 8.1 million broadband households—21% of its TV households.

Sanders says that Warner will evaluate "international expansion opportunities for the service over time." ••••