Online Onramp

Until recently, the idea of distributing current movie releases online or via mobile-phone handsets was enough to give your average studio executive an acute anxiety attack. Why would Hollywood want any part of the suffering inflicted on the music industry by unauthorized digital distribution?

These days, though, it seems that movie studios and other film rights-holders are ready to experiment with direct-to- consumer digital sales, at the very least to ensure that their sector does not travel down the same road.

"If you look at the music industry, digital is still a very small percentage of the total legal market, and a lot of that percentage is at the expense of CD sales," says Mark Mulligan, vp and research director at U.K.-based JupiterResearch. "We still don't know whether online music will be cannibalistic or grow incrementally — that's why there's a lot of test activity in the movie industry."

In February, Warner Bros. Home Entertainment Group and German wireless-platform developer Arvato Mobile established the joint venture In2Movies. Said to be the first of its type, though similar to an enterprise Warner Bros. once undertook with the controversial file-sharing network BitTorrent, In2Movies exploits the peer-to-peer technology that allows pirates to distribute unauthorized content worldwide at the speed of light.

In2Movies protects the copyright of each movie or television program by maintaining a centralized, secure version, and while customers can download content to own or rent, copies can be made only with the consent of rights-holders. Films such as 2005's "Batman Begins" and "Harry Potter and the Goblet of Fire" and TV series including "Friends" and Fox's "The O.C." were among the 80 Warner Bros. titles immediately downloadable to PCs in test markets such as Austria, Germany and Switzerland, with third-party and independent titles set to be added at a later date.

"In the months ahead, we will leverage this technology to better service markets around the world," WBHEG president Kevin Tsujihara said when In2Movies launched.

Also testing new distribution strategies is Universal Pictures U.K., which partnered recently with European online physical-DVD rental outfit Lovefilm to launch a download- to-own service. The company made Peter Jackson's 2005 "King Kong" remake available on DVD, as well as digitally on PCs and portable devices, for £19.99 ($36.84).

In addition to thwarting Internet pirates, such commercial efforts demonstrate that movie distributors wish to be prepared for fast-growing viral video services such as Google Video, Yahoo! and YouTube — broadband Web-based operations that are becoming powerful enough to transmit full-length videos and features anytime or anywhere.

The research firm Market Intelligence Center predicts that the number of worldwide mobile-phone users will increase from 2 billion in 2005 to 3.3 billion in 2010 and that subscribership to high-speed 3G mobile phones will reach 296 million by next year. Moreover, the popularity of videos on iPods indicates that consumers are keen to watch some type of film while on the move.

Paul Jackson, an Amsterdam-based principal analyst at Forrester Research, believes that technology is leading the mobile film-distribution business model at this early stage.

"In the case of mobiles, it is driven by operators who want to generate more money from consumers," he says. "But it shows the studios are open to experimentation."

How do exhibitors feel about the new scenario, which has illustrated that film distributors are willing to challenge DVD and pay-per-view windows?

"We're in the out-of-home entertainment business," says Tim Richards, president and CEO of U.K. cinema chain Vue Entertainment. "I don't believe there is a market for people to watch a 1/4-inch-high King Kong."

That might be true, but Simon Morris, Lovefilm's London-based marketing director, argues that exhibitors actually might benefit from online and mobile movie distribution. Lovefilm operates the online video rental store Odeon Direct with U.K. exhibitor Odeon Cinemas.

"They are quite progressive," Morris says of Odeon. "Their view is this: If people are watching DVDs outside of the theaters, we might as well have a share of those customers."

He adds that pay TV operators must worry most about online film distribution, asking, "Why pay £40 ($74) a month for a premium channel to see a movie that will be six to 12 months out of date?"

— Juliana Koranteng