Legal DVD downloads to hit U.S. shores?

Amazon, CinemaNow and others may soon be able to sell digital versions of movies online.

An ambitious experiment with selling big-studio movies over a file-swapping network in Germany may portend new kinds of online movie sales in the United States--and give Microsoft new allies in its battle with Apple Computer.

Warner Bros. Home Entertainment said Monday that it would launch a peer-to-peer video download service in Germany beginning in March, using Bertelsmann-created file-swapping technology to sell movies online at the same time as they're released on DVD.

The service is being launched in Germany first, in part to address that market's rampant piracy issues. But similar services are likely to emerge in the United States from companies such as Amazon or Best Buy, said Warner Home Video President Ron Sanders.

"We don't know how big a market this is going to be in the U.S.," Sanders said. However, he added, "Amazon is a big existing customer, and it would be natural for them to evolve into a download model."

Warner has had "preliminary discussions" about selling movies by direct download over the Internet with all of its major retail customers, but has not yet signed deals, Sanders said. An article in Variety last week reported that Amazon was in discussions with studios and might launch a video download service as early as April.

Studios have been wary of digital download services in the past for several reasons, citing concerns about content protection, and about cannibalizing the DVD sales that have bolstered Hollywood bottom lines for several years.

However, the release of Apple's iTunes video sales service, and the ensuing enthusiastic response from consumers, has helped thaw studios' reluctance, industry insiders say. TV shows are now widely and legally available online from Apple and Google, among others, and big-budget movies may be on the way.

"The studios are certainly in the last few months taking a much more active look at digital (download sales)," said CinemaNow President Bruce Eisen. "Once Apple came out with video offerings, that's when studios really started looking at it more seriously."

The Warner service in Germany is based on file-swapping technology created by Bertelsmann, which could also be used for a United States service, the company said. It will launch in March.

However, it will also distribute the movies in Microsoft's video format and digital rights management software, indicating a growing level of comfort among studios in that format. Although there are several video-on-demand services, such as CinemaNow, that allow customers to download movies to watch for a short period of time, there are no services in the United States that allow permanent purchase of films encoded in Microsoft's format.

Microsoft has now shown that the strength of its rights management software is adequate for releasing films, the Warner executive said.

"We're very confident in that," Sanders said.

The emergence of Microsoft-allied services in the United States would almost certainly lead to a struggle between incompatible digital movie formats like the one that exists in the digital music business now. Apple distributes its films in the MPEG 4 video format, but wrapped with its own proprietary copy protection software.

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