New methods eyed for buying movies

Everyone's got used DVDs. A start-up is offering a new way to sell them. But other companies are getting rid of the disk entirely.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
6 min read
Want to get rid of that old DVD box set of "The Best of Barnaby Jones?" Peerflix has the site for you.

The Menlo Park, Calif., company has created a site at which consumers can trade their old DVDs with one another, thereby stretching their entertainment budgets and clearing out clutter.

Peerflix is one of a number of outfits determined to change the way consumers get their movies. Inspired in part by the success of rent-by-mail pioneer Netflix, a crowd of innovators is stepping forward to prove there is still lots of fat that can be trimmed from the system. Besides offering movies for less, many of these companies hope to exploit the blandness of cable outlets by linking up with producers whose movies, for whatever reason, never clicked with the public at large, but which may still appeal to aficionados of particular niches.


What's new:
The world of movie distributing has a flurry of new entrants--following Netflix--who say they can deliver a greater variety of movies to consumers, at lower prices, in more convenient ways.

Bottom line:
These upstarts face financial challenges as they try to get licenses from content providers, forcing at least one of the newbies to deal only in adult films for now. Still, Net video entrepreneurs are countering the hard economic realities with creativity and optimism.

More stories on the movie industry

"Five to six studios account for 90 percent of the box office but only 50 percent of the movies made," said Jim Flynn, chief executive of EZTakes, of Easthampton, Mass., which has created a service in which consumers legally download movies to PCs, where they can burn them to disc. "Rights holders set up their own DVD download store."

At the same time, Hollywood itself--determined not to make the same mistakes as the music industry--has begun experimenting with new distribution models.

Four of the biggest studios jointly back Internet movie download service MovieLink, and Disney has launched trials for an over-the-air download service called MovieBeam.

In addition, cable companies, including Comcast, now offer video-on-demand services as part of their digital cable packages.

The presence of industry giants hasn't deterred a flurry of upstarts, however, who see the studio efforts as half-hearted at best. Start-up Akimbo Systems sells movie downloads over the Internet for playback on PCs, and currently offers some 25,000 titles, mostly from smaller independent or obscure studios. Akimbo recently unveiled a set-top box, allowing delivery and playback of movie downloads on a television rather than a PC.

Netflix, too, hopes to evolve past its dependence on the U.S. Postal Service to become an Internet-powered service. The company late last year announced a joint venture with TiVo to create a movie download store. Executives at music download pioneer Napster have also set their sights on a video service, CEO Chris Gorog told a crowd at the Cannes Film Festival in January.

Is porn the only moneymaker?
Video on demand and current download services, however, aren't exactly consumer-friendly, argues Flynn of EZTakes. Consumers have to get a special set-top box, watch movies on their PCs or "have an engineering degree." His company's service allows consumers to own the movie by burning their own discs, while producers cut costs associated with packaging and inventory.

Flynn estimated that roughly 20 million households in the United States have DVD burners and high-speed network connections--and therefore could take advantage of the system.

But connecting the Internet and TV sets isn't the only hurdle for new video services. Another problem is getting quality content at rates that

leave room to make money, according to cash-strapped entreprenuers. That's forcing many to bank for now on adult entertainment, while they wait for mainstream content producers to loosen up licenses.

Start-up ObjectCube developed Internet video-on-demand technology more than three years ago, and several film studios and distributors already sell and deliver movies through the company's software. None, however are mainstream.

Brave new box office

Companies are popping up with innovative methods of delivering movies to viewers. Here are a few.

Akimbo Systems
Customers can: Buy movie downloads for playback on TVs (via an Akimbo set-top box) or PCs.

Customers will be able to: Download movies to PCs and burn them to disc. (Service is currently available only as part of a test.)

Customers can: Rent or buy movies for playback on TVs (via a set-top box), PCs or Xboxes. Movies can be downloaded, streamed or delivered via disc. For now, only "adult" films are available.

Customers can: Trade used DVDs via the Web.

"It is all adult," said CTO and founder Jay Janarthanan, who formerly worked at Sun Microsystems and Reuters.

With ObjectCube, film distributors can either sell entire movies or charge customers on a per-minute basis. Using a per-minute fee structure "works on adult because no one cares about the plot," he said.

The company never intended to target the adult market. Janarthanan founded the company in 2002 and conducted several painstaking meetings with the major studios.

"I gave up in frustration. They stall and stall and stall," he said.

After running through most of his savings in less than a year, Janarthanan found himself headed to Las Vegas to explore the adult technology conferences that take place around the same time as the Consumer Electronics Show. Adult entertainment companies latched onto the idea immediately.

While the system is popular with adult studios because it allows consumers to buy materials without leaving their homes, there are other, less obvious reasons for ObjectCube's success in this niche. Mainstream studios demand the lion's share of revenue garnered from their DVD sales. By contrast, adult studios only get about 10 percent of the revenues, leaving the rest (and fat profit margins) for film distributors and broadcasters.

Adult sites have been using the software for more than a year. Mainstream studios won't likely adopt this sort of technology for selling movies for three years, Janarthanan said.

Despite the obvious difficulties, Net video entrepreneurs are countering hard economic realities with creativity and optimism--and winning over some investors.

Although consumers already have a number of ways to get DVDs, Peerflix says its growth shows that the model can be improved. There are roughly 25,000 titles available on the network. Earlier this week, venture capital firm 3i and BV Capital announced they were investing in the company.

The network in some ways harks back to the economies of medieval Europe. Technically, consumers don't buy (or sell) used DVDs on the network. Instead, they create lists of movies they want, and movies they want to trade, and then exchange them for "peerbucks." The peerbucks can then be traded for other DVDs, according to Danielle Levy, a Peerflix representative.

DVDs on the network cost 1, 2 or 3 peerbucks, depending on consumer demand and available supply. Consumers can buy peerbucks from the company for $9 each, but most people prefer simply to trade in that old "Men in Black" DVD for a copy of something equivalently priced, such as "Men in Black II," she said.

Peerflicks makes its money by charging the person acquiring the movies 99 cents per transaction, she said. It's illegal to trade unauthorized pirate disks on this network.

Peerflicks was founded by Danny Robinson and Billy McNair in late 2004. The two were earlier behind Spinway, a free ISP service from the go-go dot-com days.

Peerflix is up and running, but EZTakes won't go commercial until the spring. Currently, two film distributors are conducting trials. Another is tinkering with the idea of using this technology as a way to disseminate the 250 movies and documentaries on the film festival circuit that rarely reach the public.