Roadblocks, new ideas in video-on-demand biz

Netflix puts its film download plan on hold, while Comcast tries new ideas to woo Hollywood to on-demand viewing.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
Apple Computer's glitzy entrance into the digital video business has helped shake up the industry, but companies seeking rights to distribute full movies to consumers via the Net remain stymied, at least for now.

Netflix Chief Executive Officer Reed Hastings said earlier this week that his company's long-planned download service, widely expected to be operated in conjunction with TiVo, would be put on hold indefinitely until more content is available.

Cable giant Comcast is also seeking movie-download rights that are more favorable than the rights that cover traditional pay-per-view films or short-term downloads, neither of which are available until six weeks or more after DVDs are released. The company is pressing studios to let it give immediate on-demand film access to anyone who buys the DVD.

Comcast cautions that it has no immediate plans to offer this service, and that any new features will depend on licenses from the studios.

"There are a number of ideas that are being looked at, and this is one of many," said Jenni Moyer, a Comcast spokeswoman. "There still is a lot of room for talks and discussions, but there's nothing definite."

Companies like Comcast, Netflix and even Apple are running up against a long-standing system of Hollywood film release windows, historically meant to keep movie theaters, television networks and movie rental outlets from competing directly against one another.

This complex system, in which movies are released first in theaters, sent to home video, allowed on pay-per-view television and finally broadcast on network television, has generally been good for those distributors.

But companies that want to provide downloadable movies, or digital on-demand movies, as a direct substitute for DVD purchases or rentals, have found themselves left out in the cold. Today, they are pushed into the pay-per-view window, when movies have long been available on DVD.

That's not attractive enough to build a real business, Netflix's Hastings told financial analysts Wednesday. His company had said last year that it was building a video download service in partnership with TiVo.

"We are going to hold off on the launch of our movie download service," Hastings said. "We will continue to enhance our technology and infrastructure and will be ready to quickly launch when the content climate begins to thaw."

That thaw could come in "two quarters or 20 quarters," Hastings added.

The Comcast idea, which would essentially turn the cable company into a DVD retailer, is similar to business models floated in the digital music industry, before Apple's iTunes made instant digital downloading commonplace.

The original MP3.com temporarily offered consumers who bought a CD at Tower Records or other online stores the ability to listen to the album online immediately, while it was being shipped to them. But the company was ultimately sued by record companies for creating a database of CDs without permission. (The MP3.com domain is now owned by News.com publisher CNET Networks, which uses it for a different service.)

Comcast's new proposal would let customers buy a DVD through the cable service on the day it was released, for the regular retail price. The viewer would then be able to immediately watch the movie through the on-demand video service.

The cable company hopes this will assuage Hollywood studios' fears that on-demand viewing, which typically costs just $3.99 or $4.99 per movie, will wipe out the $17 DVD sales that have buoyed the studios' bottom lines for several years.

Several movie studios were contacted to comment on Comcast's proposal, but they declined.

Despite the ongoing freeze in direct digital distribution of studio content, there have been some signs of thaw. Disney Chief Executive Officer Robert Iger told financial analysts several months ago that he believed the current film release windowing system has to change, potentially even to the point where DVDs could be released at the same time as movies reach theaters.

"All the old rules should be called into question because the rules of consumption have changed so dramatically," he told financial analysts. The proposal drew immediate cries of protest from theater owners.

However, continued pressure from the likes of Comcast, Netflix and Apple could help widen these cracks more over time, the executives say.

"You might think of Comcast, MovieLink and Apple as our potential competitors, but they are for now our allies," Netflix's Hastings said. "We all four want broad, nonexclusive licensing of movies, as with music today."