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TiVo, Netflix sign movies-on-demand deal

And Mike Ramsay, TiVo's CEO, resigns from his board position at Netflix to avoid conflicts of interest.

Netflix and TiVo on Thursday announced a partnership to develop a movies-on-demand service as well as efforts to secure content from Hollywood studios.

The two companies have close ties--TiVo Chief Executive Mike Ramsay has been on the board of directors at Netflix for some time. But Ramsay on Thursday resigned from his board position, effective immediately, to avoid conflicts of interest.

Netflix spokeswoman Shernaz Daver did not divulge many details of the partnership, but said that it's a first step in a multiyear process toward delivering movies digitally over the Internet. A Net video-on-demand service will give Netflix subscribers an alternate way to rent DVDs, she said. Currently, the company only delivers DVDs via the U.S. Postal Service. For TiVo, a films-on-demand service will help populate its digital video recording service with new content, she said.

"If you look at the Internet, it's really just starting out to be a delivery mechanism for content. Long term, that's the way we think movies will get delivered," said Daver, who just joined Netflix this week as head of corporate communications. "We have a strategy to deliver movies across the Internet, and TiVo is one step in that direction."

Daver declined to specify a definitive release date for the service, but Netflix has said previously that it will have some digital distribution of films by the end of 2005. In the past, TiVo has said it's working on a video-on-demand service, too, but both companies have said they did not expect the fruits of those labors to generate significant revenue in the short term.

TiVo representatives were not immediately available for comment.

Rumors have swirled for months that the two companies would strike a deal. Building new services is crucial for both TiVo and Netflix as they confront growing competition from deep-pocketed rivals. Netflix's business is being threatened by larger rivals, including Blockbuster and Wal-Mart Stores. TiVo, which provides both DVR (digital video recorder) hardware and services, faces similar challenges from cable companies and a potential loosening of its partnership with DirecTV.

As previously reported by CNET, Warner Bros. said recently it was in talks with Netflix to license some films as part of a test run of the Internet company's upcoming movie-download service.

Hollywood's support is crucial for any video-on-demand product, because movie studios hold the keys to all-important film-distribution licenses. Warner Bros., for one, owns rights to the popular "Harry Potter" film franchise. The studio is currently a partner in Internet movie-download service Movielink along with four other studios, and it has licensed films to competing Web service CinemaNow.

Even if the studios are receptive to a Netflix deal, widespread cooperation won't be forthcoming until the DVD rental service can offer a viable content security system to protect the downloadable films in transit from being pirated--an area where TiVo has clashed with Hollywood in the past.

Aiming to tackle that problem, TiVo said recently that it will support a new version of anticopying software from Macrovision that would make recordings of pay-per-view or on-demand movies inaccessible after a set time period. Macrovision's technology also would disallow attempts to copy digital films to analog devices so that they could then be recopied into digital form for wide distribution, a workaround known as the "analog hole."

According to an industry source, Warner Bros. will test Macrovision's technology in its deal with Netflix.

Netflix also will license TiVo's proprietary content security protection called TiVoGuard to secure films for viewing on set-top-boxes, according to the source. TiVo plans to build TiVoGuard into software and set-top boxes for release in 2005. Those devices would allow subscribers to record TV programming and then send it to up to nine other TiVo boxes they own, which could be in remote locations.

Several companies are coming onto the scene to bridge the Internet with televisions. On Monday, Akimbo Systems announced that it would begin shipping set-top boxes in mid-October that let viewers download videos from the Internet and watch them on their televisions. The company also said that it licensed video clips from Time Warner's CNN and the Cartoon Network.