By Forrester Research
Special to CNET News.com
November 4, 2002, 2:45PM PT
By Josh Bernoff, Principal Analyst
Movielink, a joint venture of five Hollywood studios, is taking another step toward online delivery of movies with the adoption of digital rights management software from RealNetworks and Microsoft.
This story has all the juicy elements of a great Hollywood thriller--the grizzled old media companies grappling with hotshot technologies, the progeny of Napster hiding in the wings, even saber-rattling from the Justice Department over antitrust issues. But like so many movies these days, the flashy story detracts from the logic of the plot.
The studio executives' reasoning for Movielink goes like this: Napster and its free file-sharing sisters dented the music business. Let's devise legitimate Internet distribution for movies, with payments and digital rights protection. We'll make sure we don't get "Napsterized" and eliminate the usual middlemen--Blockbuster, HBO, theater owners--at the same time. It's a surefire hit.
Unfortunately, this reasoning is reminiscent of the old joke about the guy who looks for his keys under the lamppost, even though he lost them somewhere else. Why? "Because the light is better over here." Think of a workable movies-on-demand business model as the keys, and the Internet as the lamppost.
While the Internet looks like a manageable distribution channel, it leads to a dead end--the PC. People don't want to watch movies on PCs, with their small screens in uncomfortable settings. Running a wire from the PC to the TV--or somehow linking their TV into a wireless network--is just too much tinkering for the average consumer. Music works fine on a PC--for listening, copying to an MP3 player or burning onto a CD. But movies on a PC are big, cumbersome files, typically viewed only once, which will soon come with the added burden of digital rights protection.
So where's the business model? Cable. Already, around 9 million digital cable households have video on-demand, supplied by their cable operator with a wide choice of movies for $3.99 each. You can start, stop and rewind just like a videotape or DVD, but without the bother of a trip to the local video store. Cable is pushing video on demand like mad--within two years, Forrester expects 85 percent of digital cable households, almost 24 million subscribers, to have it available. That's bigger than broadband.
Consumers will get used to video on demand. HBO on Demand is already here--watch "The Sopranos" anytime you want. Showtime and Starz have on-demand offerings. Discovery, NBC, Fox, ESPN and A&E have contributed content or plan to. Consumers will get used to looking at menus on their cable box for on-demand viewing. And best of all, video on demand is delivered right to the TV--where people want to watch it anyway--without the need for any new technology but the digital cable box they probably already have.
If studios think they can use the Internet to deliver movies to these set-top boxes, they should think again. More than 95 percent of current digital cable boxes have no broadband connection. And for those that do, the connection is controlled by the cable operator, not the consumer; studios can't get around it.
It looks like cable operators have found the studios' keys. There's going to be a middleman for movies on-demand--cable--just as there is for every other movie distribution channel. Video on demand will make money--Forrester estimates more than $3 billion in five years, with more than half going to the studios. Free movies from the likes of Napster aren't the threat, and Movielink isn't the cure. Video on demand is where the action is. That's a script the studios should greenlight.
© 2002, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.