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Extending an olive branch to file swappers?

Cdigix's Brett Goldberg thinks cut-rate subscriptions can tap into the enormous demand on campuses for movie and music downloads.

For the last year, a handful of companies has offered college students cut-rate music subscriptions on campus, looking to wean them from the free file-swapping networks.

Cdigix, the lone company wholly focused on this business, is now expanding into video services, hoping that movie studios see the same benefits as record labels in extending an olive branch to file-swapping students.

So far it has been a tough sell. Record labels are giving Cdigix and others wholesale discounts, and that means legal digital music can be extraordinarily inexpensive--and sometimes even free--on campuses. For their part, the Hollywood studios aren't yet proffering the same deals, and that means that downloading a movie online is no cheaper than going to the local Blockbuster.

But Cdigix founder and President Brett Goldberg believes that movie studios are starting to change their tune. He's already cut a few deals with studios and now offers movies from Walt Disney and Turner Broadcasting. Over the next year, he thinks other studios will see the advantages of extending attractive terms to students, and so be willing to offer him better terms.

That wouldn't necessarily guarantee the equivalent of hitting a home run. Some students are quick to adopt subsidized services on campus, but others have protested the use of their fees for online music. Nor is there any guarantee that when they leave campus, they won't be recaptured by the allure of file trading.

For now, however, Cdigix, which has a presence on 21 campuses, may be the closest thing to a bridge between campuses and Hollywood's version of acceptable movie watching. CNET News.com talked to Goldberg about what he's seeing on college campuses today.

Q: You've been doing music services on campus for a while now. What are you learning?
Goldberg: There are a couple of things that are indicative of the trend we're seeing. We offer two components to our services, subscription and per download offerings.

That's pay per download?
Goldberg: That's right. So far, the results seem to indicate that the subscription downloads, the tethered download service, is being used with much more frequency than the permanent downloads. Second, when a university is able to subsidize the service, the usage rates are certainly better.

When a university subsidizes the service it really makes a big difference.

That's particularly true where the student government was the one to subsidize it. That seems to have the potential to work the best, because...the student leaders out there on campus marketing the service for you.

What is the sweet spot in terms of price?
Goldberg: Again, what seems to be emerging is that when a university subsidizes the service it really makes a big difference. That said, our services are typically priced at about $3 per student per month. By and large, we've heard from students and from administrators that that works. It is certainly an acceptable price point, given that we're still in the early days.

To be clear, that's $3 a month for access to all the music they want.
Goldberg: That's right. On a tethered download basis. They cannot burn that music to disc or export that music to a portable device.

My understanding is that you're able to offer that low price because the record companies are cutting you a deal on the wholesale prices. Is that right?
Goldberg: That's right. The music industry, by and large, has been pretty open about the fact that the college marketplace is important to them. They started sending cease-and-desist letters to universities four or five years ago. So that trend has really stressed the importance of the college demographic as part of their strategy for getting people to use the services they should, and getting them away from the services they shouldn't. They've been generous and flexible in the deals they've worked with us.

How much of a discount are they giving you, compared to the commercial services like Napster or MSN Music?
Goldberg: Well, I should hold off on saying specifically, but you can kind of look at it in the sense that the typical standard price of our service is $3.49 per student today. When you look at the mainstream market prices, they start at a minimum of $7.99 and go to $9--if not higher. So the price break on the subscription experience is substantial.

We don't have iPod compatibility, but the deals we're putting together with device manufacturers will be a great response.

You're not getting a price break on per-download songs?
Goldberg: That's right. We offer permanent downloads on an 89-cent basis and albums at $9.99, but that's a choice we're making. It doesn't reflect any scaled-back economics on the label side.

Do you plan to move to portable downloads, with Microsoft's Janus software, like Napster to go?
Goldberg: Absolutely. It's on the very near horizon.

Given how popular iPods are on campus, how will it work for you not having iPod compatibility?
Goldberg: Stay tuned. We don't have iPod compatibility, but the deals we're putting together with device manufacturers will be a great response. I've spent a lot of time playing with these devices, like the iRiver H10 and the Creative devices. These are very strong products and certainly comparable with the iPod today.

To be clear, you're saying that the combination of the downloadable subscription and these new devices will be competitive with the iPod?
Goldberg: That's correct. It's a situation where we are coming up with a response at a period of time when Apple has decided to be proprietary in the way they distribute their files.

The record labels have made a big effort to get into the college market. Now you're moving into video as well. Are the movie studios working with you? Do the movie studios have the same concerns about educating students?
Goldberg: Absolutely. More and more when you talk to school administrators, they say that the letters they're seeing are from the MPAA (Motion Picture Association of America), not the RIAA (Recording Industry Association of America). That's a trend that's changed this year. In our conversations with the studios, we're finding them to be more and more cooperative and more and more supportive of working with distributors like ourselves.

You have a few deals already with Disney and a few others. What do those videos cost now?
Goldberg: It's $1.99 for direct to video and library titles and $3.99 for new titles.

So it's still pretty comparable to going out and renting a movie?
Goldberg: It is comparable. So far we haven't been in a position where there is any additional discount or different discount being offered because we are a college service. But those conversations are happening, and I'm optimistic that at some point in time there may be some discounts realized, given the importance of this audience, and the potential. The poor college student does seem to be somewhat of a reality.

So you ultimately expect to have a full CinemaNow-type range of content?
Goldberg: That's one of those things we're going to see. I'm pretty focused on not just doing studio deals that would put us in the position of just offering the same catalog that MovieLink does. I'm certainly interested in working with Hollywood, and I'm optimistic we'll get more deals done this year. But the situation with us is doing it on the right terms.

I think it remains to be seen, but given the way conversations have evolved, I think there are several deals that could be done with studios that would not just be deals, but would be deals that would get college students using our service in a high volume.

So the idea is to be cheaper than
Goldberg: I think the cost component is something to consider. I think there are three things that need to be evaluated by studios as well. One is cost. Two is business model. What is the right model? Is it pay-per-view? Is it subscription? What is the right way to package? Then you have other considerations. Our pay-per-view films are available on a 24-hour basis. Is that right, or should there be 48 hours or longer?

So there is an evolution that needs to happen on a price basis, on the business model basis, and on a user experience basis. When all that's combined, those are the kind of deals we want to get into.