Microsoft, CinemaNow show VOD service

Marina Del Rey, Calif.-based CinemaNow said the application, dubbed PatchBay, can be licensed to distributors who want the necessary ingredients to manage a Web-based video-on-demand service, including content distribution, digital rights protection, targeted advertising, as well as pay-per-view and subscription services.

CinemaNow said PatchBay is built on Microsoft's Windows operating system and can be used to support Windows Media audio and video technologies. PatchBay also offers Microsoft's digital rights management (DRM) technology so distributors can select their own rules for their content, such as the type of payment system or the number of times that it can be viewed.

PatchBay signals CinemaNow's latest effort to capture revenue and strengthen its position in the video-on-demand market. A few weeks ago, CinemaNow launched a pay-per-view service of selected feature films in a downloadable format. Prior to the launch, the company only provided streamed content. In addition, CinemaNow relaunched its Web site last month with a custom version of Microsoft's Windows Media Player.

Richard Doherty, director of research for The Envisioneering Group, a Seaford, N.Y.-based research firm, said he expects PatchBay to be "well-received" because it enables people to use Microsoft tools without directly having a contract with Microsoft. In addition, Microsoft also has an added advantage.

"It's a way for Microsoft to discover how popular those tools are without making it Microsoft, Microsoft, Microsoft," Doherty said. Microsoft "would love to have CinemaNow be the vanguard leader for a new generation of sanctioned, approved digital movie-on-demand sites and services."

The announcement comes as Hollywood is launching its Web-based video-on-demand efforts, with two groups of studios backing different plans in the past two months. Walt Disney and News Corp.'s 20th Century Fox teamed up this month, following a deal in August between Metro-Goldwyn-Mayer, Viacom's Paramount Pictures, Sony Pictures Entertainment, Vivendi Universal's Universal Studios and Warner Bros., a unit of AOL Time Warner.

Web-based video services are seen as a distant competitor to alternate distribution platforms that aim to pipe movies over television cable networks to television sets via a set-top box. But they may offer the studios additional leverage in ongoing negotiations for distribution with the cable networks.

Microsoft sees the launch of PatchBay as an example of how companies are building new services for consumers, particularly in the area of video. The software giant said what CinemaNow has done shows how Windows Media technologies can be a platform that other companies can build on top of and be able to build new services with.

PatchBay "underscores how we're about enabling a broad spectrum of choice on the Internet for the use of both digital audio and digital video," said Michael Aldridge, lead product manager of the Windows Media Digital Division at Microsoft.

CinemaNow said it launched PatchBay to build its brand as well as expand the company's reach, especially to other countries. The company said that depending on the deals it strikes with distributors, it will also supply them with films to help them "jump start" their own video-on-demand service. Such films include those that the company has currently available on CinemaNow as well as content that is specific to a particular country, such as a German-language film that might have been successful in Germany but didn't play in the United States.

Although CinemaNow is majority-owned by Lions Gate Entertainment with investors that include Microsoft and Blockbuster, it has yet to strike a deal with the major Hollywood studios. Jarvis Mak, an analyst at measurement service Nielsen/NetRatings, said such deals are important for video-on-demand companies such as CinemaNow, so they could obtain films that people actually want rather than those they have never heard of.

"If you're going to license your technology, you need a technology that will have a broad reach," Mak said. "If you have B-movies, that does not have a broad reach; no matter what you do, you have to have some kind of compelling content that will make your return on the technology licensing beneficial. Obviously, if you don't have that wide reach, then you're not going to get that return."

Mak added that for Microsoft, this launch shows how the software giant is trying to work its way to all the different angles to make sure the company can get a piece in wherever the DRM industry is headed. He said Microsoft has long been involved in DRM so getting involved with CinemaNow is "probably almost like a stepping stone for them to see what it would be like."

While analysts agree that it remains to be seen whether video-on-demand services will take off, CinemaNow is betting that such services will become mainstream. The company said it is currently in negotiations with content providers in about a dozen different countries as well as companies that are suppliers of broadband content, such as ISPs and broadband service providers.

"The time is ripe for video-on-demand to emerge as a real business," said CinemaNow's Chief Executive Curt Marvis. "I don't know if the floodgates are going to open next month, but I think you'll start to see the floodgates open over the next year or so."