Studios take control

VOD Internet venture cuts out distribution middlemen

The five-studio video-on-demand venture is all about avoiding a repeat of Hollywood history, the part where the producers split product revenues with others.

The unnamed Internet venture of Paramount, Sony Pictures, MGM, Universal and Warner Bros. could give the studios direct control over production, wholesaling and retailing of their product. No letting cable operators take 45%-55% of the revenue as on pay-per-view. No letting Home Box Office or Blockbuster Video build a multibillion-dollar business on the likes of Titanic.

Details of the deal, including a name and launch date, have not been resolved. Walt Disney Co. and 20th Century Fox are not part of it, although each is reportedly close to announcing its own plan.

Under the plan, each content provider will determine its own release windows and pricing strategies. The movies will most likely be available in the pay-per-view window, after theatrical release, and the cost will likely be the same as pay-per-view. Users can keep the movie for 30 days but have 24 hours to watch it once they unlock the file, studio execs explained. The movies will have digital VCR functionality, so users can fast forward, pause and rewind.

The online venture is separate from cable on-demand deals, which are collectively negotiated through InDemand. Industry execs say the deal doesn't pose an immediate threat to cable operators' VOD plans.

Sony Pictures Digital Entertainment President Yair Landau hopes the Internet on-demand plans serve as an impetus for cable operators to accelerate their plans. "True VOD for most MSOs is still pretty far away. We look forward to the day when it's not and hope this hastens their investment and better deployment."

Said Paramount President of Worldwide Pay TV Jack Waterman, "All the studios will do deals with cable because they think it's the right thing to do." He noted that the broadband pact in nonexclusive: "We want to be distribution-neutral."

Supporters of cable VOD acknowledge its limited availability but believe it has more short-term potential than broadband delivery. With a high-speed connection, it could take 20 to 40 minutes to download a two-hour movie to a PC, whereas cable on-demand is instantaneous.

With both cable and Internet delivery, the studios are trying to avoid a Napster-like piracy. "We couldn't let happen to us what happened to the music industry," said Jack Valenti, president of the Motion Picture Association of America.

The studios are developing their own encryption technology to safeguard broadband content and control distribution. They did not divulge how the protections will thwart pirates but said they won't roll out the broadband delivery until they find the right technology.