Web Movies Ready for Prime Time

With better picture quality and content, Vudu and Netflix compete with VOD

Using the Internet to deliver movies to the living-room TV took another step closer to mass-market reality last week. With Vudu and Netflix having made significant improvements to their online offerings, both could now be more competitive with the video-on-demand services offered by cable operators, as well as the long-established home-video business of renting movies on optical discs.

Vudu, which uses a proprietary Internet-connected set-top box to facilitate on-demand viewing of 10,000 movies and TV shows, introduced a new 1080-line progressive (1080p) format called HDX that will dramatically improve the picture quality it currently delivers for HD movies. Netflix has been providing instant streaming of 12,000 movies and TV episodes to subscribers to its DVD-by-mail rental service. Now the company has reached a deal with premium cable programmer Starz Entertainment to carry Starz movies and TV shows on its online service.

While pay-to-download services like Apple's iTunes online store have sold millions of TV shows and movies for viewing on PCs and laptops, most industry insiders think the market for viewing full-length movies on a computer remains relatively small, limited to college students who don't own a TV and frequent business travelers who spend lots of time on airplanes.

Thus, Microsoft, Apple and other computer companies have developed “media extender” devices that connect to a home router on one end and the living-room TV on the other, letting consumers watch Internet-delivered video on the TV screen. Digital video recorder vendor TiVo has also incorporated a broadband connection into its late-model boxes that lets subscribers watch Web video on their TV and order on-demand movies through Amazon's Unbox service.

Before all this, it was easy to discount the mass-market potential of Internet-delivered movies. Early “media extender” devices were difficult to set up, home networks were still rare and broadband speeds remained slow. But with more and more homes receiving broadband service at 5 megabits per second or higher and being outfitted with a home router to share that high-speed connection, using the Internet to deliver movies and TV shows is looking more viable, even for high-definition fare.

'A Stake in the Ground'

That's why Netflix, which offers some 100,000 DVDs by mail through its subscription-based movie rental service, added an online streaming component in January 2007 “to drive a stake in the ground for digital delivery,” says Netflix spokesman Steve Swasey. The “instant streaming” service gives Netflix subscribers paying $8.99 a month and up unlimited access to movies and TV shows, including new primetime fare from CBS and ABC. It can all be viewed on PCs, laptops or home TVs through new media-extender devices made by LG Electronics, Microsoft and Roku, which makes a $99 Netflix-specific box.

“The DVD rental business, and Netflix's DVD business, is going to grow for five to 10 years,” Swasey says. “But ultimately, 20 to 25 years from now, it's going to all be streaming.”

Netflix's lineup of streaming movies has consisted mainly of documentaries and independent and foreign films, since the rights to the electronic delivery of major studio films on a subscription basis are first locked up by premium programmers, then by broadcast and basic cable networks. With such a pay-TV window, Netflix wouldn't get the streaming rights to some movies until nine years after theatrical release.

The Starz deal—which was inked on Oct. 1—changes all that. Netflix's streaming lineup will now include the roughly 2,500 movies, TV shows and concerts offered by Starz' “Starz Play” broadband subscription movie service (formerly known as Vongo), as well as a live streaming feed of the Starz TV network. In addition to providing Starz content to Netflix subscribers paying $8.99 a month and up, Netflix will also market a separate Starz-only streaming service for $7.99 a month.

Netflix is offering instant streaming of 1,000 Starz titles now, including Spider-Man 3 and Oscar-winner No Country for Old Men. Like the rest of its streaming content, the movies are only available in standard-definition, though Netflix plans to offer hi-def streaming.

Vudu, on the other hand, has been offering “instant HD movies” since late last year, though that still represents a fraction of its overall lineup—some 300 titles out of 10,000 movies and TV shows. The Santa Clara, Calif.-based company has been delivering them in the 1080-line progressive scan format at 24 frames per second (1080p/24) to optimize movie viewing and match the 1080p display resolution of the latest big-screen HD sets.

However, Vudu is stepping up its HD quality with a new format, HDX, which compresses movies at a higher bitrate and uses proprietary video processing algorithms. While Vudu doesn't claim that HDX matches Blu-ray's picture quality, the company believes it delivers better picture quality than the 1080-line-interlace HD movies offered through cable and broadcast services, as well as the new 1080p/24 movies now being delivered by satellite operators DirecTV and Dish Network.

There is one catch, however: The new HDX format won't allow instant viewing from the Vudu set-top box like current HD titles, but will instead require a download of three to four hours per movie. That's because HDX titles are encoded at variable bitrates of 9 to 9.5 Mbps, with peaks of up to 20 Mbps depending on the amount of information in each scene.

Vudu is positioning HDX, which will initially be available for more than 50 titles including new releases like Speed Racer and classics such as Chinatown, as a high-end solution aimed at hi-def aficionados with 1080p sets of 40 inches or larger. It will be priced the same as normal HD titles, with new releases costing $6 and most library titles at $4. A downloaded movie can be ordered in advance, either physically through the box or remotely through the Vudu Website.

“Our primary driver of HD is to maximize the consumer's enjoyment of their high-definition equipment,” says Vudu Chief Technology Officer Prasanna Ganesan. “HDX is targeted to maximize the value of that investment, and our studio partners are very happy about it.”

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