News

Studio Venture Could Usurp In Demand's Role

9/09/2001 8:00 PM Eastern

The Walt Disney Co. and News Corp. moved to take total control of their video-on-demand destinies last week when they said they'd distribute films directly to cable operators — and over the Internet — through a joint venture.

Desperate for studio product to help boost the industry's VOD fortunes, operators are anxious to talk to Disney and Fox about Movies.com, which will include new releases and library titles. The joint venture could all but eliminate the need for VOD distribution "middlemen" such as In Demand and Intertainer Inc.

But In Demand executives and other industry observers believe Movies.com — as well as a similar venture announced last month by five other major Hollywood studios — would find it more difficult to effectively deliver films to the home on it own than it could through cable's current infrastructure.

Under a venture several months in the making, the new Movies.com broadband entertainment service aims to begin the VOD delivery of live-action films and other content from Disney, Miramax Films and News Corp.-owned 20th Century-Fox, starting in 2002.

Much like the venture involving Metro Goldwyn-Mayer Inc., Paramount Pictures, Sony Pictures Entertainment, Universal Studios and Warner Bros., Movies.com will make films and other movie-related content available via the Internet. Consumers would download the films — complete with VCR functionality — to a computer hard drive for playback on a television or computer display.

But unlike its competitors, Disney and Fox will pitch the services to cable systems with digital VOD technology. Neither Disney nor Fox have reached long-term VOD distribution agreements with operators. In fact, Disney's Buena Vista studio arm has refused to offer any new titles to operators on a VOD basis.

Disney and Fox estimated that more than 10 million homes will have access to VOD services through broadband Internet or digital-cable set-top boxes. It was unclear at press time how much operators would have to pay Disney and Fox to offer the service, or how the service would deliver movies to cable operators' file servers.

By going directly to operators, the studios could conceivably bypass VOD content distributors. Many studios have questioned the viability of such "middlemen" and have sought to find ways to go directly with operators.

"If we can avoid the middleman, then we will," said one studio executive involved in the venture.

Disney chairman and CEO Michael Eisner said in a prepared statement that the site "would create a new service that will enable consumers to enjoy an exclusive array of their favorite films and other forms of entertainment on-demand and in the comfort of their homes."

Several operators that offer VOD services have already expressed interest in talking to Movies.com about a distribution deal.

"We'll certainly look at it and see how it could be used to our advantage," Charter Communications Inc. spokesman Andy Morgan said. "We're bullish on VOD, and if this will help us increase penetration and buy-rates, it's something that we'll look very closely at."

Time Warner Cable, which has been one of the more aggressive MSOs in rolling out VOD services and holds a 33 percent stake in In Demand, also said it would consider taking movies from Movies.com.

"We are very encouraged by the studios' anxiousness to have a cable VOD distribution agreement," MSO vice president of corporate communications Mike Luftman said. "We're anxious to talk to them, but we would prefer to have any deal work through the In Demand consortium."

In Demand, which has secured VOD deals with Universal Pictures and Sony Pictures, believes that its existing infrastructure and relationships with the operators would benefit the studios' VOD initiatives by helping them save on distribution and marketing costs.

"We have an organization here and a tremendous infrastructure from satellite delivery of movies to encoding the movies — it's not as easy as just flipping a couple of switches," said In Demand president Mark Brenner. "It's involved and problematic and to duplicate that from a studio standpoint seems silly."

Brenner also believes that operators would be, in effect, sleeping with the enemy if they choose to take product from a studio-created venture. Movies.com will offer movies for downloading off the Internet at least 30 days prior to any PPV window, although it was unclear how much it would charge consumers for access.

By using Movie.com as the conduit for getting product from the two studios, Brenner said that the industry would be promoting a company that is also trying to build a competing Internet-based VOD business.

"They're trying to build up a brand that would inevitably compete with operators," Brenner said. "While there's a desire for product, there's also a desire among operators to have cable be the preferred place to do their VOD ordering, through the easiest and most secure way possible."

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