Another View: Studios Await Internet PPV

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While Home Box Office and Showtime Networks Inc. may becursing Starz Encore Media Group LLC for its innovative approach to studio/pay TV networkagreements, studio executives are excited about the potential of generating PPV revenuesoutside of the traditional PPV window.

Starz Encore's desire to revolutionize the pay TV categoryby aggressively pursuing a subscription video-on-demand model through its long-termdistribution deals with Buena Vista Television and Sony Pictures Entertainment has alsoopen the doors for studios to capitalize on the burgeoning PPV-Internet business.

Starz Encore believes subscribers will be drawn more towardwatching films through its SVOD service than through the Internet, which could offertitles day-and-date with pay TV.

For a flat monthly fee, the SVOD service would allowsubscribers to watch movies on-demand -- with pause, fast-forward and rewind features --which Starz Encore feels will be more consumer-friendly than having to pay to view a movieon a computer screen.

But by the time the deals kick in -- the Sony agreementbegins in 2005, while Buena Vista's deal kicks in immediately -- it's anticipated thatdigital technology will be able to bring high-speed Internet access to the television set,which would set up an interesting battle for the viewer's dollar.

In addition, the movies could still be seen on computerscreens through the Internet, which, by that time, could be in a majority of U.S. homes.Also by that time, purchasing entertainment via the Internet could be as commonplace asgoing to an ATM is today.

Paul Kagan Associates Inc. estimates that Internet-PPVrevenue could surpass the $5 billion mark by 2005, up from just $460 million this year.

All of this bodes well for the studios, which arepositioning themselves to take advantage of whichever distribution outlet provides thegreatest amount of PPV revenue. With the pay TV revenue already pocketed, the studios cannow focus on generating additional dollars from a potentially lucrative distributionoutlet -- it's practically a no-lose scenario.

"We're always looking to expand our audience. Why nottake advantage of everything you can?" one studio executive said.

Early returns from digital-PPV systems show that consumerswill pay for more choice and more convenience and PPV-movie revenues will go even higheras cable VOD becomes more commonplace in consumer homes.

Studio executives believe the value of choice andconvenience can translate well to the Internet. Add to that a slight drop in thetraditional PPV price -- maybe $1 off the $4 or $5 near-VOD or VOD price -- and the appealof Internet PPV increases substantially.

Of course, the viewing quality of Internet videoprogramming would have to increase significantly for the scenario to work. Starz Encore isprobably hedging that the quality of digital cable will still be far superior to that ofInternet video streaming once the contracts for SVOD kick in.

Starz Encore executives admit that there are some inherentrisks in allowing studios to offer Internet PPV day-and-date with pay TV, but the companyis confident that subscribers will prefer its SVOD platform over the Internet.

For the studios, the risks are far less than the potentialgains.

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