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Comments from Hollywood executives indicated the importance of the announcements. "Warner Bros. feels this is an important first step in the creation of a digital distribution business in the U.S.," says Kevin Tsujihara, President, Warner Bros. Home Entertainment Group: "Consumers are looking for this functionality, and we are working very closely with other partners we have and our retail partners to move this business further along. "This is a very new and exciting way of delivering our film productions to the consumer," says Rich Finkelstein, President and COO, Universal Pictures, "It furthers our goal of delivering our products to consumers wherever and whenever they want it." The announcement of download-to-own services undoubtedly represents a major step in the acceptance of the Internet as a viable means for distributing movies and creating an extra revenue stream for Hollywood. At the same time, there's no denying that these announcements represent a first step rather than the endgame for this nascent market. What follows is a look into why now is the right time to push forward with a download-to-own service, what these services are offering consumers as incentives to shift more of their media buying dollars online, and what the future holds for download-to-own services through the eyes of the CEOs of both Movielink and CinemaNow. Why Now?
While technically consumers have been able to download movies over the Internet for the past few years, it's mostly been in the form of independent films. One major piece of the overall content delivery puzzle needed to establish itself both technologically and perceptually before the major movie studios would buy into a download-to-own model. "I think a big part of it is the developing confidence on the part of us as a distributor and the studios as content providers in DRM, in particular not only just DRM as a security system . . . but also (in DRM providers) as our security providers," says Movielink CEO Jim Ramo. "I think Microsoft and Real have come to realize that it's not just a matter of writing golden code and walking away. They really do have to provide an ongoing service and create a relationship with us as a distributor so they can solve problems before they happen. With that developing confidence comes the ability to open one's business model beyond the limited rules of just rental." And opening up one's business model is exactly what CinemaNow has had in mind since the turn of the century. "We've always said, all the way back to '99, that what was taking place in the music business back then was just a precursor to what could happen with movies and DTV content, and that's what we're seeing today," says Curt Mavis, CEO for CinemaNow. "We've been waiting a long time for some new exciting developments, and this is definitely one of the biggest things." Yet, the impetus for these download-to-own announcements didn't come solely from the growing confidence in DRM or the inevitability of it all. Much of it has had to do with the market's growing hunger for online video content. "We wanted to tap into a developing consumer demand for and awareness of downloading and getting video over the Internet," says Ramo. "We wanted to make a broader set of rights available to capture a higher value product, which also incidentally can get us movies as early as day and date with brick-and-mortar retailing." What's Being Offered?
The download-to-own services of both Movielink and CinemaNow mirror each other in that the movies are encoded in Windows Media and require a user to be running Internet Explorer on a PC. The two services differ in terms of the rights they provide to consumers and the breadth of their available libraries. With CinemaNow, users are only able to play back their movies on the PC that they were originally downloaded to. CinemaNow's library will initially consist of 85 movies from Sony Pictures Home Entertainment, MGM, and Lions Gate. With Movielink, users have a bit more freedom to move their content around. "The movie is downloaded onto a hard drive, and the consumer is then able to transfer the movie onto both a second and third PC, and they are also allowed to burn a backup DVD in Windows Media format," says Ramo. Movielink has worked out deals to offer over 300 titles at the outset from MGM, Paramount, Sony Pictures, 20th Century Fox, Universal, and Warner Bros. "What we think we are doing here is opening a brand new option for consumers to what they had before which is a hard good DVD purchased at retail," says Ramo. Why Should They Buy?
At first blush, convincing consumers to purchase movies via these download-to-own services vs. a traditional DVD seems like a hard sell. Prices on both services are higher than for traditional DVD—Memoirs of a Geisha costs $19.95 to download from CinemaNow and $25.99 from Movielink, for instance, but the DVD is only $16.96 from Amazon.com—and they don't offer the same content portability nor do they even offer the same amount of content, as neither service includes the extras that are found on so many DVDs. Plus, any download-to-own service will have to deal with the fact that a large segment of the DVD-buying population isn't necessarily very tech-savvy. So, what makes these download-to-own services compelling to potential consumers? "It's really for those people that want to begin to create a digital library," says Ramo. "You can imagine somebody who wants to have 30 movies on their laptop so they don't have to carry around a bunch of DVDs. What our service does is really allow our customers to begin to manipulate the use of the video file as compared to a physical file that they've got to physically have with them. Obviously this is going to be a consumer group that is comfortable dealing with digital files." For CinemaNow CEO Curt Mavis, the drive to push a download-to-own service to a mainstream audience rests on a handful of factors. "There are really three issues that'll drive this market to be a mass market. One was the window during which downloads are sold. We've always had the rights during the pay-per-view window, but we also wanted it during the home movie window. People always wondered why if a movie was available at Blockbuster, it wouldn't be available at CinemaNow. That problem will go away over time." And it's already being minimized as evident by the availability of Brokeback Mountain via Movielink on the same day it was released on DVD. "The next issue is that customers really want, and even expect, pricing to be lower than the retail environment, and probably even lower than the etail environment," Mavis continues. "That's been a slow start, but we're trying to be aggressive there." An example of this is CinemaNow's offer to let consumers buy one movie at full price and get a second for five dollars. "Finally, the third issue is for people to have portability with their content, and more important than that is for them to be able to burn it and play it on traditional DVD players," says Mavis. "I don't think that's necessarily right around the corner, but I know that's on everyone's agenda." Getting to the TV
Considering the slow adoption of Windows Media Center PCs and other devices capable of truly integrating TV with the Internet, implementing a solution whereby consumers can download a movie and burn it to DVD in MPEG-2 is a very compelling proposition, although not one that has a simple solution. "I think the studios have been comfortable for a while with Windows Media DRM, but they still have not become comfortable with a DRM that allows someone to burn a DVD and play it back on a traditional DVD player," says Mavis. Simply letting consumers download an MPEG-2 file and burn it to DVD isn't necessarily an option, as it would increase the download time tremendously, so Movielink's current plans are to work towards a method for eventually allowing consumers to take that Windows Media file and transcode it into MPEG-2 on their home PCs. "That's the preferred approach, but you not only have to transcode from Windows Media to MPEG-2, you also need to transcrypt from Windows Media DRM to CSS. And that requires studios, IT companies, and consumer electronics companies to agree on doing that," says Ramo. "There is a real consumer demand for this, and we are working on it, but it takes eighty companies to come together to make it happen so it's not a simple process." This model is one that CinemaNow is considering as well, although they're in a position now where they're considering all the possibilities. "Our door is pretty open right now to consider various options. If I look at it from the point of view of going with the philosophy to give the customer what they want, they don't have any special allegiance to any format or DRM. So we're overturning every rock we can find to try and do that," says Mavis. The push to enable MPEG-2 DVD-burning stems from a desire by both content providers to do what is needed in order to empower their customers to enjoy their downloaded movies on their TVs. "Movielink is really interested in getting to the TV, and we're prepared to do it through various routes," says Ramo. "One mechanism for doing that is through a standard DVD player. Another is through home networking. Another is IP set-top boxes that have a broadband in and TV out, and we're working with, from example, RCA and Akimbo with their box. So we're interested in getting the consumers movies wherever they are and any way that we can." Providing consumers with that level of portability and flexibility is really the ultimate goal of any online content provider. "The holy grail is everything, any time, anywhere. That's what everybody's looking for, and I honestly believe that there will be some time in the near future when that will happen, but it's quite a few years away," says Mavis. "That said, I do believe that you'll see significant advances in the portable marketplace, in pulling that content from the PC to view it on different devices throughout the home next, and finally to create a secure burned DVD format alternative over the next six to twelve months. "Those three things combined with significantly more content availability in an earlier window are the reasons this market is going to go from the very, very early stages that it's been in for the last few years to a very high growth area," says Mavis. Not Yet a Perfect Model
To varying degrees, both Movielink and CinemaNow admit that this first offering is only a staging ground for the next-generation of distribution services. And they're both working hard to ensure that even in this early stage of development, consumers can still have a positive experience. For Movielink, that means not being totally inflexible with its three-PC limit on transferring movies around. "If a person is telling us that they're going to discontinue the use of one PC that is a licensed PC for another, then we'll go ahead and issue a license for the new PC," says Ramo. All a customer has to do is call into customer service and explain their situation to get this resolved. "But we won't be providing new downloads. That is the reason why we are really encouraging people to back up their movies with burned DVDs," says Ramo. For CinemaNow, it's a matter of pushing out the rights associated with their content to match and potentially surpass Movielink. "Our customers only being able to watch our movies on one PC is a short-lived issue for us coming out of the gate. We're certainly going to offer those rights in a very short amount of time," says Mavis. The reality is that this first iteration of download-to-own services will only be compelling to a subset of the eventual mainstream market, but that doesn't lessen the significance of this announcement to the overall digital distribution space. "I think we're still a ways away from the real, perfect model that's going to drive this business to become mainstream," says Mavis. "I think the most important thing for people to recognize from these announcements is that this is a major step forward for the digital distribution business, but there's still a long ways to go."
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