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The Word in Hollywood, "Download"

It's the Steve Jobs effect. Hollywood studios, facing intense pressure from the Apple Computer CEO and others eager to put movies online, are stealing a march on the high-tech companies and will offer consumers the opportunity to download and own some of Tinsel Town's newest movies.

On Apr. 3, Movielink and CinemaNow, Hollywood's two movie-download services, will announce new services that threaten to turn the traditional model for releasing movies on its head. Both companies will offer movie downloads at the same time DVDs can be purchased at Wal-Mart (WMT) and Blockbuster (BBI), putting Hollywood studios in direct competition with DVD retailers.

That means Hollywood is taking on one of its main revenue sources. Last year, DVD and video-tape generated a hefty $24 billion in retail sales. The new offerings by both of the download services underscore the mounting pressure on Hollywood moguls to offer consumers a legitimate online outlet to buy movies and to offset slowing DVD sales and a rise in Internet piracy.

The features offered by Movielink will include films from six of the top seven in Hollywood today, with such hot titles as King Kong, Brokeback Mountain, horror film Saw II, and the latest Harry Potter installment, says Movielink CEO Jim Ramo.

RESTRICTIONS APPLY. Unlike Movielink, which is owned by five studios, CinemaNow will have only films from Sony (SNE), MGM, and Lionsgate. Among its early offerings will be Memoirs of a Geisha. When Brokeback Mountain is released in video on Apr. 4, folks will be able to get it either at the video store on via Movielink. The next week, both CinemaNow and Movielink customers can either down load Fun with Dick and Jane or head to their local Blockbuster for a copy.

Both movie sites will debut with several hundred older films. Unlike their current services, in which online shoppers pay around $4 to rent new movies for up to a month, the films will be sold for prices "similar to home video," says Ramo. That's around $20 to $30 for newer films, and $10 to $20 for older flicks. CinemaNow intends to be more aggressive, offering some of its new flicks for under $20 and to build traffic, it will offer a two-for-one sale at the outset. The second film will cost $4.95, says the services CEO Curt Marvis.

The downloaded movies would still come with several restrictions that underscore the difficulty of the new digital world for Hollywood studios. To keep from competing directly with large retailers like Wal-Mart, both sites for now are only allowing the movies people buy through downloads to be stored on PCs or on devices like the game player Xbox outfitted with certain Microsoft (MSFT) software. Movies can't be "burned" or copied onto disks that can be played on other devices, such DVD players. The movies, however, can be copied to play on as many as two other PCs, says Ramo.

WHHELIN' AND DEALIN'. Customers can hook up their computers to their TV sets using specially equipped video cables and play the downloaded movies directly from their PCs, says CinemaNow's Marvis.

The studios will be able to set their own rules for which films will be sold and how much they intend to charge. Indeed, Movielink plans to launch its service without Walt Disney (DIS), while CinemaNow won't have flicks from Warner Brothers, Universal, Paramount, Fox (NWS), or Disney. Complex deals are still being structured for them, both services say, although the studios will continue to rent their movies.

The new download-to-buy services represent a major leap in thinking for movie studios that have resisted efforts by Ramo and Murdis to get them to put their movies up for sale online. Many of the studios worried that the movies couldn't be safeguarded if put on computers for longer periods of time, or would alienate large retailers like Wal-Mart, which already is a prickly customer that has driven down prices for DVDs. The online services represent a huge upside for the studios – which are likely to see their margins increase dramatically over DVD sales since they will not have to manufacture and ship disks to the stores.

SPREADING THE WORD. What's less clear is how the new service will play with pay-TV services like HBO and Showtime, which traditionally get movies six months after they show up at Wal-Mart and three months or so after they can be downloaded to computers. "I don't think Wal-Mart is quaking in their boots that we're going to harm their profit-and-loss statements," says Marvis. "We're still pretty small compared to DVD sales." Still, the studios are working through some of the details of how they will co-exist with large DVD retailers and the pay TV services.

Ramo figures the new service will be a hit with lovers of older movies. The older movies, he says, make up a large number of the movies currently downloaded from his service. A recent experiment to offer mostly B movies for sale on Movielink didn't fare well because folks wanted A titles or older flicks.

With the new download service, Movielink also intends to launch what is likely to be its first large-scale advertising campaign, another plus for the industry's efforts to lure folks to its download service. Ramos says Movielink will advertise in publications and outlets that appeal to tech-savvy early adopters and people who love movies. "If you have an iPod or are a Sirius customer, you'll know we're here -- or if you read Entertainment or Parade magazine," he says.

STAY TUNED. Clearly, a download retail site is a work in progress for Hollywood studios. They're eager to rush the Net and avoid being nibbled to death like the music industry, which adapted too slowly and saw its business slide to illegal sites and, ultimately, to Steve Jobs' legal iPod downloads. Universal Pictures recently broke ranks, becoming the first to say it would offer download movies in Great Britain through the site Lovefilm.

Movielink and CinemaNow have made a splashy first step. But unlike Jobs's simple and elegant solution for consumers wanting to own music and TV shows, the two sites' offerings may still offer too many restrictions for the everyday movie fan. As they say in the biz, it is just the first act.

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