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Paramount Goes Online to Boost its DVD Sales

For an industry that makes its money catering to the tastes of the media-loving public, you have to wonder why Hollywood sometimes has such a tin ear when it comes to its DVD policy. If you’re a subscriber to DVD mail order pioneer Netflix (NFLX) or get your DVDs by plunking down $1 from RedBox (CSTR) vending machines at your local grocery store, life may change fairly soon. That’s because the studio brass is getting mighty worried that too many folks are renting DVDs (which are up this year) and bypassing the more lucrative (and tanking) market of buying DVDs at $15 or $20 a pop.

In hope of attacking that situation, and maybe of keeping dive-bombing DVD sales from falling even faster, Hollywood is contemplating all kinds of course changes. They include charging more to RedBox and Netflix, selling their DVDs to those companies later than they sell them to retailers like Wal-Mart, and making the companies destroy old DVDs rather than putting them in a cheapie bin somewhere. What’s the common theme? They want the consumer to pay more to rent, or better yet, to buy their discs.

Which is why I loved today’s announcement that Paramount Pictures (VIAB) has found a different way to generate more revenues from its films and the DVD market. Quite simply, they’ve made a fairly inexpensive film called Circle of Eight and are premiering it online with MySpace (NWS). The idea is to create buzz, and then rent or sell it through Blockbuster (BBI) and, I have to assume, other retailers down the road.

Okay, so we’re not talking about a $100 million box office blockbuster here. But there is a precedent for Hollywood making money this way. In late 2007, Paramount spent about $2 million to make the third installment of its Jackass comedy and premiered Jackass 2.5 on Blockbuster’s movie streaming service. The studio then syndicated it to other sites, getting north of 15 million folks to see it, and sold about 1 million DVDs.

“It’s about finding an audience who really wants to see this kind of a movie, give them a high-quality Hollywood style movie and build awareness,” says Thomas Lesinski, president of Paramount Digital Entertainment, who dreamed up the concept. “It’s just like a Hollywood premiere at a movie theater.” Of course, it costs less to make, you don’t have to stage an expensive red carpet event, and you don't need to spend a ton on TV commercials.

And you don’t need to worry about theater owners, who complain loudly whenever a studio tries to hurry out a film on DVD too soon after it appears on the big screen. In this deal, MySpace gets the movie for seven weeks, then Lesinski and crew can do whatever they want with it. Better yet, Circle of Eight, which is presented in 10 parts online, is sponsored by Mountain Dew (PEP), Blockbuster, and software maker Adobe (ADBE), which have added games and other online extras. As a result, it may well be profitable even before it hits the DVD stores.

Which is exactly what Hollywood would love to do with more of its flicks. Of course, that ship has sailed. Movie stars cost a ton, so do marketing campaigns to launch movies these days. But maybe there is a place for small films that make money for a studio using the Internet. As microscopic budget flicks like Paramount’s up-from-nowhere Paranormal Activity show, sometimes you can make more than a small pot of money without all the frills.

Circle of Eight may not be ready for the big screen, but I’ve watched it and it looks like a Hollywood production. It stars a couple of actors I’ve seen on the screen before, and was directed by Stephen Cragg, whose resume includes TV episodes of ER and NCIS. Its soundtrack was created by a bunch of high-end composers, and the opening screen features a speeding police car and a guy who jumps to his death. Hey, no one ever said this was Transformers. Still, as Hollywood struggles with how to resurrect a broken business model, at least this time a studio isn’t asking the consumer to pay a higher price or wait weeks before seeing a movie.

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