Hollywood Said to Court Amazon in Bid for Online Film Sales

Hollywood studios, working to spur purchases of films and TV shows, are in talks to bring Amazon.com Inc. (AMZN) back into their online system called UltraViolet, people with knowledge of the situation said.

Discussions between Amazon and studios including Sony Corp. (6758) and Time Warner Inc. (TWX)’s Warner Bros. center on plans to roll out the shared method for storing and watching films on products such as the Kindle Fire tablet and Blu-ray players, said one of the people, who wasn’t authorized to speak publicly.

Studios are looking to counter shrinking DVD sales fueled by low-cost rentals from Netflix Inc. (NFLX) and Coinstar Inc. (CSTR)’s Redbox kiosks. Their focus is on UltraViolet, which lets consumers buy videos from retailers, store them online and play them on any device. Sales by Amazon, the largest Internet seller, would put pressure on its rivals to follow suit.

“Everyone is hoping this returns them to the golden era of DVDs when money fell out of the sky,” says Scott Smyers, an analyst with Sunrise Digital Technologies and a former Sony executive.

Amazon’s participation may speed the adoption of Ultraviolet, which has struggled in the two months since its introduction because of consumer confusion over how to register and access digital copies of movies they’ve purchased.

The Ultraviolet effort is backed by retailers, entertainment and technology companies through the Digital Entertainment Content Ecosystem, whose members also include News Corp. (NWSA)’s Fox Entertainment, Comcast Corp.’s NBC Universal and Viacom Inc.’s Paramount Pictures.

Digital Window

Retailers Best Buy Co. (BBY), owner the CinemaNow website, and Wal-Mart Stores Inc. (WMT) are also part of the Ultraviolet group, although neither website has begun using the system.

Amazon already lets customers store movies purchased on its site. The Seattle-based company is interested in a plan to let consumers pay 99 cents to $1.49 to convert a DVD or Blu-ray disc they already own into a digital copy stored online, said the people. The 99-cent offer is expected to be announced by the Ultraviolet group at the Consumer Electronics Show in Las Vegas in January, the people said.

Drew Herdener, an Amazon spokesman, declined to comment, as did Mark Teitell, general manager and executive director of the Digital Entertainment Content Ecosystem.

Amazon dropped 4.8 percent to $180.51 at the close in New York, after Goldman Sachs Group Inc. said its 2012 earnings estimates need to be reduced. Netflix lost 4.2 percent to $72.11 and has declined 59 percent this year.

Consumer Habits

Amazon’s interest in UltraViolet coincides with studio experiments on ways to stoke digital sales.

Sony has carved out a period for exclusive digital sales of some movies on websites such as Apple Inc. (AAPL)’s iTunes before they are available for sale or rental on DVD, for example. The window might last a few days or weeks.

“The goal is definitely to guide consumers toward purchase, but to do so by adding a benefit,” John Calkins, an executive vice president at Sony Pictures Home Entertainment, said in an interview.

Apple, based in Cupertino, California, has its own Web- based storage service called iCloud and hasn’t joined Ultraviolet group.

Amazon became a member of the Ultraviolet group with its January purchase of U.K.-based Lovefilm, a Netflix-like subscription service, and pulled out shortly after.

Talks to rejoin started after the company’s October hiring of Anthony Bay, a former Microsoft Corp. manager with ties to the movie industry, to lead its digital media strategy, according to one of the people.

‘Moneyball’

Sony and Comcast Corp. (CMCSA)’s Universal Pictures already provide the UltraViolet service through their websites, while Warner Bros. makes the service available through Flixster.com.

Sony, based in Tokyo, has been experimenting since summer with an exclusive online sales window for movies including “Bad Teacher” and “30 Minutes or Less.”

Digital sales of those titles were 60 percent to 70 percent higher than average, Calkins said. There was no indication they cut into DVD or Blu-ray sales, he said.

“Moneyball,” the Brad Pitt baseball drama, is the next title in Sony’s experiment and will be available for purchase online starting Dec. 22, more than two weeks before the Jan. 10 debut on DVD and Blu-ray, Calkins said.

Amazon and iTunes are participating in the Sony experiment, and stand to benefit from an early digital-sales window. A digital download of an early Sony movie costs about $14.99, or about three times a one-time rental via pay-per-view.

Film Collections

U.S. DVD revenue fell 19 percent to $16.3 billion in 2010 from a 2006 peak of $20.2 billion, with a rise in Blu-ray sales slowing the decline, according to the industry-backed Digital Entertainment Group. Digital sales and rentals expanded in that same period to $2.5 billion from $1 billion.

One goal of the UltraViolet group is to expand the number of participating retailers, according to Corey Ferengul, an executive vice president of Rovi Corp. (ROVI), which provides cable companies and TV-set manufacturers with programming data.

“There’s not a massive amount of money to be made, but it gives studios the ability to quickly change consumers’ behavior about collecting movies again,” Ferengul said. “And for the retailer storing your collection, it builds loyalty.”

To contact the reporters on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net; Michael White in Los Angeles at mwhite8@bloomberg.net; Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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