Sony's Plan for $40 Movies at Home

Companies across the consumer electronics landscape, from Amazon (AMZN) to TiVo (TIVO), are scurrying to deliver movies to TV via the Internet, some more successfully than others. But Sony (SNE) may be poised to do them one better. The Japanese electronics giant, which also owns a major Hollywood studio, has quietly been making the rounds among other film companies to sound them about showing their movies on TV after they appear in movie theaters but before they can be seen on DVD or online, BusinessWeek has learned. If the idea catches on, it would establish a new market for studios, who are facing declining DVD sales and an uncertain box office.

No studio has yet signed on, and no price has yet been determined. But under one plan being discussed, owners of the Sony's Internet-connected Bravia TV could pay as much as $40 to watch a movie that would be streamed over the Internet to their set, says one person familiar with the Sony presentation. The concept is similar to one Sony tested last fall, when it made the Sony-released film Hancock, which stars Will Smith as a bumbling superhero, available to Bravia owners with an online connection for their TV sets. Sony charged $9.99 for a 24-hour viewing period (the streaming started whenever you wanted during that period) for a two-week period from Oct. 28 to Nov. 10—after the film's July 2 release in movie theaters, but two weeks before its DVD release. Sony also mailed a free Blu-ray DVD of the movie to those who signed up. Uptake was light, in large part because there were so few Internet-equipped Bravia sets available. There are about 500,000 currently.

Sony's moves apparently are part of its overall effort to enhance the entertainment value of the company's consumer electronics devices. Last summer the company's Sony Computer Entertainment unit signed deals with seven studios to give its game users the ability to download to its PlayStation 3 console and its PSP portable player nearly 300 full-length movies for purchase or rental and more than 1,200 TV episodes. Those movies were available on a longer delay from the theatrical release than that which is being discussed for the home-theater service. The studio has since increased its offerings to more than 2,000 movies and 10,200 TV shows from 38 different content partners, according to Variety. Sony told Variety it has registered more than 25 million users since launching the service in 2008.

a "closed system" prevents piracyTo get studios on board, Sony is understood to be pressing the case that the Bravia is a so-called closed system, which means content streamed on the sets can't be pirated. No studio executive would comment publicly for this story. Sony corporate executives also would not comment.

Industry experts have speculated for years that there is a market of people who would pay a fairly steep price to see movies at home before they're available on DVD. With rising theater prices making an outing ever more expensive, families might gather with friends in their living rooms. That said, the audience could be very limited.

"The fact that this $40 pay-per-view model has worked for major sporting events suggests that there may be an opportunity for a handful of films every year—event films and franchises with the same young male demo as sports would be good bets," says Tom Adams, whose firm Adams Media Research analyzes trends for the film industry. He says it's unclear how this might harm theater owners since they "move pictures off screens so quickly now." Adams also doesn't think the earlier viewing would harm DVD sales—it might even encourage folks who watch the flick to buy their own version.

The Sony proposal, which would establish what the industry is calling a "home-theatrical window," would be hugely controversial, which is one reason Sony is moving slowly and still calling its talks an effort to expand the Hancock experiment, according to those who have been involved in the discussions. Allowing folks to view a movie before it can be sold or rented as a DVD would alter Hollywood's carefully calibrated series of "windows" that allow the industry to separate the time between a movie's theatrical release and its release as a DVD or on pay-TV channels like HBO (TWX). Separating those windows has traditionally allowed studios to collect more money by showing the same film to customers multiple times.

theater owners and dvd sellers may howlTheater owners would likely complain if the home-theatrical window were placed too close to when they show a movie, fearing that people may pass up a hefty tab to take the family to the cineplex in favor of seeing it at home instead. Similarly, companies such as Blockbuster (BBI) and Wal-Mart (WMT), which sell or rent DVDs, could complain that earlier TV viewing would harm their businesses. The higher price is meant to appeal to what might be a fairly small segment of the audience who aren't willing to wait for DVDs to hit Blockbuster but also won't dissuade consumers from plunking down $20 to buy the movie later.

The notion of a home-theatrical window has been talked about in Hollywood for years but has never progressed for many of those reasons. What's changed now is the increasingly difficult economics of the industry. The DVD business is cratering—the $14.5 billion market for purchased DVDs is expected to fall to $13.3 billion this year, says Adams—and Blu-ray technology has yet to pick up the slack. Folks can just as easily rent DVDs for $1 from video-vending machines such as the controversial Redbox, a unit of Coinstar (CSTR). Redbox recently sued three studios that refuse to distribute their DVDs to them as early as they are made available to retailers such as Blockbuster that rent them out at higher prices.

Still, the Sony concept, which has been communicated to the studios by executives including U.S. unit Chief Financial Officer Robert S. Wiesenthal, has a certain logic to it. With several electronics companies already selling Internet-enabled TV sets, including Panasonic (PC) and LG, there is an expanding base of potential customers. Other shoppers are buying Blu-ray players with Internet connections. Under one scenario Sony is said to be circulating, it would share as much as 70% of the rental price of $30 to $40 with the studio for a film that would be available 30 to 60 days after the film's theatrical release. A DVD usually is made available a month or two after that, as is a movie on streaming sites such as those offered by Netflix (NFLX). Movies are usually available as video-on-demand offerings through cable or satellite services a month or two after that.

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