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Filter - Cynthia L. Webb
Real Starz to Shine on the 'Net


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By Cynthia L. Webb Staff Writer
Monday, June 14, 2004; 9:41 AM

The box office is coming to a home computer near you, thanks to an Internet movie subscription service from RealNetworks Inc. and Starz Encore Group LLC that is launching today for high-speed Internet users.

The entertainment industry is hoping palatable pay-for-play movie services will help stem the tide of digital piracy, mirroring the hopes that record companies have pinned on iTunes and other online music services to help turn downloading into a cash business for record companies and Hollywood. Starz and Real are offering a $12.95-per-month subscription plan for unlimited movie downloads, with at least 100 titles being offered at all times.

"What you have to give them credit for is rather than pretending (illegal movie downloading) doesn't exist on the Internet, they're making a decision to try to embrace this and figure out a way to get their part of the revenue from this new distribution system," Mike McGuire, media research director at GartnerG2, told The San Francisco Chronicle. He also told the Chronicle that "the new Starz-RealNetworks venture is a 'pretty interesting step forward' in the delivery of digital entertainment over the Internet and could be a bellwether for future services. And the new service shows the movie industry has learned its lesson from the music industry, which has been rocked by the popularity of online music file-sharing." USA Today wrote that the "campaign to turn movie pirates into legitimate customers takes another leap forward" with the launch of the Starz-Real service today.
The San Francisco Chronicle: Service To Offer Movies Over Net
USA Today: Click For A Flick From Starz, RealNetworks

A Twist on the Download Model

The new movie download service faces competition from other legitimate services. "Movielink, which charges per movie download and is backed by several movie studios, and CinemaNow, which lets users buy subscriptions or pay per movie and is backed partly by Real rival Microsoft Corp. The company also faces competition from Netflix, the mail-order video service," The Associated Press noted.
The Associated Press via The Washington Post: Online Movie Service To Debut (Registration required)

However, the subscription model behind the Starz and Real service is very different from the competition: "The service represents the first time that mainstream films have been available as part of a flat-rate subscription plan over the Internet. A few existing services offer an Internet version of pay-per-view, in which single films can be downloaded for a fee of $1 to $5. But those movies typically can be watched only during a 24-hour period after purchase," The New York Times reported. And The Los Angeles Times said of the competition in the pay-for-play movie space: "Each provides only a portion of what analysts and industry executives say is the ultimate home movie service: a virtual video jukebox that can be tapped from your couch. And while acknowledging that their service has shortcomings, executives with Real and Starz contend that offering unlimited movies for a flat fee is crucial to attracting couch potatoes -- more important than how soon the movies are available or how many are offered."
The New York Times: Selling 'Nemo' Online, Trying To Repel Pirates (Registration required)
The Los Angeles Times: Service To Offer All You Can Watch (Registration required)

Meanwhile, The N.Y. Times reported: "Even if subscription services fail to attract a large following right away, they may still offer a more profitable business model, Starz and Real executives say. In music, pay-per-download services like iTunes have been much more popular with consumers than subscription services like Real's Rhapsody, which lets users download and listen to as many songs as they want for $9.95 a month. But the per-song services have gross margins of 10 percent to 15 percent, compared with 40 percent to 50 percent margins for subscription services, said Richard Wolpert, Real's chief strategic officer."

Will This Bet Pay Off?

The service "is a gamble by Starz, which has spent the past six years securing studio rights and developing technology to bring its movie services to the Internet. The initial market for the service likely will be small. Competition in the movie market is fierce and it remains to be seen whether downloadable movies will move into the mainstream," The Rocky Mountain News reported. "This is either really smart or it's really stupid," Robert Clasen, president and chief operating officer of Starz, told the paper. "We'll know in two or three years, not two or three months."
The Rocky Mountain News: Movie Click It

Some have delivered an early verdict for the service, predicting small, not blockbuster sales for the service. "Analyst Josh Bernoff of Forrester Research predicted that Starz! Ticket would have limited appeal because most people prefer to watch movies on their television sets, not their computers. Real's current anti-piracy technology requires movies to be played on the computer that downloaded them, and relatively few homes have televisions wired directly to their PCs," The L.A. Times noted. "This is great for business travelers, but that's a very small segment," Bernoff said. "We're talking about tens of thousands, not millions."

The Wall Street Journal said the service "amounts to a gamble that the niche audience of users most likely to watch movies on their PCs today -- such as students in dorm rooms and laptop users on airplanes -- will turn into a much larger market as technologies improve for watching video downloaded from the Internet on television. An increasing number of new PCs come with connections that allow users to play video on TV sets. Some living-room gadgets, such as TiVo digital video recorders, also will eventually have the ability to pull video from the Web. Starz executives said they want to ensure the company's programming isn't limited to cable and satellite-TV tuner boxes as the Internet assumes a bigger role in movie delivery."
The Wall Street Journal: Starz Encore Joins Web Movie Fray (Subscription required)

RealNetworks is surely banking on the service to help its bottom line. "RealNetworks' music-subscription service has been a big revenue booster for the company, and games have contributed to that stream too. Meghji on Friday would say only that the new service's revenue will be 'important for our future,' though he said it won't require revising financial projections," The Seattle Post-Intelligencer reported.

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