Social networking site to test movie rentals

Facebook may soon be making a lot more friends in Hollywood — and enemies everywhere else.

The social networking giant’s decision to pair up with Warner Bros. and start testing the rental of movies through each film’s separate fanpage in the U.S., beginning with “The Dark Knight,” sent shockwaves down Wall Street Tuesday, causing Netflix’s stock to fall nearly 6% to $195.13.

Companies like Netflix, but also Redbox, Google’s YouTube, Amazon, Walmart’s Vudu and Best Buy’s CinemaNow have a reason to feel spooked.

Facebook’s first foray into monetizing movies and other video programming across its sites could seriously shake up the current state of the digital entertainment biz.

And it could give studios the upper hand as they consider online alternatives to hold off online ventures and take back control of their homevideo operations.

The primary reason is this: While Netflix has grown its members past the impressive 20 million mark, Facebook currently has 600 million users worldwide (about 70% outside the U.S.) and is expected to pass the 1 billion milestone sometime next year.

“The Dark Knight” has nearly four million Facebook fans.

The addition of movies should help Facebook entice more of its users to embrace the site’s Credits currency that it has been rolling out since last year to replace credit cards and other payment methods. Facebook can’t collect a cut of credit card sales, but through its own currency it keeps 30% of purchases made, similar to what Apple collects from app sales.

So far, Facebook’s currency has been used mainly for games.

Facebook has also pursued a strategy that’s similar to Netflix and Pandora and made sure an app for its site is available on everything from computers to flatscreen TVs that can connect to the Internet and mobile phones and hardware like Apple’s iPad, meaning the social network is available anywhere its members are.

What’s also impressive is that while Netflix, for example, has been digging deep into its pockets to lock down digital streaming deals for an exclusive slate of films, Facebook is essentially being handed content it didn’t have before.

Now it just has to prove to studios it can make them money.

Facebook will charge 30 credits, or $3, per movie rental. Consumers will be able to watch “Dark Knight” from their Facebook account for 48 hours after the initial transaction. VOD services typically charge $3.99-$5.99 for a 24-hour window.

“Facebook has become a daily destination for hundreds of millions of people,” said Thomas Gewecke, president of Warner Bros. Digital Distribution. “Making our films available through Facebook is a natural extension of our digital distribution efforts. It gives consumers a simple, convenient way to access and enjoy our films through the world’s largest social network.”

While Time Warner chief financial officer John Martin stressed the Facebook deal was just a test, he added Tuesday during an investor conference in Florida that “social media advantages the kind of content we make … We are seeing more migration to the biggest hits. Social media fits well with that because people want to be able to talk with one another about those hits.”

Digital rentals or sales of films through Facebook would also give studios a reason to keep their films’ pages operational.

After a film has bowed or its DVD or Blu-ray has been released, most film pages become dormant, not just on Facebook but also their official dot coms. Offering up the complete pic could keep the discussion around a film going with a fanbase that a studio could then court around similar projects or a pic’s eventual remake, reboot or sequel.

The move by Warner Bros. doesn’t come as much of a surprise.

Execs at WB-parent Time Warner and Comcast have been more vocal than most in wanting to reinvent the traditional homevideo biz and pioneer new digital distribution methods, including creating a premium VOD window, and even day-and-date releases to collect more coin.

On Monday at a Deutsche Bank media conference in Florida, Time Warner CEO Jeff Bewkes said he would like to see more “vibrant competition” in the video subscription market dominated by Netflix.

“This is a great way for Warner to test a couple of things simultaneously,” said analyst James McQuivey with Forrester Research. “First, they are taking the content to where the people are. Why should those fans have to look up the movie on some system or in a VOD library to watch it? From that perspective, this is a great leap forward for consumers.

“But this is also a chance for Warner to test a direct relationship with viewers that doesn’t involve Comcast, Netflix, or even Walmart,” McQuivey added. “If Warner can build a direct relationship to those customers through a channel they frequent more often than they visit local retailers or cable VOD menus, this could be a lucrative marketing platform for them. Plus, they can use the uniqueness of this event to test a different price point. So with this move, Warner can test so many things that will help it define its approach to the market.”

Does it have a larger impact beyond Warner Bros.? “Yes, other studios will want to follow suit,” McQuivey said. “As Facebook pushes itself into more devices like mobile phones and tablets, it will presumably take with it the ability to deliver these experiences, giving these producers access to a variety of platforms that would be expensive to approach on their own.”

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