After months of negotiations, Sony has formalized an agreement with four studio partners on its Internet-based movie-on-demand service.
Sony, Warner Bros., Universal, Paramount and MGM will be equal equity partners in the new joint venture, currently known as MovieFly but which has yet to be officially named. Service will launch early next year.
The studios participating in the deal are committed to the venture for five years at a “substantial investment” from each — some said it was in the tens of millions of dollars — that will cover Sony’s research and development costs thus far as well as future operating costs.
The group is seeking a CEO for the venture, who will then lay out launch details.
Although the service will be similar to an online videostore or an Amazon.com service in terms of a home page with searches by title, stars, director or writer, for example, each studio will set pricing for its movies.
The venture will pay a license fee to suppliers for each film, as does any distributor. It’s not clear what those license fees will be or how they compare with deals the studios have with other services. Nor is it clear how additional suppliers would be integrated into the service.
Sony said the new fee-based offering will allow users with relatively basic PC setups to download movies from a Web site in 20 to 40 minutes, although some slower connections could mean download times of more than an hour.
Although each movie downloaded would be available for playback for up to 30 days, it will only be viewable for 24 hours after the initial viewing.
Most of the studios participating in the MovieFly service said their business plan and strategy will be to release all new movies to the service in the current window for pay-per-view and video-on-demand movies after homevideo, and to supplement those with select catalog titles.
“We’re all very vested in the existing distribution windows and relationships we have,” Sony Pictures Digital Entertainment prexy Yair Landau said. “We’re not launching to undermine any of that. We want to protect and sustain but also be in a position to recognize and address changes. This gives us a vehicle to respond to changes.”
While other smaller Web ventures charge to distrib films online to Netizens, including Lions Gate’s CinemaNow.com, SightSound.com and MovieFlix.com, the MovieFly announcement is the first time that multiple studios have teamed up on a movie distribution service since pay cable network Premiere was shut down in the early 1980s by the U.S. Justice Dept. over antitrust concerns.
The new venture’s partners, several of which participated in Premiere, have been careful this time to make it clear that each of them will contribute movies to the venture’s service on a non-exclusive basis. Also, the service will be protected from hackers and will welcome additional content suppliers.
“This announcement confirms that film producers are eager for the Internet to enlarge and flourish,” said Jack Valenti, president-CEO of the Motion Picture Assn. of America. “For the first time in a very near future, a broad selection of motion pictures will be available online, protected by encryption and delivered directly to consumers at a reasonable price. Great news.”
Most of the studios already have varying content deals with other video-on-demand services, although some, like MGM, are letting most of those existing deals lapse while negotiating new ones for cable, satellite and Internet services.
“We believe it is in compliance with all applicable regulations,” said Warren Lieberfarb, who oversees Warner’s VOD ventures as president of Warner Home Video.
A spokesman for the cable industry’s iNDemand pay-per-view service, which recently signed its first studio video-on-demand licensing deal with Universal Studios, said the company “has no interest in streaming movies over the Internet. Cable VOD will enable (studios) to sell their movies right now, not several years from now when technology will make streaming more practical.”
Although none of the studio partners is precluded from starting its own VOD service, one executive said it’s unlikely any of the partners will launch a competing venture.
Disney and Fox have been talking for months about starting their own VOD services.
Universal Studios president and chief operating officer Ron Meyer said, “In addition to the experience of going to the theater or the local videostore, this service will provide an exciting and secure new medium for movie viewers to enjoy our films at home.”
Eye toward future
Although high-speed Internet access is increasing through cable modems, satellite and high-speed telephone digital subscriber lines, the venture partners realize that the number of homes with broadband access is relatively small and profitability is years away. But they are positioning themselves for the future.
“Our long-term goal is to make movies available on a pay basis on the Internet, whatever form the Internet ends up taking, and to create an additional marketplace,” Landau said.
The studios also may use the service to drive merchandise sales or link to other related businesses.
MGM Home Entertainment Group prexy David Bishop said the service will allow them to do “one-on-one marketing with consumers, as does Amazon.com.” He added that it has yet to be determined whether MGM will begin selling merchandise such as videos directly to the consumer.
Jack Waterman, president of worldwide pay television for the Paramount TV Group, said the parent company became convinced during the process that a collective service involving multiple studios was the best strategy.
“It’s great to get five studios on the same sheet of paper, promoting movies in the same fashion, ensuring protection against piracy,” he said. “We would never have that combined strength going our own way.”