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Friday, July 01, 2005

More depth on downloadable movies (or, Netflix vs Starz)

Eric Becker, the executive director of corporate communications at the Starz Entertainment Group, just e-mailed me about that last blog entry. His goal was to educate me a bit - and I'm grateful.

Everyone has been curious about Netflix's plans to offer downloadable movies to its subscribers, and especially its partnership, announced last year, with TiVo to develop some sort of movies-on-demand service that'd beam movies straight to your TiVo's hard drive.

Well, Eric's curious, too. His company offers a subscription service called StarzTicket, which for $12.95 a month gives users access to a catalog of about 300 downloadable films at any point in time. (The movies aren't yours forever - they do expire at a certain point in time.)

Eric points out that Starz, HBO, and Showtime pay millions for the rights to offer the output of the major movie studios as a subscription service, whether the subscription is delivered over cable, satellite, or the Net. (Starz and HBO each get about 40 percent of new releases, and Showtime gets the rest.) These are long-term, exclusive contracts "lasting well into the next decade, and possibly longer if contractual options are exercised for new films," Eric writes.

Essentially, they've got subscription-based movie delivery sewn up.

So what's Netflix gonna do? Could be pay-per-view, since those rights are non-exclusive. Or maybe focus on art house and specialty films.

"If NFLX-TIVO wants to use electronic delivery for art house/niche/int'l films, perhaps some of those rights are not already locked up," Eric writes. Or "if they want to electronically deliver to a PVR and charge on a transactional basis (a lot less compelling), they could cut separate revenue share deals with studios.[By transactional, Eric means a la carte.] Or, if they want to use old films, they might on a messy, title-by-title basis be able to piece together an assemblage of old films, but they still are not acknowledging the gigantic pre-existing hurdle of the long-term output deals that are already in place for the next decade or so with the premium networks when they discuss extending the Netflix brand and service to electronic delivery. When pressed, [Netflix CEO Reed] Hastings has floated the notion of waiting out our deals and outbidding one of us (forecasting that NFLX will also have more critical mass and subscribers by then), but he is not always forthright in acknowledging that this 'wait out' could be about a decade, if not more."

After I got Eric's e-mail, on the verge of the Fourth of July weekend, we chatted a bit by phone about other stuff. (Eric attended law school at Boston University, my alma mater. It's well-known as the tallest law school in America.)

Eric said that while the theatrical release window for movies is getting shorter, it isn't likely to vanish altogether (allowing studios to offer, for instance, a new release like "Wedding Crashers" simultaneously in theatres, on the Net, and on DVD - which might make a lot of consumers happy). Right now, films come out on DVD about four months after their theatrical release, and they show up on pay-per-view and on download services like CinemaNow and Movielink roughly six months after they've played your neighborhood cinema. Starz and other premium cable operators get them about ten months after they first entered the theatre.

Finally, I asked Eric what his colleagues at Starz were most excited about. He said that the guys at Creative had loaned them a Portable Media Center, which is similar to the Sony PlayStation Portable.

Eric thinks devices like these will increase the amount of video we watch when we're not at home (on the train, at the gym, etc), and I definitely agree. The Creative device could help Starz attract more subscribers to its $12.95 a month StarzTicket service - especially folks who don't get Starz on cable (30 percent of today's StarzTicket subscribers don't even *have* cable or satellite), or who aren't inclined to watch movies on their laptop, or...

Of course, Eric added that the digital rights management on these devices will have to be strong enough to make the studios comfortable.

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