The low-down on Movielink's new download-to-own offerings

Movielink, the joint venture started in 2001 by five major studios to foster legal Internet movie downloads, is announcing today that it is finally offering digital movies that you can own, not just rent. This has been a long time coming. Studios have said that they don't want to suffer the same fate as the record industry -- namely, out-of-control piracy -- and yet until today they'd completely avoided the phenomenally successful Apple iTunes `you buy it, you own it' model of electronic commerce. Movies, like `King Kong' and `Brokeback Mountain,' will be available for download from Movielink as soon as they're released on DVD.

So far, so good. But the studios are learning veeerrryy sloooowwwlly how the Internet customer behaves. (Movielink CEO Jim Ramo is no dummy, but his business is constrained by what his studio partners will let him do. Poor guy: it's like he's in business with the mob.) There are three giant drawbacks to buying Movielink's downloads-to-own:

1. They're deliberately very difficult to watch on a TV, and impossible, for now, to watch on a portable device like a video iPod.

2. Movielink only supports Windows 2000 or XP, not Mac or Linux. (God bless Microsoft DRM, which deserves a thorough investigation from the Justice Department.)

3. Despite the fact that the movies are basically limited to playing on your PC (you can burn a DVD that will play on two other computers, but not on a TV), the movies are priced higher than DVDs. Memo to the studios: consumers expect digital goods to be priced the same or less than physical goods, not more. (An interesting note -- a quick check of album prices on iTunes and Amazon finds that the prices are pretty close -- ten bucks will buy you a complete album in both places.)

Here's a snippet from Saul Hansell's piece in this morning's NY Times... he notes that the digital downloads also lack the extra features of a DVD, like director's commentary and deleted scenes:

...the services must compete with chain stores and Web retailers that often discount DVD's to below their wholesale cost to attract shoppers. Such low-priced items are known among retailers as "loss leaders."



For example, "Memoirs of a Geisha," from Sony, will cost $19.99 to download from CinemaNow and $25.99 from Movielink. As a DVD, by contrast, it is priced at $16.87 at Wal-Mart. "King Kong," from Universal, which will cost $19.99 from both download services, is being sold on DVD for $14.96 by Amazon.com and $13.99 by Circuit City.



"They are giving the consumer less and charging more for it," said Warren N. Lieberfarb, the former president of Warner Home Video and now an entertainment technology consultant. "To me this really stacks the deck against mass consumer adoption."



Mr. Lieberfarb said providing a download costs a studio at least $5 less than a DVD because the computerized format does not require manufacturing, distribution and product returns. But the studios are wary of offering inexpensive downloads out of fear of offending the chain stores.



"The studios are caught between a rock and a hard place," Mr. Lieberfarb said. "If they don't make movies available electronically, piracy will get them. But they simultaneously have to take care of their brick-and-mortar customers." If the chain stores became angered, he said, they might pull back from their heavy promotion of DVD's.

Hansell's piece also suggests that one way the studios could make Movielink more attractive is by turning it into a vast archive of hard-to-find movies -- stuff that isn't available on DVD, for instance. But that hasn't happened yet. There are only 300 download-to-own titles available, and about 1100 rental titles on Movielink. That compares with 55,000 titles available for rent from Netflix.

Sarah McBride of the Wall Street Journal observes that "one of the many reasons the studios founded Movielink, however, was to show Congress and the courts they were taking action to provide a legal alternative to piracy. That way, if they went to lawmakers to ask for harsher piracy laws, or to courts to ask for their enforcement, they could say they weren't simply afraid of technology."

From the LA Times piece, some thoughts from Netflix CEO Reed Hastings, who has been having his own trouble obtaining movies from the studios for digital delivery:

U.S. consumers spent $24.3 billion buying and renting home videos last year, according to Digital Entertainment Group, a trade association. And with sales projected to grow to $30 billion by the end of the decade, the studios are more focused on supporting their existing business — and backing a new generation of high-definition video disc formats known as Blu-ray and HD-DVD — not cannibalizing the market to support downloads, said Reed Hastings, chief executive of online movie rental service Netflix Inc., which mails DVDs to 4.2 million subscribers.



"At some point, the studios will be interested in broad-scale licensing," Hastings said. "At some point, the Internet will be connected to the television. We see those as the two linchpins. That will happen eventually, but it won't happen this year."



DVDs account for 46% of studios' sales — more than double movie box-office receipts, Adams Media Research Inc. said.

Also...CinemaNow is also going to be offering download-to-own movies. CinemaNow's deal will make available movies from Sony, MGM, and Lionsgate, which is the majority owner of CinemaNow. (CinemaNow's movies, it should be noted, can only be played on one computer, making Movielink seem by comparison like a generous uncle.) Movielink will have titles from Universal, Sony, Warner Bros., MGM, and Paramount. Disney seems to be sitting on the sidelines for now, perhaps waiting to offer its movies via iTunes?