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Burning Questions

Newfoxlogo It didn't take long for the brickbats to start flying after News Corp. announced its plan to sell downloadable movies through MySpace and other Web siblings. I have to agree that charging full price for a movie that can't be burned onto a regular DVD seems doomed to failure, although it probably won't matter for a $1.99 episode of 24. Until home media servers move beyond the oddity stage, at least, DVDs are the storage format of choice for people's movie collections, and those discs need to play on a regular DVD player, not just in a PC's DVD drive. Otherwise, customers are left to watch X-Men: The Last Stand on their 17" computer monitor -- or connect their PC to their living-room TV, a behavior too geeky for most people but not geeky enough to be aspirational (besides, the downloads won't work on a Mac).
I know, I know, Fox made a big deal out of the fact that the movies could be transferred to a portable device. Just not the popular kind.
The fundamental problem here is that CSS -- the form of encryption used on prepackaged DVDs -- isn't available yet for discs burned on home computers. It's not a technological problem so much as a compatibility issue. The electronics and entertainment companies that control CSS didn't want the technology used on cheap recordable DVDs in part because too many older DVD players wouldn't recognize the homemade discs. In a little-noticed announcement earlier this month, the companies said they've come up with a solution -- requiring customized recordable DVDs that are compatible with more players -- and they expect to allow the first use of CSS on homemade discs late this year. To have any chance of succeeding in the short term, Fox will have to make that kind of DVD burning available to downloaders, instead of relying solely on Microsoft's DRM.
One might argue -- OK, I have argued -- that by the time movies are available for downloading, bootlegged versions of the DVD are already available online. People who want to steal the movie already have a perfectly good (and free) source, so why would they pay $20 for the official download? The answer from executives at other studios, who also insist on encrypting their downloads, is that providing movies without DRM would breed the kind of buy-and-copy piracy that infects the music industry. People who wouldn't go to the trouble of downloading a pirated movie would happily burn copies of legitimately downloaded titles for all their friends. That seems like an assumption that could be tested in the marketplace, but don't hold your breath for any experiments. The studios rely too much on DVD sales to take even a slender chance of undermining them.

Fox Goes Vertical

Xmen The Times has an intriguing story today by Chris Gaither about News Corp. planning to distribute movies from the studio it owns (20th Century Fox) through Web sites it owns (Direct2Drive.com and, later, MySpace.com). Sound familiar? You might recall the conglomerate's original plans for movies online, announced five years ago: a joint venture with Disney to offer videos on demand exclusively through Movies.com. The site would have carried only films made by Fox, Disney and their affiliates, and would have gotten new releases before cable video-on-demand services. The other major studios' joint venture, Movielink, would have been shut out. News Corp. abandoned the effort, however, after the Justice Department launched an antitrust probe (which also examined, and cleared, Movielink). Disney finally cut a deal with Movielink in 2003, but Fox held out until last December. Obviously, News Corp. is still eager to cut out the middleman -- if not exclusively, than at least as one option. After all, what's the point in being the world's most powerful distribution company if you can't deliver your own content? The $770 million MySpace acquisition makes more sense now, doesn't it? Because MySpace isn't a content play, really -- not like Viacom's acquisitions -- but rather an online approximation of buying a group of local broadcast stations or a satellite TV company. The main difference is that it's harder for News Corp. to push Fox content at people through MySpace than through a Fox TV station. But then, MySpace has a much larger audience on any given day than KTTV....

Stay-at-Home Consumers

(Los Angeles Times)

The Times is running a series of stories about technology's effect on how young people consume entertainment, and you can find the pieces (for a limited time only — that's our business model) here. The series is based on a poll we conducted with Bloomberg of minors and young adults between the ages of 12 and 24. The obvious shortcoming is that we don't have similar data for adults older than 24, which would have made for a nice baseline. Be that as it may, there are still plenty of interesting nuggets to ponder. One of my favorites: given the choice of watching a movie at home or going to a theater, assuming the DVD was available as soon as the movie hit the multiplexes, 54% of the 21- to 24-year-olds flatly said they'd rather see it at home. The percentage dropped steadily with each block of younger respondents. In all age groups, between a third and a half of the respondents said the answer would depend on the movie.

There's lots of ways to interpret the results. Here's mine. The magic of movie theaters wears off around the same time people get full-time jobs. Not that it should -- instead, theater owners have squandered it by relying far too much on being the only place to see a movie, rather than actively competing for viewers. They haven't focused on making the experience unique and better than the alternatives. Sure, we tend to be a nation of self-centered and boorish people, but I'm old enough to remember the days when a) there were ushers, and b) they weren't afraid to tell yakkers to shut up or leave. Eliminating the theaters' exclusive window would force them to get competitive again.

In a recent visit to the Times, John Fithian, head of the National Association of Theatre Owners, argued forcefully against eliminating his members' most important advantage. Without an exclusive window, he predicted, thousands of cinema screens would go dark, and moviegoing would become an expensive treat for the elite. Maybe so, but we're all just guessing here. His more persuasive argument was that movie piracy would increase because DVD-quality copies would be available even before a movie's premiere. Given how leaky the current DVD distribution system is -- pirates routinely post a bootlegged copy of the DVD weeks before its official release -- that's a real risk. But the other possibility is that legitimate consumption will expand because consumers will have more ways to satisfy the demand stimulated by Hollywood's marketing machine. The studios need to find out one way or another, and surveys won't provide the answer.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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