FIVE Hollywood movie studios form joint venture for video on demand service

Friday, August 17th 2001, 12:00 am

By: News On 6

LOS ANGELES (AP) _ The fear of piracy and the lure of a vast new marketplace for their movies has led five major Hollywood studios to form a joint venture to provide Internet-based video on demand services.

The agreement was announced Thursday by executives from Sony Pictures Entertainment, Universal Studios, Paramount Pictures, Metro-Goldwyn-Mayer and Warner Bros., who said they will supply new and older releases.

While the new venture does not include The Walt Disney Co., 20th Century Fox, DreamWorks or other studios, sources familiar with it told The Associated Press that Disney will announce its own video on demand service within 10 days. Fox is also said to be readying its own initiative.

The sudden flurry of activity comes at a time when it is still unclear whether consumers will pay to watch movies on their computers or wait as long as an hour to download large computer files. Other cable and Internet-based video on demand services exist, but have found limited audiences in large part because of a lack of content from the major entertainment companies.

While the short-term economic gain from video on demand may be uncertain, the studios see great value in avoiding the problems of the music industry, which fought a bitter battle against the file-swapping company Napster before forming rival music services of its own.

``Anti-piracy was one of the most compelling factors for us,'' said Jack Waterman, president of worldwide pay TV at Paramount. ``We have been extremely conservative doing any video on demand licenses because we have not been satisfied it was secure.''

The yet-to-be-named company will be equally owned by the studios and use technology developed over the past year by Sony, which has been working on its own video-on-demand service, dubbed ``Moviefly.''

The company will offer movies that can be downloaded over high-speed Internet lines and played on computers using digital rights management tools and movie players from Real Networks and Microsoft.

Each company will determine when their films will become available on the new service and at what price.

``We feel we needed to offer a legal, high quality, user-friendly alternative to what is currently out there on the Internet today,'' said Kevin Tsujihara, executive vice president of new media and strategic planning at Warner Bros. ''By getting out in front of this, we were going to hopefully prevent some of the issues confronting the music industry.''

Consumers will probably be charged a one-time fee, similar to the cost of renting a video, for a license to watch the movie for a set time.

The new venture will have a non-exclusive agreement with studios for their films. Studios will be free to pursue other arrangements with Internet or cable television companies.

The non-exclusive arrangement is necessary in part to avoid the antitrust concerns that might normally arise from such an unusual cooperation among the studios.

Analysts said the announcement is more important for what it says about the studios' determination to control their product than whether consumers are ready to pay for movies on their computers.

``It's not so much that this service is likely to be a huge success as that it indicates the willingness of Hollywood to move forward and deliver on the promise of video on demand,'' said Eric Scheirer, media and entertainment analyst at Forrester Research.