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MovieBeam offers first HDTV online movie rentals

Posted by iNext - 2006-02-16

A video on demand movie service spun out of Walt Disney Co. is introducing on Tuesday the first U.S. home delivery service for high-definition films, backed by top Hollywood and Silicon Valley partners.

MovieBeam, of Burbank, California, said it plans to begin offering first-run films this week from six of the seven film studios in standard digital video format and high-definition films from Disney and Warner Bros. studios.

The video-on-demand service is aimed at heavy movie renters and initially will be offered in 29 U.S. cities, including New York, Chicago and Los Angeles, at prices competitive to renting the same movie at video retailer Blockbuster Inc.

"They appear to be ready to deliver true high-definition movies. That's a breakthrough," said Gerry Kaufhold analyst In-Stat/MDR.

MovieBeam, which was founded by Walt Disney four years ago, appeared to have run out of steam when Disney took a $24 million write-down on company last summer. It was revived last month with a $48.5 million cash infusion from Disney, Cisco, Intel Corp. and three venture capital firms.

MovieBeam bypasses network bottlnecks through a technology called datacasting, which broadcasts up to ten new movies a week to subscribers using an exclusive transmission deal to send data signals over the Public Broadcasting System network.

Delivering high-definition (HD) videos to consumers has been restricted by the limits of high-capacity networks needed to deliver feature-length videos to millions of consumers via satellite, phone or cable TV networks.

It also gets the jump on the emerging high-definition video disk market, which has been hampered by standards battles.

Cisco Systems Inc. will sell the MovieBeam film storage boxes, which has capacity for up to 100 movies, under its Linksys consumer electronics brand through U.S. electronics retailers Best Buy Co. CompUSA and Sears.

The Linksys box, with capacity for 100 movies, is priced around $200, after a rebate, and a $29 activation fee. It's meant to be stacked on top of a cable TV set-top box and comes with a paperback-book sized antenna to receive movie updates.

First run standard format videos rent for $3.99 and high-definition videos rent for $4.99. Older movies in the catalog cost $1.99 for standard format and $2.99 to rent high-definition format movies.

"If you're somebody who rents an awful lot of movies, this is potentially attractive," Forrester Research analyst Josh Bernoff said.

"But, for the great mass of the movie-viewing public, getting a separate set-top box just to get movies is an awfully big stretch," he said.

JUMPSTARTING U.S. ONLINE MOVIE DELIVERY

Despite frequent obituaries for the video store industry, seven out of ten movies are still rented at retail outlets. An estimated 85 percent of rentals are for first-run videos -- the 50 or 60 latest releases prominently featured in stores.

It's this piece of the video market MovieBeam targets.

MovieBeam offers consumers the ability to rent separate movies. By contrast, Netflix Inc. offers DVD rentals for a monthly subscription fee from a library of 30,000 films.

Late last year, Netflix Chief Executive Reed Hastings said the online DVD rental company had postponed the launch of its own movie download service, which was to have debuted in 2005 because of problems acquiring content.

Hastings said in October that Netflix was working to develop technology to deliver online movies so the service can be ready to launch "when the content climate begins to thaw."

Media companies had resisted allowing widespread online downloading of first-run movies for fear of cannibalizing the huge profits they make on DVD sales and of losing DVD sales to piracy.

Wedbush Morgan analyst Michael Pachter said on Monday that there is also a question of whether U.S. broadband penetration is sufficient to make online downloading a significant revenue generator for the studios.

"You can't rent high-definition films today," said investor Matthew Howard of Norwest Venture Partners, a co-investor with Mayfield Fund and VantagePoint Venture Partners. "The beauty is that everyone else has to work out network access in order to offer anything similar," he said of potential online rivals.



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