CS 99I

CS 99I: Business on the Information Highways

By Kevin Shen, Stanford University March 9, 2001

The Online Movie:

Online theaters, Internet video viewing, and digitized movies

As technology continues to increase, businesses are increasingly basing themselves on the Internet. The entertainment industry is not one to be left out. Online entertainment, specifically online film, is currently a developing business, complete with faults and benefits for the business and for the consumer. Companies such as PayForView.com and iFilm.com already feature digitized entertainment over the Internet, Blockbuster is attempting to establish a video-on-demand online video rental and viewing system, and companies such as National Cinema Networks, Inc. and WAM!NET with BOXX technologies are working to digitize movies and transport them directly into movie theaters. Unfortunately, even with the capable technology for digital movie transfer, transfer time would also take time. A two hour film, maintaining good quality, compresses to around 600-800 megabytes, and depending on bandwidth, transfer can take anywhere from ten minutes with college Ethernet connections to a couple hours with a modem. For streaming video, bandwidth must be at least equal to the kilobytes per second of the video, so one can view the data while transferring it.

PayForView.com, according to Business Wire, is “an integrated on-line and off-line entertainment, advertising and design company with broad experience and expertise in the on-line streaming, rich-media and advertising sectors. It has distributed movies, music, sports and live events direct to viewers on a pay-for-view, retail and e-commerce basis. The company also uses its streaming media expertise and a proprietary, rich-media template to design on-line advertising and marketing solutions.” The company acquired a partnership with Screaming Media last year, a “leading global aggregator and e-distributor of digital content on the web,” that uses “proprietary harvesting and filtering technologies.” PayForView.com makes its money by securing as many acquisitions as possible to broadcast over their website and maximizing profit with offline sales as well. They also sell advertisements during their broadcasts with a new advertising product, EndureAd.

iFilm.com uses streaming technology to showcase various short films through its website. Shorts that can be considered for Academy Awards can be viewed through the site, and it is prospectively working on iTheatre, a co-branded partnership with AMC theaters. According to AMC’s guest relations, the iTheatre has no plans for ticket sales or a cyber concession stand.

Blockbuster has signed an exclusive 20-year agreement with Universal Studios and Enron Broadband Services for an Internet-based Video-On-Demand service, distributing Universal’s films over the Internet through digital subscriber lines. However, this prospect is slow in forming because, according to John Pallatto of the Internet World News, there is no proof of revenue through this service.

Companies such as National Cinema Networks (NCN) and WAM!NET and LucasFilm deal with digitally encoding and transmitting films directly into theaters. For digital film delivery, NCN has created a “DTDS(TM) system, which enables theatres to manage digital content, including live events, distance learning, closed-circuit meetings and, ultimately, full-length feature presentations,” according to Adrian Toader, senior vice president of business development and operations at NCN. WAM!NET works with BOXX technology products to encode, decode, and deliver different video formats with higher resolution pictures, according to Business Wire. The technology also allows for video playback services. WAM!NET would work on a transactional or pay-per-use system. George Lucas is also making plans to completely digitize his films, providing benefits in creating special effects and distribution, according to the Wall Street Journal.

Benefits and Consequences for the Movie and Theater Business

Why would a movie theater choose to send its business online?

Movie theaters have are currently struggling to stay afloat after their surge of creating multiplexes with stadium seating and plush seats. According to the Daily News (NY), Loews Theaters, the second-largest movie theater chain in the country, filed for bankruptcy due to their over-expansion and their inability to pay off their debts. According to the Atlanta Journal and Constitution, three other major chains have claimed bankruptcy; construction costs are too high and ticket sales are declining. Because of this, concession and ticket prices are increasing and less people are going to the movies, according to the Boston Globe. Perhaps by creating an online theater, these chains would stretch to a wider audience, attracting more people with cheaper prices and greater convenience, and the theater chains could thus spend less constructing giant megaplexes.

Digitization of film and direct transmission of movies to theaters would also have its benefits if studios choose to utilize this means of film distribution. According to the Wall Street Journal, there would be “huge cost savings” and filmmakers “will be able to more easily manipulate images using sophisticated computerized special effects.” Using such technology would include “greater flexibility for movie makers and more independence from the onerous studio-distribution process.”

But what are the consequences?

If current film releases were made directly available through the Internet, there would be much less of a need for individual tickets; viewing would not be charged on a per-person basis but a per-use basis. There would be no limit on how many people can be present viewing the film per paid ticket. This would not be too problematic for the video-on-demand service, for it would be equivalent to film rentals. Another consequence is that with such a new area of technology, it is impossible to guarantee that this new medium will be profitable.

Another major loss for the movie theater if they find themselves online in the near future would be the profit derived from concessions. According to Entertainment Weekly, theaters buy bulk concessions in bulk and charge well over what they paid. The Boston Globe recognizes that raised concessions and ticket prices are the major way for a waning theater business to regain profit, charging “more for less.”

What can be done?

My suggestions for the problems that come with the online movie theater could simply be to somehow incorporate a cyber concession stand. Instant access to food would be rather difficult, but perhaps the theater could collaborate with some grocer delivery service, such as HomeGrocer.com or PDQuick.com, to provide concessions delivered directly to the audience. This would require some kind of time limit or pre-order before the film, but generally the delivery services have policies for speedy delivery, which would make the time necessary minimal.

Benefits and Consequences for the Audience

Why should audiences embrace an online movie theater?

The concept of an online movie theater would probably be appealing to an audience, allowing direct access to films that the viewer would like to see. The trip to the theater or the rental store would be eliminated, thus saving time and energy. The direct transmission via Internet would do away with the possibility of sold out shows or unavailable videos and the local video store. Convenience would be optimized and the viewer can just sit back and enjoy the show from the comfort of his own home, complete without the sticky floors and noisy neighbors. Digitized film would also enable DVD quality resolution through the television or PC, or in a theater, depending on which aspect of the technology one uses.

Prices would inevitably lower than actual theater prices. Because of its cheaper distribution, ticket prices would not need to be so high, and concession prices can be abandoned (using food from home) or significantly reduced. Therefore, the online movie theater would also provide a more cost-efficient form of entertainment.

But what are the problems that the viewers could have?

Perhaps the biggest drawback to the use of an online movie theater would be the equipment necessary to efficiently support the technology associated with the business. Broadband connections are required for video transfer, and without the necessary equipment, problems in quality and reception are likely to occur. Such equipment would inevitably be more expensive and thus unaffordable to many.

Furthermore, much of the movie theater atmosphere is lost. The big screen is diminished, and the Surround Sound is minimized. Much of the time the movie theater serves as an escape, and watching films at home would not free one from the distractions of their every day life. The big screen and booming sound, quintessential elements associated with a movie, would be lost. To create a home entertainment system, extra space for a large projection screen and effective modes for room dimming would be necessary.

What can be done?

Restoring the movie theater atmosphere is difficult and hardly feasible. Wall projections or big screen televisions could help, but that would simply up costs, making the actual theater seem more inviting.

Equipment necessity is being taken in consideration by Blockbuster and its Video-on-Demand goals. According to the Internet World News, Blockbuster’s partnership with Enron is an attempt to create a more widespread use of the broadband technology, spreading sufficient technology to homes and also lowering prices: “If VOD services like Blockbuster's are able to use the movie content to increase their subscribers and expand the services, it will also help drive down the cost of key VOD equipment, such as the set-top boxes, which today are the most expensive component of the technology.”

Conclusion

Although much is still to be trod and little proof of success exists, the concepts of an online movie theater, digitized films, and video-on-demand services are breaking through, becoming potential new waves on the Internet business scene. Sites such as PayForView.com and iFilm.com have already implemented streaming technology to bring live events or short movies to the Internet, whether for free or not. Promising greater convenience and cost-effectiveness, this new business could replace the movie theater or the video rental store. . . but most likely not too soon. Although this concept has its benefits, people may not have sufficient equipment to support the technology, and they may simply just enjoy the movie theater atmosphere. However, just like pay-per-view and cable television have, Internet films and digital distribution are sure to become a more viable option in the future. The following article provides prospective views on the contribution of such technologies to the video and movie industry.

Very Relevant Article

Enrique Rivero of Cahners Video Business Online reports on the assets and impacts of digital cinema and video-on-demand on the movie industry:

"The Internet may never become a major distribution channel for movies, according to a report by Forrester Research. The report found that digital cinema and video-on-demand will overtake the 'Net because consumers prefer watching movies on their TVs, and that the overall rise in digital delivery will transform industry pricing models.

"'The transition to digital cinema is in its early stages, but by 2004 it will be on a fast track to long-term commercial viability," Forrester analyst Eric Scheirer said. "And cable operators are moving aggressively with the rollout of next-generation digital services.'

"According to the report, technology vendors will supply the funding to develop digital cinema that exhibitors and studios have been reluctant to spend due to financial hardship or concerns over security.

"One-third of the nation's big screens will be digital by 2006, the report predicts. In addition, digital cinema will be the source of new revenue streams for theaters, among them being merchandising, in-theater advertising and premium sporting events.

"Cable companies, meanwhile, will win the race against DSL and digital broadcast satellite to bring VOD to the mass market, according to the report. It projects more than 25% of U.S. households will have digital cable with VOD services by 2006. As these formats take off, video chains contribution to studio revenue will erode from the current 65% to about 40% and a new model of transaction-based release windows will develop.

"Pricing would no longer be based on the delivery medium--such as theatrical release, DVD or videocassette or pay-per-view--but on payment type. It foresees rental as opposed to purchase release windows or ad-supported versus premium tier windows.

"The report claims that these changes will lead to a $6.5 billion increase in movie industry revenue by 2006."

References

Ashman, Anastasia. "Blockbuster has Big But Hazy Plans for Streaming Movies." Internet Daily News. July 21, 2001.

Furman, Phyllis. " New York-Based Movie Theater Chain Files for Bankruptcy." Daily News (NY). Feb 16, 2001.

Kempner, Matt. "Floundering Movie Theater Industry a Victim of Own Greed, Avarice." Atlanta Journal and Constition. Oct 1, 2000.

Mohl, Bruce. "Moviegoers Face Concession Price Hikes." Boston Globe. Oct 29, 2000.

Pallatto, John. "Blockbuster, Universal strike Video-on-Demand Deal." Internet Daily News.

Rivero, Enrique. "VOD to surpass 'Net." Video Business. Mar 13, 2001.

"NCN to Showcase Digital Entertainment and Delivery at ShoWest." Business Wire. Feb 26, 2001

"PayForView.com President Marc Pitcher Interviewed by CEOCAST.com." PayForView.com press release.

"PayForView.com to Receive Content from ScreamingMedia." PayForView.com press release.

" WAM!NET Selects BOXX Technologies' Hardware & Software Platform as Foundation of New Video Conversion and Transport Service." Business Wire. Mar 1, 2001.