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HudsonHawk.comMovielink will be another Internet flop.

By Ben FritzPosted Monday, Nov. 11, 2002, at 1:06 PM ET

On Nov. 11, five major studios—Universal, Paramount, Sony, Warner Bros., and MGM—unveil Movielink, a joint venture that, for the first time, allows customers to download a large assortment of studio films. Movielink's initial library contains about 175 movies—new and old, from Jimmy Neutron to Last Tango in Paris. They range in price from $1.99 to $4.99 for a 24-hour rental. It's a cool service, attractively priced. It's also going to be a flop on the order of The Adventures of Pluto Nash.

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Fortunately for the movie studios, they probably don't care that they've greenlighted HudsonHawk.com. In fact, they almost certainly know that Movielink won't make them any money. The site, and the tens of millions of dollars that have been spent on it, are pure PR: The studios have seen how music executives have been vilified as greedy Luddites, and they want to avoid that fate. Movielink's primary purpose, as some people involved in the project admit, is to demonstrate that the studios are providing a legal alternative for Internet movie pirates.

The press clippings had better be glowing, because as a business, Movielink provides a product for which there is almost no demand. For one thing, the service faces competition from the first technology to make films digital: DVDs. Movielink hopes people will download films to watch on their laptops during plane flights, but it's tough to see what Movielink offers that the local Blockbuster or DVD rental kiosks at airports don't.

Movielink is actually the second major attempt to build an Internet video-on-demand business for feature films. The first, a little-noticed independent venture called Intertainer, flamed out a few weeks ago after burning through almost all of its $125 million in venture capital and attracting just 147,000 customers. Granted, Movielink does a few things right that Intertainer did wrong. For one, it's owned by Hollywood. Intertainer had to license its films from the studios, and now it's suing them for alleged anti-competitive behavior designed to bury it and promote Movielink. In addition, there are small differences in the business plans: Intertainer streamed its movies, allowing viewers to watch herky-jerky films instantaneously, while Movielink requires higher-quality downloads that take about an hour. Intertainer charged a $7.99 per month subscription before users could rent films. Movielink doesn't require a subscription.

But in the short run, those changes won't make a difference. The real hope for Internet movie distribution is in the home of the future, where TV set-top boxes will be connected to the Internet, or where files stored on a computer will be wirelessly relayed to the television. But easy-to-use and affordable technology to make that happen is still years away. And besides, many people can already get video-on-demand (in the form of pay-per-view) on their TV screens from their cable or satellite providers.

There is one company that's been able to make money by offering feature films online: MovieFlix, which offers public-domain and independent movies that cost virtually nothing to acquire. With two employees and flicks such as Femalien and Bruce Lee in New Guinea (not to mention some soft-core adult content), MovieFlix makes a comfortable profit, with 6,300 subscribers paying $5.95 per month. The lesson is one movie studios won't want to hear: For the foreseeable future, small scale and niche content are the secrets to succeeding at Internet video-on-demand. That's bad news for Movielink. But, hey, advertisements aren't supposed to turn a profit.

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Ben Fritz is managing editor of Digital Coast Reporter and co-editor of Spinsanity. He can be reached at .

COMMENTS

Remark From The Fray:

Ben Fritz is undoubtedly right when he says the Hollywood studios probably don't care that they're not going to make any money from Movielink.com, at least in the short term. He's wrong, however, in assuming it's "pure PR."

Some day, the studios know, the Internet is going to be the backbone of a new form of direct-to-home delivery of movies and an important revenue stream (although probably not in the straight download mode they're testing with Movielink). Their goal at this point, is essentially monopolistic. The studios' greatest collective fear is that another Blockbuster Video could arise in an emerging new revenue stream while they're not looking.

Blockbuster currently controls 40% of the video rental market, and is rapidly moving toward 50%. For now, the video rental market is still the single most important revenue stream Hollywood has. No supplier, however, in any business, wants a single customer controlling that big a share of its business because it gives that customer far too much leverage over the supplier's margins and, ultimately, it's revenue and profits.

As it is, the studios are deeply resentful of the strangle hold Blockbuster has over their most important revenue stream, and they're not about to let that happen again.

The ultimate goal of Movielink is to get a toe-hold in the Internet-based video-on-demand business before the market is swept away in a wave of online piracy, or, worse, before some third-party distributor establishes its brand name with consumers--just as Blockbuster has done in the video market--and begins to call the shots on pricing, release windows and other critical aspects of the business.

The studios have never liked middlemen. In the 1980s, they set up a joint venture to compete with HBO, which at that point had the same hold over the pay-TV business as Blockbuster has over the video business. It was called Premiere, and was ultimately shut down by the Justice Department as anti-competitive. Think of Movielink as Premiere II, in an age of, from the studios' point of view, a more compliant Justice Department.

-- Paul Sweeting
Video Business magazine

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