Service to Offer All You Can Watch

RealNetworks Inc. and Starz Encore Group plan to start offering unlimited movies today through the Internet for a flat monthly fee -- with a limited selection of year-old films that can take hours to download.

Despite that drawback, the companies think their $12.95-a-month Starz! Ticket service will be a hit, largely because byzantine Hollywood contracts give them a virtual monopoly on this type of all-you-can-watch service.

That means Starz! Ticket has a potentially vital edge as a growing number of companies use digital technology to deliver movies in new ways. Among the players vying for shares of the $10.2-billion video rental market are Movielink and CinemaNow, which rent downloadable movies; Netflix Inc., which sends DVDs through the mail; and Blockbuster Inc., which has video rental stores around the country.

Each provides only a portion of what analysts and industry executives say is the ultimate home movie service: a virtual video jukebox that can be tapped from your couch. And while acknowledging that their service has shortcomings, executives with Real and Starz contend that offering unlimited movies for a flat fee is crucial to attracting couch potatoes -- more important than how soon the movies are available or how many are offered.

After all, they note, video-on-demand and pay-per-view services on cable offer movies much sooner than premium movie channels like HBO or Starz, yet they have a fraction of the sales.

Starz! Ticket will offer 100 movies to subscribers at any given time, with 25 titles added and dropped each week. The supply may increase if customers ask for a larger selection, Bob Greene, senior vice president of advanced services for Starz Encore, said in an interview last week.

The movies will be culled from what Starz offers on its cable channels. Unlike home video stores, which typically receive movies six months after they hit the theaters, Starz and other premium cable channels have to wait a year after a movie’s theatrical debut.

Subscribers will be able to download as many of the 100 movies as they wish and play them repeatedly until they are dropped from the Starz! Ticket rotation. A movie contains about 500 megabytes of data, which will take nearly two hours to download on a 600 kilobit-per-second Internet connection -- the minimum required by the service.

Analyst Josh Bernoff of Forrester Research predicted that Starz! Ticket would have limited appeal because most people prefer to watch movies on their television sets, not their computers. Real’s current anti-piracy technology requires movies to be played on the computer that downloaded them, and relatively few homes have televisions wired directly to their PCs.

“This is great for business travelers, but that’s a very small segment,” Bernoff said. “We’re talking about tens of thousands, not millions.”

Richard Wolpert, chief strategy officer at Real, said the service’s appeal would broaden over time. Downloading speeds are increasing and new technologies will allow downloaded movie files to be transmitted securely to TV sets.

Meanwhile, the existing Hollywood contracts all but guarantee that Starz! Ticket will have several years to incorporate new features without fear of competition from other subscription services. Starz, HBO and Showtime have exclusive long-term deals with the seven major Hollywood studios and top independents. Those contracts bar anyone else from offering all-you-can-download services -- and only Starz is poised to go online.

“We have exclusive rights” for six to eight years, boasted Starz Encore’s Greene.

He said the company was already paying for the Internet rights and that the new service would help recoup some of those costs. The company, a wholly owned subsidiary of Liberty Media Corp., reported this year that the fees it was paying for movies would increase sharply in 2004 and 2005, in part because of the Internet rights.

The rights issue could become a roadblock to fast-growing Netflix, which lets subscribers rent an unlimited number of DVDs by mail for $22 a month. Chief Content Officer Ted Sarandos said Netflix planned to phase in downloadable movies over five to 10 years, adding titles when they become available.

To Sarandos, the key to a successful subscription is being able to provide all the movies that customers want as soon as they want them. And unlike the download services, he said, Netflix can offer subscribers access to 22,000 titles by mail as soon as they’re on DVD -- not two to six months later.

Starz! Ticket will include some or all of the new movies released by Walt Disney Co., Sony Corp. and Universal and several independent studios. Next year it will lose its supply of Universal movies but will add more from Sony in 2006.

Analyst Michael Wolf of Cahners In-Stat Group said Starz! Ticket’s subscription model was the way to go.

“The biggest hurdle to all this is, you have to get the rights,” Wolf said. “And to do it yourself, if you’re a small company or a start-up, like Netflix, is a very difficult thing to do.”