A new alliance of telecom carriers, movie studios and manufacturers plans to use video-on-demand to cut a broadband swath to the front door of the consumer willing to spend freely on entertainment.
The question for some industry rivals: Who gets mowed down in the process? Among the most threatened are cable operators and video rental chains, intermediaries that may be bypassed by the new distribution channels.
At the same time, the advent of true video-on-demand via the Internet could boost sales of DVD-producing personal computers using Intels new Pentium 4 chip. Sony, the leader of the video joint venture, plans to capitalize on the effort through sales of its Vaio PCs and other devices.
Sonys commitment to a new broadband strategy linking content and peripheral devices is one sign that a new wave of convergence is coming.
After sitting out much of the Internet revolution, the conservative entertainment and electronics giant is taking the lead in merging applications for the TV, PC, stereo and game system via the Internet.
"In increasing numbers, we see audiences turning towards the broadband Internet as an exciting channel through which they can access entertainment," said Mel Harris, president of Sony Pictures Entertainment, in announcing the content-sharing deal. "Sony Pictures, along with other studios, intends to give them the opportunity to do this."
While the mechanics of the joint venture have not been worked out, the studios - Metro-Goldwyn-Mayer Studios, Paramount Pictures, Sony, Universal Studios and Warner Bros. - say they will share their movie libraries on a nonexclusive basis.
Delivery will come through an open access IP system. Until recently, the studios hesitated to provide digital versions of content that could be redistributed over the Internet. But breakthroughs in digital rights management software have given the studios adequate protection for launching the service, executives said.
"We believe human nature is not predisposed towards piracy," said Barry Meyer, chairman of Warner Bros. "By proactively offering a convenient, affordable, high-quality source of content, the film industry can meet the needs of the public while successfully protecting our intellectual property."
With more than 10 million broadband households and nearly 35 million broadband-enabled screens, the market has reached sufficient size to support the on-demand system, officials said. A glut of high-speed fiber throughout the U.S. and cheaper compression technologies should allow lower distribution costs.
The advent of widespread video-on-demand will also mean improved technology for businesses using it for training, education and communication. Servers and software designed to scale for irregular peaks in demand will result in higher quality and more reliability.
"The enterprise market is beginning to show some clear return on investment on streaming media," said Satish Menon, chief technical officer of Kasenna, a Mountain View, Calif., spin-off of Silicon Graphics Inc. and a founding member of the Internet Streaming Media Alliance.
Menon, an engineer who worked on the Time Warner interactive TV trials in Orlando, Fla., in the early 1990s, said the involvement of the studios is the key to making video-on-demand a reality. "Its all about availability of content," Menon said.
For survivors in the competitive local carrier arena, video-on-demand over DSL could mean salvation or doom, depending on how the regional Bells use their clout in Washington and in contracts with the studios.
Left to their own devices, competitive carriers could carve out some profitable business selling video to high-density hotels and apartments in package deals for voice and Internet service. But exclusive content deals with the Bells and possible legislative limits on sharing high-speed networks could stymie their plans.
For cable operators, the studio deal represents a dilemma. While renting movies over high-speed Internet connections should boost the cable modem business, the operators bread-and-butter video service could suffer. Industry officials said they fear the studios could withhold content from cable channels in favor of their streaming media outlets.
Video retail giant Blockbuster said that, while it is pursuing its own channels for video-on-demand, it is not overly worried about the studio deals. "What theyre talking about is really equivalent to pay-per-view," said Blockbuster spokesman Randy Hargrove.
However, the pay-per-view business is small potatoes compared to the thousands of movies the studios will offer on their new service.