Video-On-Demand Lures Studios, Media Giants

Media titans are finally embracing the Internet as a delivery medium to the masses.

Media titans are finally embracing the Internet as a delivery medium to the masses.

Five major movie studios — Metro-Goldwyn-Mayer Studios, Paramount Pictures, Sony Pictures Entertainment, Vivendi Universal and Warner Bros. — last week announced a joint venture to stream new and old movies to broadband users on a video-on-demand basis. In a separate announcement, AOL Time Warner launched a new division to accelerate the growth of interactive television and video-on-demand services.

"By focusing our companys combined resources behind this enormous opportunity, we will bring new interactive video services to mass-market consumers faster than any other company in the world," said AOL Time Warner CEO Gerald Levin.

The moves occur as broadband use in the U.S. is reaching a critical mass that justifies new content services. Major movie studios had been holding back streaming media rollouts.

According to the National Cable & Telecommunications Association, the number of U.S. customers with high-speed Internet access via cable modem jumped by 920,000 in the second quarter to 5.5 million. And North American Digital Subscriber Lines totaled 4.1 million at the end of June, according to TeleChoice.

The arrival of Net-based movie distribution adds another wrinkle to the quickly changing landscape of pay TV, which now shows signs of consolidation among major players.

As AT&T Broadband entertains offers from rivals of No. 3 cable operator Comcast — whose initial offer was rejected — General Motors mulls the merits of blending its Hughes Electronics and DirecTV satellite properties with second-ranked satellite broadcaster EchoStar Communications.

"The fact that a combination of Dish Network and DirecTV would comprise only 18 percent of the multichannel TV market, and our willingness to discuss nationwide pricing to address markets where there is no competition from cable, give us confidence that we will receive the necessary government approvals," EchoStar founder Charlie Ergen said of GMs willingness to deal.

Meanwhile, even the nations No. 2 cable operator, AOL Time Warner, is considering competing against Comcast to unite with industry leader AT&T Broadband. That kind of seeming hubris is possible these days because there are no established limits on cable market share after a federal appeals court struck down the Federal Communications Commissions 30 percent ceiling.

If a new satellite giant emerges from the talks between EchoStar and GM, or the earlier proposed merger of DirecTV and News Corp., content providers will have major leverage to use against the cable giants. But they also realize that they will face a much more restricted market for their products, making negotiations tougher.

With the music still playing, entertainment giants such as The Walt Disney Co. realize that they must stake out positions now — before the next round of musical chairs.