Downloads still waiting

Music rights, legal details slow Internet VOD growth

By Paul Sweeting -- Video Business, 8/18/2006

AUG. 18 | SAN JOSE, Calif.—With the studios’ recent embrace of authorized burning of downloaded films, the Internet-based video-on-demand business moved a step closer to challenging the long supremacy of DVDs in Hollywood. But to those closest to the download business, long delays in clearing digital rights to titles and other legal details remain significant obstacles to closing the gap with optical discs.

“The reason Netflix can say it has 60,000 titles and we can’t is because the studios have put out 60,000 titles on DVD,” CinemaNow president Bruce Eisen said at the Digital Hollywood conference here last week. “All Netflix has to do is go buy the DVDs and start renting them. They don’t ever have to talk to the studios if they don’t want to. We can’t do that. We can’t go buy the DVD and start downloading it because that’s not the way our copyright laws work.”

Appearing on a panel with executives from Movielink, Moviebeam, BitTorrent, Akimbo and others, Eisen said clearing all the necessary rights to major studio titles continues to be a tedious, labor-intensive process, preventing CinemaNow and other download services from offering consumers the same breadth of inventory found on Netflix or in even a modest bricks-and-mortar video store.

“It’s [clearing] the music that’s the problem,” Eisen said. “The music publishers know the studios have to come to them.”

Although the studios generally own the copyright on any audio/visual element created for a movie, the music used on soundtracks is often created separately and is covered by a separate copyright owned by the music publisher.

Before the studio can offer a movie in a new format, such as a digital download, it must negotiate permission to include the original music, which typically means paying a royalty to the publisher.

The problem is particularly acute with older catalog titles, for which the contracts covering the initial use of licensed music films are typically limited.

“The studios started clearing the rights for everything a few years ago, including the music, so for new films, it’s generally not a problem,” Movielink chief marketing officer Mary Coller Albert said. “It’s going backwards that’s the problem.”

Because of that, she said, download services remain a long way from being able to offer consumers access to the sort of rich catalog that Netflix or Blockbuster Online offer.

“It’s going to take some time,” Coller Albert said. “But remember, it took Netflix 10 years to get to 60,000 titles.”

Moviebeam sales and marketing VP Carl Crabill said the lack of a competitive catalog is a factor in the over-the-air VOD service’s go-slow rollout strategy.

“We’re sort of sitting on the sidelines, waiting for the opportunity to create real consumer demand,” he said. “We need to be able to offer a wider range of titles, we need to get the [digital rights management] issues worked out, and we need comparable pricing to physical media.”

Although rights issues remain a challenge, the mood was not all gloomy.

“The main reason the download-to-own business hasn’t taken off is because there has been no easy or convenient way to get it to your TV,” Eisen said. “Now that we have burning, we’ve solved that problem.”

Eisen said early consumer response to CinemaNow’s new download-and-burn offer has been “incredible.”

Crabill said on-demand services also continue to get more competitive with DVDs.

“It was just this year that we started getting content day-and-date [with the DVD],” he said. “Now, about 20% of our content is day-and-date. That’s a lot of progress in a short time.”

Coller Albert said online services could capitalize on other marketing strategies pioneered by Netflix even if they can’t yet offer the same breadth of titles.

“Would I like to have a better catalog? Yes, but that said, I don’t want to just throw a bunch of crap at you without some way of finding what you want,” she said. “Believe it or not, long lists of titles is really not a good consumer experience.”

Instead, she said, Movielink would begin rolling out recommendations, ratings and other tools to help users discover titles that match their tastes.