The Terrors of Tinseltown

Think the VCR scared the motion picture industry? Peer-to-peer file-sharing, which enables users to swap digital content, could cut the major studios out of the distribution loop. Here's a look at the CFOs behind the Napsterization of Hollywood.

Back at Angry Coffee, Adam Powell wonders about the process, as well. For now, he’s got his hands full steering clear of the Hollywood legal juggernaut. “We want to do this by the book,” Powell says. He pauses, as if contemplating the sword of Damocles that seems to be hanging above the heads of all the new-media revolutionaries. “It’s a chess game,” he says. “And believe me, you have to make moves very carefully or your king will get put to checkmate.”

Epilogue

In late February, weeks after I turned in this story, Bertelsmann eCommerce Group president and CEO Andreas Schmidt held a press conference. Bertelsmann (www.bertelsmann.com), you may recall, signed a partnership with Napster in October — an act that was seen as high treason by some record company executives, pure idiocy by others.

At the press conference, however, Schmidt dropped something of a bombshell. He revealed that, by selling music digitally over Napster, rather than selling compact discs, Bertelsmann could save at least $2.40 per CD. Typically, record labels net only about 35 cents profit for each compact disc they sell. By switching to music delivery over Napster, Schmidt noted that the company would have almost no additional costs — but would have additional revenues coming in. “If we switch,” he said, “all these delivery costs, all these distribution costs, they go away.”

It turns out Travis Kalanick’s math may have been right after all.

Russ Banham is a contributor to eCFO.

Dawn of the Killer App

The heads of the major studios may not be wild about P2P delivery of motion pictures, but that doesn’t mean they’re dead set against online movies. Far from it. While most of the big players have kept their Net plans under wraps, industry insiders say the studio heads view virtual delivery of films as the next great window (channel).

Nobody knows when they’ll open the window, however — not even the studios. Although an industry spokesman says several major entertainment companies are set to launch Internet initiatives by this summer, such a timetable may be optimistic.

Warner Brothers (www.warnerbros.co m), part of the AOL Time Warner franchise, is said to be digitizing its film archives, making it possible to distribute the company’s movies online. There appears to be no definite ETA for this, however. Sony Pictures (www.sonypictures.com) has announced a video-on-demand (VOD) project called MovieFly, which may offer movie rentals over the Web — in the near future. Disney (www.disney.go. com) is also reportedly developing a Net-based VOD strategy. Initially, it was thought the plan might involve the company’s Go.com Web site. But that’s doubtful — Disney recently pulled the plug on Go.com. Word is that Net division of Fox (www.foxmovies.com) is currently in discussions with Disney about a joint VOD strategy, although this cannot be confirmed. The new owner of Universal Studios (www.universalstudios.com), the French company Vivendi, holds a big stake in several cable systems. Those holdings could give Universal a leg up in delivering video-on-demand.

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