MOVIE STUDIOS MAKE VIDEO ON DEMAND GAMBIT

Taking a cue from music business, which has seen its major labels much maligned for their apparent tardiness in dealing with digital distribution and the shifting business paradigms it implies, five major movie studios have formed a joint venture to distribute movies online via a cooperative video on demand (VOD) service.

Studios making the pact for the unnamed service, according to published reports, include MGM, Paramount Pictures, Sony Pictures Entertainment, Universal Studios and AOL Time Warner's Warner Bros. Others, including Disney and Fox, are said to be considering a rival JV, which would make the major studio VOD landscape resemble the major labels' proposed MusicNet and Pressplay digital-distribution consortia even more. Noticeably absent from the mix is DreamWorks SKG.

Separately, AOLTW has announced the rollout and planned expansion of a proprietary AOL VOD service the online giant has been testing on a small scale. AOL has formed a separate interactive video division, to be headed by former Time Warner Cable head Joe Collins.

The movie studios are moving to make the familiar "chicken and egg" question—i.e., which comes first, the digital pipeline to get movies to consumers or the licensed content to fill that pipeline—moot by subsidizing the development of their own VOD system rather than waiting, as they've seen the major record labels do, and have the "information wants to be free" hacker/P2P contingent further poison their potential paying customer base, which has already shown itself more than willing to score free stuff wherever possible—morals/ethics/intellectual property laws be damned.

The movie studios' system, which will be based on technology developed by Sony called Moviefly, is not expected to be profitable in the near term.

The question now is whether movie studios will face the same kind of investigation currently being undertaken by the DOJ to determine if major record label coalitions MusicNet and Pressplay amount to an illegal duopoly that will use their market dominance to squeeze out other players.

While the movie studios, like MusicNet and Pressplay, have explicitly stated that all deals relating to their cooperative online distribution venture are non-exclusive and that all are welcome to participate, questions will likely linger as to what kind of terms such deals and participation entail, and whether they might be prohibitive for smaller companies and thereby be considered anticompetitive.

Internet distribution of movies could add yet another revenue opportunity for the studios, at least initially, as VOD will function something like a secondary pay-per-view outlet, after theatrical, rental, retail, cable pay-per-view and cable movie channel distribution. But depending on how popular the downloading of movies becomes—and, of course, how big a problem Internet piracy becomes—VOD could come into conflict with one or several of the studios' other distribution modes, particularly the already-squeezed rental business.

Interestingly, online music pundits including one-time radical MP3.com CEO Michael Robertson, have previously advanced the notion that recorded music in the digital age could be exploited in multiple ways using a system of "release windows" similar to that of the movie business.

At this point, the future of both businesses depends on both how popular music and video on-demand services become with consumers—assuming regulators let the corporate co-ops proceed—and whether the wildcard of unauthorized file swapping becomes an unlockable release window in spite of marketers' best-laid plans.

But this much is certain: When it comes to changes in the entertainment business, we ain't seen nothin' yet.