Marcy Magiera

Voodoo entertainment

The video download business could use a little voodoo, but Vudu probably won’t cast a strong enough spell to do the trick.

Despite new services coming online at a rapid clip—faster, it seems, than consumers are signing up for them—and the major Hollywood studios striking deals with anyone and everyone, new research from Screen Digest forecasts that the download business in the U.S. and Western Europe combined will amount to just $1.3 billion by 2011—in large part because of the fragmented approach of the studios .

Most studios are supplying content for online services that deliver content to PCs, like Blockbuster’s Movielink, Apple’s iTunes, Amazon’s Unbox, CinemaNow and Walmart.com, as well as set-top solutions like Akimbo, MovieBeam (built by Disney and now owned by teetering Movie Gallery) and the just-launched Vudu.

Across these services, there is limited mobility of downloaded files, often less than DVD quality, and not much differentiation of content, but a wide variation in business models.

Vudu, which launched with a fair amount of fanfare last week, asks consumers to buy a new set-top box the size of a hardcover book for $400, with which they can then stream (rent) and download (buy) movies at prices competitive with DVD, choosing from among 5,000 studio and independent titles (see story, page 8). One of its main advantages is that movies are stored on a sort of private peer-to-peer network so that files are delivered for viewing faster than on other services. That’s a neat trick, but perhaps not enough to justify the $400 price of entry.

The company touts its more than $21 million in venture capital financing like it is unaware of how much money other services have burned through without finding the success Vudu envisions. MovieBeam, with its set-top box priced at just $150, leeched more than $100 million from previous owners Disney, Cisco Systems and Intel Capital before Movie Gallery bought it for less than $10 million. The same numbers apply to Blockbuster’s purchase of Movielink from five major studios.

I may have to stick a pin in myself when Vudu becomes the first raging success of the movie download era, but I’ll chance it to make the point that there’s ample evidence to show that it’s high time the hype surrounding new video downloads be tempered, at least until the market becomes less fragmented and some sort of consensus starts to emerge about the best delivery and business models to attract consumers.

According to Screen Digest, the online digital movies segment will make up just 3% of all movie home entertainment revenue in the U.S. and Western Europe by 2011. The researchers point out that while this is smaller than many interested parties have expected, it is still a significant market that can bring incremental revenue to the movie business as DVD growth falls away. And it is a matter of if, not when, downloads will catch on, they believe.

“It will take time to reach a wider market penetration with these new devices,” says Screen Digest senior analyst Arash Amel. “We believe that this will start to become more mainstream beyond 2011.”

Posted by Marcy Magiera on September 7, 2007 | Comments (6)