Transforming the Movie-Rental Model

Netflix Tries Set-Top Box; Apple, 20th Century Fox Ponder a Partnership

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NEW YORK ( -- What will it take to get consumers to fork over good money for entertainment when so much already is available online free?

Two deals -- one already announced, one anticipated -- illustrate what content producers and distributors are considering to get couch potatoes to take the bait. Online movie-rental service Netflix has partnered with LG Electronics to develop a set-top box for consumers to stream movies and other programming from the internet to high-definition TVs, eliminating the need to watch downloads on a personal computer. Meanwhile, News Corp.'s 20th Century Fox and Apple are mulling a deal that would allow consumers to rent 20th Century Fox movies via iTunes, according to a media executive. The pact isn't seen as a way to make huge piles of money but rather as a way to experiment and gauge consumer reaction, the executive said. A News Corp. spokeswoman said the company would not comment.

"The ability to have thousands, if not millions, of content options delivered to your box is certainly the way of the future," said David Cohen, exec VP-U.S. director of digital communications at Interpublic Group's Universal McCann. "We're going to see a lot of that at the Consumer Electronics Show," he added. "That's going to be a recurring theme."

Even so, the process isn't without challenges. To get consumers to pay for high-quality content, you have to bake convenience into the process. Watching movies and TV shows on a computer screen is "kind of a geeky experience," said Phil Leigh, senior analyst at Inside Digital Media, a Tampa Bay, Fla., consultant. "People that are involved in geeky experiences, they are people that are more prone to go to a peer-to-peer site and make a pirated copy." So someone will have to construct a simple pipeline to the living-room TV screen.

Advertising allowed?
Consumers don't want to add another box to the stacks perched near their TV screens, and they don't get complete enjoyment from a downloaded movie or program when it's viewed on a mobile phone or computer screen. The prospect has been lucrative enough to lure other parties. Amazon and TiVo, for example, allow DVR users to download films from Amazon's Unbox service to their TiVo boxes.

Should consumers adopt these technologies, the next question will be whether they will welcome advertising adjacent to the video they pay to watch in comfort. The solution won't be running pre-roll video ads before a downloaded video starts to run, said Universal McCann's Mr. Cohen. Instead, he added, it could lie in figuring out what type of consumer is doing the downloading, then delivering a message targeted at that individual.
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