But Only to Play on PCs; Prices to Reach $30 for New Releases

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LOS ANGELES (AdAge.com) -- Hollywood studios are taking another baby step into their digital future, giving consumers the option to buy downloadable versions of popular movies the same day the DVD version is available in stores. But analysts believe the artificial restraints the studios have put in place will constrain the popularity of the option.
'King Kong' is one of the movies now available for download from Movielink.

Slow DVD sales
The move comes as the studios have seen a slowing in their once-double-digit growth from DVD sales and rentals through traditional retailers. Digital downloads could mean a valuable new revenue source, though premium prices and myriad hurdles could keep numbers relatively small in the near future.

Movielink, a digital download rental service, has made deals with Viacom's Paramount Pictures, MGM, Sony Corp.'s Sony Pictures, News Corp.'s Fox, NBC Universal's Universal Pictures and Time Warner's Warner Bros. The service started selling such hits as "King Kong," "Brokeback Mountain," "Harry Potter and the Goblet of Fire" and "Walk the Line" this week. Movielink is in talks with Disney, the lone hold-out so far, while competitor CinemaNow signed agreements to sell Lionsgate and Sony movies.

"There's a commitment from the studios to this new business model," said Jim Ramo, CEO at Movielink, which just hired Donat/Wald, Santa Monica, Calif., to head up its online and offline advertising.

Independent consultant Phil Leigh said digital downloading could be bigger than the traditional DVD rental business, which last year pulled in $6.5 billion. The overall market -- renting and buying DVDs -- is expected to grow to $30 billion over the next several years, according to Digital Entertainment Group.

'Sound and fury'
The move into digital is a good step, but there are still too many restrictions on downloads, he said. “This is a lot of sound and fury, signifying modest forward progress,” Mr. Leigh said. “These artificial restraints are keeping it from meeting the full potential of the market.”

Digital movies are available for PCs only, meaning they can't be watched on a PlayStation Portable, video iPod or other handheld device. They can be burned onto a disc, but can't be played on a conventional DVD player. They can be watched on a TV only if it's connected to a PC.

Price is also a sticking point, analysts believe, with new releases costing between $20 and $30 and older titles about half that from Movielink. The service plans special offers that will bring those prices down with discounts for buying multiple movies. CinemaNow will charge between $10 and $20 for all titles, though consumers will only be able to watch the movie on the computer where it was downloaded.

Though consumers have quickly embraced $1.99 digital versions of TV shows and shorter content bits, it's too early to know how they'll react to premium-priced 70-minute downloads for films.

Movielink and CinemaNow have rented digital versions of movies for several years, with studios making that content available to try to fight piracy. Hollywood also was motivated by the missteps of the music industry, which failed to respond to consumer demand for digital entertainment, though they don't want to alienate retailers who sell the bulk of their DVDs.

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