SAN FRANCISCO (CNN/Money) -
For years, consumers who wanted to download movies had to use illicit peer-to-peer networks, chase fleeting offshore operations such as IWantTV.com, or put up with onerous restrictions on sites like MovieLink and CinemaNow.
No longer: On Monday, RealNetworks (RNWK: Research, Estimates) and the cable channel Starz finally consummated their 18-month mating dance with the unveiling of Starz Ticket on Real Movies.
The service lets subscribers download any movie playing on Starz in a given month, watch it an unlimited number of times, and share it with three computers. When the film drops from the Starz monthly schedule, the file disappears from users' hard drives.
I greeted the announcement with a "Wow." Investors, however, greeted it in a manner that I found befuddling: They drove down Netflix's stock by more than 5 percent on no other news from the company, while RealNetworks and Liberty Media (L: Research, Estimates) (the parent company of Starz) held pretty steady.
Why the negativity?
The negative reaction against Netflix (NFLX: Research, Estimates) is misguided. At $12.95 per month, the Starz Ticket service is far too expensive to reach any significant audience.
Cable customers already rightfully believe that they pay too much for the mammoth channel packages, so I don't think they'll be excited about paying an additional $13 for the right to take movie files with them on plane trips. Therefore, I wouldn't expect any significant revenue boost to either Real or Liberty Media.
What's more, Netflix plans to launch its own digital-delivery service next year.
"It's why we named the company Netflix and not DVD by Mail," says a spokesperson. "We'll launch our service next year, but feel the vast majority of consumers will choose DVD-by-mail for the next five to seven years."
So my message to investors is that it's shortsighted to drive down Netflix on this announcement, because the real excitement comes not from this particular partnership but from the things it portends.
The Starz/Real deal, coupled with TiVo's announcement two weeks ago that it will offer its subscribers a way to watch downloaded Net content on a TV screen, shows us that the line between the PC and the TV continues to blur. These deals also show us how consumers may one day interact with movies in the home.
Consumer fury
But the Real/Starz and TiVo announcements aren't the only factors driving the shift.
Consumer fury directed at cable companies -- and their price increases and forced packaging of channels -- is at an all-time high. A subcommittee of the House Committee on Energy and Commerce is expected to meet in August to discuss a la carte cable-pricing options, a pet project of Sens. John McCain and Nathan Deal. The Federal Communications Commission is also reportedly exploring the topic.
One unintended consequence of all this scrutiny is that the new Starz/Real offering will probably reap loads of free publicity and additional subscribers as consumers get comfy with the concept of a la carte movies.
And if the service takes off, what's to stop Real or Microsoft (with Windows Media) or even Apple (with QuickTime) from courting other cable channels? Not much.
According to an industry executive with knowledge of the Starz/Real deal, "nothing's stopping Real from approaching channels like HBO."
Pretty heady stuff. But one thing's certain: If the above scenario plays out, John Sie, the chairman, founder, and CEO of Starz, will seem even smarter than he does today.
"We started getting Internet rights to our movies in 1999," he says. "I saw IP delivery of television as what consumers wanted. We took a risk, and I'm glad I got the rights when I did -- they're more expensive now. And now we have exclusive, first subscription Internet rights for these movies."
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