SAN FRANCISCO (CNN/Money) -
P. Diddy once famously rapped that "it's all about the Benjamins," but for entertainment companies these days, it seems to be all about the boxes.
In news releases and product announcements, it's boxes, boxes, everywhere. Just last week, TiVo (TIVO: Research, Estimates) (a box company) took a hit when Sony (SNE: Research, Estimates) (a king of boxes) announced it would be building some TiVo-like functionality into its new handheld box.
This week Disney (DIS: Research, Estimates) announced that it wants in on the box game with the launch of its three-years-in-the-making MovieBeam product and service.
MovieBeam sits on top of your entertainment array (it has to sit on top because it has an antenna), preloaded with 100 recent movie titles from every major studio except Paramount. (Paramount's parent, Viacom (VIA: Research, Estimates), also owns Blockbuster (BBI: Research, Estimates).) Users pay $6.99 per month to use MovieBeam, $3.99 to view a new release, and $2.99 to see an older title. Ten new movies are swapped in each month via unused areas of the broadcast television spectrum in a process known as datacasting.
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It's pretty slick: Users don't have to download anything, and the movie transfer takes place in the background, at no additional cost to the television networks and little cost to Disney.
The good news for Disney investors is that MovieBeam didn't cost much to develop or roll out. The company estimates it will cost between $200,000 and $250,000 to enter each new market (Disney is testing the service in three midsize markets). Pretty cheap, compared with the $500 million or so that cable companies dole out to upgrade a metropolitan area from analog cable to digital.
The bad news is that I'm not so sure people are going to want MovieBeam. The value proposition as currently laid out is pretty muddled.
This, of course, is good news for cable companies such as Charter Communications, Comcast (CMCSK: Research, Estimates), Cox Communications (COX: Research, Estimates), and Time Warner Cable, whose nascent video-on-demand services this box appears to rival. CNN/Money, like Time Warner Cable, is owned by Time Warner.
Video on demand
Consumers haven't yet glommed on to the concept of video-on-demand, which in essence is what Disney is offering.
"There's a lot of movement in terms of VOD deployment," says Anthony Crupi, technology editor at CableWorld magazine. "But consumers aren't really picking up on it. Most people don't understand it."
That's a problem for MovieBeam, which gives customers movies 30 to 45 days after they arrive in video stores. Disney is quick to tout the fact that you don't have to leave the house to rent movies and there are no late fees involved.
You can't argue with the convenience claim, but according to figures supplied by the Video Software Dealers' Association, the average family spends only $3 a month on late fees, making the $7 monthly service fee (in addition to the per-movie charge) a pretty steep increase.
Disney says it's targeting the high end of the video-rental market, the 10 million families it says rent eight or more movies a month and pay between $11 and $15 a month in late fees. But Netflix (NFLX: Research, Estimates) already has 5 million of those as customers.
"We only need to reach a fraction [of the market] for MovieBeam to be a financially attractive entity," counters Salil Mehta, executive vice president for corporate business development at the Walt Disney Co. "We haven't spent a ton of money to roll out nationally out of the gate. We're being smart and careful about rollout."
I'll give the company credit for that, and kudos to the studios for trying out new business models, unlike their counterparts in the music business. Disney investors can take heart in the fact that Disney isn't going all out initially on the MovieBeam product, and cable investors can rest a little easier knowing that the product isn't a VOD category killer.
There's plenty of room for new models to flourish in the movie industry, and companies such as Netflix and TiVo are getting closer. Unfortunately, I'm not sure MovieBeam is a step in the right direction.
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