Now streaming: Bollywood movies

(Fortune Magazine) -- Rajjat Barjatya is scripting a new chapter in the history of Bollywood. A grandson of Tarachand Barjatya, who founded India's oldest movie and distribution house, Rajshri Productions, the younger Barjatya, 32, has created India's largest Bollywood portal, with 6,000 hours of movies and Hindi songs.

His Rajshri Media, the digital arm of the company, became an instant hit after its launch late last year, logging 10,000 downloads and five million video streams from the site, rajshri.com, in just eight months. Viewers logged in from as far away as Togo and Estonia.

Barjatya: On a set in Mumbai

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Older Rajshri movies cost $4.99 to download or are free in streaming video; new releases are $9.99 with no free streaming. "We are seeing the birth of an entirely new Indian entertainment industry," says Barjatya. "Giving people freedom to download a movie or a song and watch it or listen to it at whatever time they want to is a wonderful feeling."

Reliance Entertainment, part of India's large conglomerate, has also been bitten by the online-movie bug. On Aug. 29 it launched BigFlicks.com, which streams movies for free or allows downloads for $2 to $16. It plans to invest $100 million for online and offline ventures, including DVD/VCD rental outlets.

Another production house, Yash Raj Films, so far offers just music-video downloads of film tracks for $1.99, preferring to reap sales from DVDs and VCDs. Yashrajfilms.com was one of the first portals in India to prevent content from being copied or shared by licensing DRM (digital rights management) technology from Microsoft (Charts, Fortune 500).

Barjatya, however, does not have copying or sharing restrictions on content. "I want the content to be used right across multiple devices, which is not possible through the DRM route," he says.

Yet downloads can expire. UTV, a Mumbai production house with which Rajshri has a revenue-sharing agreement, has started releasing films via Rajshri's site, along with three others. Its July release, Life in a ... Metro, starring Shilpa Shetty, was available for $9.99 with 72-hour validity. "Whether we develop our own portal or use existing distribution platforms, we plan to continue using the Internet," says Siddharth Roy Kapur, a UTV executive.

Consumers outside India, like Vivek Bhagwatkar, a manager in the Chicago office of Wipro, are receptive. "Rajshri's quality is fabulous, and all of us have watched free video-streamed movies," he says. Still, he notes the cost of premium content: "It's less expensive to go out and pick up a DVD, but then again, you don't get the latest titles on legal DVDs."

India's box-office revenue will rise from $5.9 billion in 2005 to $7.4 billion by 2010, or 4.7% annually, according to PricewaterhouseCoopers. Sales of all downloaded content will go from $17 million to $1.4 billion in the same period. That bodes well for online films. "Until now, if you could not watch a Hindi film in a theater, the only options were pirated or legal DVDs," says PwC's Timmy Kandhari.

But Barjatya has a battle ahead. High-speed bandwidth isn't widely available, illegal downloading is rife, and payment is a problem. Currently consumers can download only with a U.S. dollar credit card. Barjatya says he's looking at rupee payment options - and hoping that more Indians will pay to watch movies at home.