Best Buy making a second try at digital media

About three years ago, Best Buy embarked on a project to start offering movies via digital download, according to two people familiar with the company's plans. It ultimately abandoned the effort, however, apparently deciding the market was too nascent and risky to invest the necessary money in the service.

This year the electronics giant has decided that the time has come again. The company just announced a partnership with CinemaNow to create a service that will distribute movies and TV shows to televisions, Blu-ray players, phones, computers, and any other Internet-connected devices it sells. Last year, it made its move into digital music by acquiring Napster for $121 million, though it still remains  far behind Apple's iTunes in that market.

In the face of declining DVD sales, Best Buy is being more aggressive than competitors like Wal-Mart and Target in positioning itself for the digital future. But it's still very unclear whether brick-and-mortar retailers have an important role to play in a world of downloadable media. In the best-case scenario, Best Buy could be the trusted partner that explains how to make a networked digital home work seamlessly. In the worst-case scenario, it could go from leader in the physical world to also-ran in the virtual one.

The major studios, of course, would probably rather see Best Buy succeed so they can keep working with a retailer they know and trust.

For more on Best Buy's digital strategy, its prospects for success, and what it means for the future of the entertainment industry, read the story in today's Times.

--Ben Fritz

Photo: A Napster display at a Best Buy store in Culver City. Credit: Stefano Paltera / For the Times.

Best Buy launching digital movie service with CinemaNow

One of the nation’s biggest sellers of DVDs is making a leap into digital movie downloading.

Best Buy Inc. is partnering with online video provider CinemaNow to create a new a movie downloading service that will be integrated into most Internet-connected electronics -- including televisions, DVD players, computers and phones – sold at the store.

Facing an industry-wide decline in physical media, Best Buy has recently been making an aggressive push into digital. Last year it acquired online music service Napster for $121 million. The partnership with CinemaNow, which is expected to launch late this year or in early 2010, marks a companion move in online movies and comes as DVD sales are down about 13% so far this year.

“Digital is developing as a channel and we’re forecasting that by 2012 it will be a significant, double-digital percentage of the movie business,” said Ryan Pirozzi, director of digital media for Best Buy.

The two companies are collaborating on a new online movie service, yet to be named, that Best Buy will pre-load on electronics from retailers including Samsung, Sony, Panasonic and Toshiba. CinemaNow is handling all of the back-end technology, as it does for Blockbuster Inc.’s similar service, while the retailer will handle everything seen by consumers, including design and pricing.

The two companies initially announced a partnership earlier this year whereby CinemaNow downloads have been available on Best Buy’s website and some of the store’s devices. But the new partnership, which lasts at least three years, signals a major step forward for the retail giant as it prepares to launch its own digital movie brand.

Best Buy will be paying CinemaNow, which is owned by Sonic Solutions, a fee along with a percentage of the service’s revenue for its work behind the scenes.

Legal movie downloads have been available in some form for about a decade. However the business has been impeded by limitations on availability, consumers’ ability to play video on different devices, and high pricing that have made DVDs and illegal downloads more attractive.

The market has recently become very competitive, however, as online movie services from Amazon.com and Netflix are competing against Apple’s iTunes Store.

Pirozzi said making online movie distribution simpler for consumers will be a top priority. The company plans to experiment with numerous business models including purchase, rentals, subscriptions and advertiser support. It will also emphasize the ability to watch movies on televisions as well as computers and mobile devices.

“This is certainly a very crowded space, and we’re going to work to translate our customer insights into a more compelling service than those out there currently,” he said.

Best Buy’s biggest advantage is its stores. The new movie downloading service will be marketed at retail locations, and employees will be trained to explain and promote it to customers.

--Ben Fritz

Photo: A Best Buy store in Culver City. Credit: Lawrence K. Ho / Los Angeles Times.

Lionsgate strikes partnership with online film production company Massify

Lionsgate has struck a partnership with an online community of filmmakers in hopes of finding new story ideas.

The newly formed Lionsgate Incubator Project will work with Massify -- a kind of Linked-in for the film world, with a network of 45,000 filmmakers, actors and crew -- to develop novel concepts for shorts and feature films. The first project is to come up with a male-focused comedy short, with the kind of appeal of films like "The 40-Year-Old Virgin" and "The Hangover." 

The professional filmmakers in Massify's network will conduct a virtual pitch session, developing brief plot summaries and shooting scripts. The community will vet the concepts and select the best of the submissions -- with Lionsgate overseeing development.

"We're casting as wide a net as possible, saying you can come in and have the opportunity to pitch one of the major players in Hollywood," said Massify Chief Executive Geoff Pitfield.

The project will be staffed from Massify's pool of directors, cast and crew. The studio hopes these concepts ultimately will become feature-length films.

"There is a revolution of new ideas in filmed entertainment online," Curt Marvis, president of digital for Lions Gate, said in a prepared statement. "We intend to be at the forefront of accessing this enormous and largely untapped source of fresh talent and original new voices."

Lions Gate isn't the only studio to seek to mine the Internet for new voices. Other companies in the  animation business have tried a similar approach of creating virtual pools of talent to make films.

-- Dawn C. Chmielewski

Photo: Curt Marvis. Credit: Berliner Photography.

YouTube gets 'Taxi Driver' from Sony's Crackle

You lookin' at YouTube?

Continuing its slow journey to add premium Hollywood content, YouTube has just posted its second major studio film to the site, the 1976 classic "Taxi Driver."

The film, when went on the Google-owned viral video site today and will be available for just a week, comes from Sony Pictures' Crackle video website, which also streamed "Ghostbusters" on YouTube for a week in August. Like that film, "Tax Driver" is playing under a number of limitations intended to benefit Sony: It steams in Crackle's own video player with prominent branding for the site and the video advertising is sold by the studio, which gets most of the revenue.

That hasn't stopped YouTube from spotlighting the film. Beyond featuring "Taxi Driver" on its heavily trafficked home page, YouTube promoted the movie with a series of clues on its Twitter feed yesterday and with a post on its blog.

The company is clearly hoping to convince both consumers and content owners that it's a viable outlet for premium content. Despite significant efforts to attract such content, YouTube has few television episodes and films from major studios. Advertisers have proven to be much more comfortable with Hollywood content than user-submitted videos.

Sony streams "Ghostbusters," "Taxi Driver" and more than 200 other films owned by the studio on Crackle. The partnership with YouTube seems intended primarily to promote Crackle to users of the much more popular Google-owned site.

-- Ben Fritz

Photo: Robert DeNiro in "Taxi Driver." Credit: Beitia Archives

How moviegoers at different ages use technology

Digital media is changing the behavior of all moviegoers, but it's doing so very differently for varying age groups.

That's what a group of around 100 online and studio marketing executives, as well as journalists, learned this afternoon yesterday at a presentation of data from a study of 3,582 moviegoers, about 43% surveyed in person at theaters and the rest online or on the phone. The study was done by Stradella Road, a marketing consulting company started by former New Line executive Gordon Paddison, whose current clients include Peter Jackson and 3-D projection company RealD.

The research was sponsored by several of the biggest online media companies including AOL, Google, Microsoft and Yahoo, so nobody was expecting to be told that this whole Internet thing is just a fad that Hollywood marketers shouldn't worry about.

It's one thing to say that computers and cell phones are more important to moviegoing than they used to be, however. The real question that Hollywood is grappling with is what to do about that fact. Sure, studios can put up Twitter accounts (like this one for "Bruno") and Facebook pages (like this one for "Fame") for movies, or run contests on niche websites (here's a new one for "Couple's Retreat" on the amusing blog Awkward Family Photos). But those are at best fledgling efforts. Nobody seems quite as sure yet how to move the dial -- at least the dial Hollywood is used to looking at -- through online ads as effectively as billboards and TV commercials and newspaper ads do.

Stradella Road's study didn't provide any simple answers. But it did make clear that consumers engagement with digital media and technology are -- and thus marketers' efforts should be -- very different based on age group:

Studios win injunction against controversial DVD copying software

Hollywood has prevailed in its battle to keep consumers from copying DVDs to their computers. Legally, anyway.

United States District Court Judge Marilyn Patel today issued a preliminary injunction blocking the sale of RealDVD, a controversial software application that allows consumers to copy DVDs to a computer's hard drive. The standard copy protection on DVDs blocks consumers from taking the movie file off of the disc.

The six major movie studios filed suit last September in U.S. District Court in San Francisco when the RealDVD software went on the market, alleging that it illegally violated their right to restrict the use of their movies in digital form. Four days later, they won a temporary restraining order blocking the sale of the software.

RealNetworks, the maker of RealDVD, countered that it only allowed consumers to exercise their so-called fair use rights to make back-up copies. RealDVD, which cost $30, let consumers make one copy of a DVD and limited the number of computers on which they could watch that copy to five.

During court proceedings in April, RealNetworks chief executive Rob Glaser showed off an in-development set top box called "Facet" that used the software behind RealDVD to let users save copies of DVDs and play them on a television. Its sale is blocked by the judge's ruling as well.

Movie studios have fought aggressively to maintain the copy control on DVDs, as one of the primary sources for music piracy has been songs burned onto computer hard drives from CDs, which don't come with any such restrictions.

There are numerous illegal software applications available on the Internet that make it relatively easy to break the copy protection on DVDs. High-definition Blu-ray discs come with more advanced copy protection that is tougher to crack.

Recently, some DVDs have shipped with a "digital copy" that allows owners to transfer a movie to a computer or portable device. However, there's currently no legal way to copy other DVDs.

"This is a victory for the creators and products of motion pictures and television shows and for the rule of law in our digital economy," said Dan Glickman, chief executive of the Motion Picture Association of America, which coordinated the studios' case. "Throughout the development of RealDVD, RealNetworks demonstrated that it was willing to break the law at the expense of those who create entertainment content."

A representative for RealNetworks didn't respond to a request for comment. The company may appeal the ruling.

Update (7:25 PM): A RealNetworks representative e-mailed the following statement:

We are disappointed that a preliminary injunction has been placed on the sale of RealDVD.   We have just received the Judge's detailed ruling and are reviewing it.  After we have done so fully, we'll determine our course of action and will have more to say at that time.

-- Ben Fritz

Pirate Bay buyer raises money, gets Hollywood-style headaches [Updated]

The company that's hoping to turn Pirate Bay into a legal distributor of movies, TV and music says it now has the cash to purchase the online piracy hub late next month, but it's already embroiled in some Hollywood-style infighting.

Swedish Internet cafe operator Global Gaming Factory, which agreed last month to buy the Pirate Bay website for $7.8 million, now has commitments from more than 30 private investors to provide the about $4-million cash portion of the acquisition. The rest of the purchase will be made in stock.

"We have all the investors, and all of the money is in place," Global Gaming Chief Executive Hans Pandeya told The Times. "The only step left is our shareholders meeting" (on Aug. 27).

Pandeya has largely bet the future of his company, whose shares trades for pennies on the Swedish stock exchange, on the Pirate Bay deal. As such, he has become very concerned about a controversy involving a consultant he hired who has now started bashing Global Gaming to the press.

Wayne Rosso, the former president of the Grokster file-sharing service, joined Global Gaming as a consultant several weeks ago to help negotiate content deals with the record labels and Hollywood studios. On Monday, he resigned and publicly questioned the company's future.

"It became clear to me and my team that there wasn’t a clear plan to move forward," Rosso said on Wednesday. "I really don’t know whether he’s going to be able to get funded or not."

But Pandeya said he's perplexed by Rosso's attacks, noting that the consultant abruptly left after just two weeks of work.

"He's calling the whole media world making up a bunch of stories and I don't know why," Pandeya asserted.

Pirate Bay has attracted interest from at least one other veteran of the file-sharing business: John Fanning, the former chairman of online music piracy pioneer Napster and uncle of the the site's inventor, Shawn Fanning. The pair explored a potential investment by John Fanning of $2 million in the Pirate Bay purchase.

Onetime peer-to-peer bete noir Kazaa relaunches as legitimate music site

The file-sharing service that once ranked at the top of the Recording Industry Assn. of America's hit list -- and by that, we don't mean popular -- relaunches today as a licensed music service.

Kazaa is reincarnated as a subscription service that offers more than 1 million tracks, including popular songs from the major record companies -- Universal Music Group, Sony Music Entertainment, Warner Music Group and EMI -- hat once hauled the site's owners into an Australian court.

"We are delighted to deliver a fresh and exciting music platform to customers via an established icon like Kazaa," said Kevin Bermeister, the chief executive of Altnet Inc., an online distributor of licensed content and partner in Kazaa's reboot.

Kazaa's comeback is anything but assured. It's been nearly four years since the name "Kazaa" was associated with online music. And other file-sharing services that have gone legit, such as iMesh, met with limited success, largely because they lack the key to their earlier cache -- free music downloads. Even Napster, the original file-sharing site whose name is synonymous with digital downloads, has struggled as a new, paid service.

But Kazaa is not alone on the digital comeback trail.

The website Pirate Bay, whose owners were slapped with a prison sentence for allowing users to illegally trade in copyrighted content, is to be sold to Swedish firm Global Gaming, which runs cyber cafes.

Global Gaming Chief Executive Hans Pandeya has an unorthodox plan for reviving the site -- he hopes to coax Pirate Bay users to band together to allow their computers to be used to transmit data for Internet service providers. They would earn money that would make the cost of their music consumption free.

Former Grokster President Wayne Rosso, a vocal critic of the music industry, has been hired as a consultant to help with the relaunch. "Jaws is back; it's not safe to go back in the water," the acerbic Rosso quipped.

-- Dawn C. Chmielewski

Photo credit: Michael Magle / Bloomberg News

Pirate Bay raising the surrender flag to Hollywood

The world's most notorious website for illegal music and movie downloading is going legit.

The Pirate Bay, a Sweden-based website that's one of the most popular sources for Internet piracy, has agreed to be acquired by Global Gaming Factory, a Swedish operator of Internet cafes, for $7.8 million.

Hans Pandeya, CEO of Global Gaming Factory, said he intends to cooperate with studios and record labels to turn Pirate Bay into a copyright-friendly business.

"We're a publicly listed company, so whatever we take over has to be legal," he explained. "To be legal, you have to have content providers who are paid. That's what we want."

Convincing Pirate Bay's reported 20 million users accustomed to getting content for free into paying customers will an extremely difficult task, but Pandeya said he plans to make an enticing offer.

"To compete with free file sharing, you have to beat it," he said. "What's better than zero? Well, that's paying somebody $1."

Global Gaming Factory plans to pay Pirate Bay users to let their computers be part of a worldwide peer-to-peer system that can transmit data for Internet service providers like AT&T and Comcast. Theoretically, it could vastly reduce the bandwidth costs of ISPs, which are struggling to keep up with the rapidly growing amount of traffic moving through the 'Net, much of it because of illegal piracy.

Participating computer owners could use the money deposited into their account to buy and download songs, TV shows or movies.

Users are sure to be skeptical, especially since the founders of Pirate Bay not only flouted copyright laws but publicly derided them on numerous occasions. Peter Sunde, Gottfrid Svartholm Warg, Fredrik Neij and Carl Lundstrom were convicted in April of facilitating copyright violations and ordered to pay plaintiffs, including Fox, Warner Bros. and EMI, $3.6 million.

The men have refused to pay the fine while they appeal. They won't be joining Global Gaming Factory, which is acquiring the Pirate Bay domain name only. They recently started work on a YouTube-like video sharing site called VideoBay that is currently in an early testing phase.

Pandeya said his company plans to run the site with technology it has acquired from a Swedish software company called Peerialism for $13 million.

Several other ventures that enabled illegal file sharing and attempted to transform into legitimate downloading business, including BitTorrent and Napster, haven't had much success. However, none of them paid users for participating in a file sharing network.

The deal will be voted on by GGF's shareholders in late July or early August. If it's approved, Pandeya said Pirate Bay will immediately seek to halt illegal downloading and start working with legitimate content providers.

Update (12:12 PM): As noted on BoingBoing, one of Pirate Bay's founders said on the site's blog that the proceeds from the sale will be used for "projects about freedom of speech, freedom of information and the openess of the [Internet]."

-- Ben Fritz

For more on whether Pirate Bay's attempt to go legit will prove attractive to big media companies and consumers, see the story in Wednesday's Times.

Photo: Pirate Bay supporters rally in Sweden in April after four of the site's founders are convicted of copyright infringement. Credit: Fredrik Persson, AFP/Getty Images.

Supreme Court hits stop button on Hollywood's challenge to cheaper DVRs

The high court likes their digital video recorders.

The Supreme Court cleared the way for Cablevision Systems Corp., a New York-based cable operator with more than 3 million subscribers, to deploy so-called remote storage DVRs. Unlike current DVRs, which record programs on a device in a customer's home, remote storage DVRs record them in a central location.

As of March, the penetration of DVRs in the United States was 30%, according to Nielsen. Because storing shows on a central server is so inexpensive compared with deploying devices, the ruling clears the way for Cablevision and other distrubutors to offer the service to consumers at very low or no cost.

The move is a blow to Hollywood, which had fought the technology all the way to the Supreme Court. Fox, NBC Universal, Paramount, CBS, Disney and other programmers argued that because Cablevision transmits recorded programs to consumers over its cable lines, the remote storage DVRs actually constitute a new on-demand service for which they should pay licensing fees.

Of course, what this is really about is advertising. Television executives are very worried about the ease with which consumers can skip advertisements while watching recorded programs via DVRs.

The justices declined to hear arguments from programmers, in effect validating a 2008 federal appeals court ruling in favor of New York-based cable operator Cablevision's plans to deploy its remote storage DVRs.

"We are of course disappointed by the Court's decision not to hear this case but understand that the Court can only hear a limited number of cases each year," Daniel Mandil, chief of legal affairs and intellectual property protection for the Motion Picture Assn. of America, said in a statement. The MPAA has led the court case on behalf of the networks and studios. "We will continue to do what is necessary to protect the legal rights of our members with regard to their content and look forward to the continued development of the law in this area in future cases," he added.

Many DVR providers, including TiVo, have started working with the networks to develop new ways to serve advertising to consumers who are watching recorded shows.

"This is a tremendous victory and it opens up the possibility of offering a DVR experience to all of our digital cable customers," Cablevision Chief Operating Officer Tom Rutledge said in a statement. "At the same time, we are mindful of the potential implications for ad-skipping and the concerns this has raised in the programming community. We believe there are ways to take this victory and work with programmers to give our consumers what they want — full DVR functionality through existing digital set-top boxes — and at the same time deliver real benefits to advertisers."

— Ben Fritz