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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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APRIL 6, 2005
By Burt Helm IPTV's Revolution May Be on Hold [Page 2 of 2] FAMILIAR BATTLEGROUND. But it doesn't come so easily. Thirty-three years ago, HBO was founded on such a concept. Now it creates its own programming and maintains its own powerful presence in TV, apart from the studios. "The studios feel that HBO became successful owing largely to their [movies]," says Joe Boyle, a former vice-president for communications at iN Demand who now runs his own New York City-based public relations firm. More recently, the studios have considered the success Apple Computer (AAPL ) has had with its iTunes service for digital music. They hesitate to help another company create a dominant consumer brand in digital video. SBC's new hires know this story all too well. Three of the five, as well as York, have backgrounds in video-on-demand. And the histories aren't exactly pretty. Current video-on-demand agreements, like those worked on by iN Demand Networks, where York and Wellerstein come from, carry significant restrictions. RUPTURED PARTNERSHIP. Nearly all studios refuse to release a movie for on-demand until 45 days after its DVD debut. And iN Demand, along with other video-on-demand distributors, has seen its share of video-on-demand revenues slip from a 50-50 split with the studios to a 60-40 split. The situation was equally rough at Intertainer, Friedlander's and Sansing's former employer. IT had pioneered video-on-demand technology in the mid-1990s and had worked out a 50-50 revenue split with Sony (SNE ), Time Warner (TWX ), and Universal, which were also investors in the company. But in 2002, the three companies decided they would rather control their own content. They severed all ties with Intertainer and partnered instead with Metro-Goldwyn-Mayer Studios (MGM ) and Paramount Pictures to create their own service, called Movielink. In September, 2002, Intertainer shut down and is currently in the early phases of a $1.6 billion antitrust suit against its three former shareholders. SWEET WORDS, SMALL GAINS. With the exception of Friedlander, who negotiated Intertainer's initial agreement with Sony, this marks the first time that any of these executives, including York, have taken a lead role in negotiating with the providers. In their previous positions -- according to representatives at DirecTV, Intertainer, and iN Demand -- all operated primarily as liaisons with studios to maintain established agreements. SBC has been doing its best to soften the toughest partners, like Disney, as demonstrated by its 2004 promotion of The Incredibles. York says SBC will have a similar cross-promotion with a Fox movie this summer. Disney is apparently slowly warming up to the idea of video-on-demand. So far, it has made content from ABC and ESPN available through a partnership with privately held TVN Entertainment Networks, which manages video-on-demand for several cable companies. "VIRTUAL VIDEO STORE." But aside from a partnership with the Web site CinemaNow to stream video over the Web, Disney has kept its movies to itself. And since 2003, it has used its own video-on-demand network, called Moviebeam. The service works only on special hardware that consumers must rent directly from Disney, in addition to paying a per-movie fee. But SBC's plans for a "virtual video store" of on-demand content, as one executive called it, seem less certain. At January's Consumer Electronics Show in Las Vegas, York told analysts that SBC wants to "reinvent television" with never-before-seen on-demand options -- but he now says SBC is still deciding whether to negotiate the deals on its own or go through an aggregator like iN Demand or TVN Entertainment Networks when it makes its debut at the end of the year. That's what Verizon did. On Feb. 21, it announced it will partner with TVN for a similar service. While SBC has the technology and money to create one of the largest "virtual video stores" in history, it will take some tricky footwork with partners to accomplish that ambitious goal. Otherwise, many of those virtual shelves may end up sitting empty for some time to come.
 Helm is a reporter for BusinessWeek Online in New York
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