Why there is no iTunes for movies.

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April 17 2009 11:51 AM

My Mythical Online Rental Service for Movies

Why Hollywood is so slow to catch up on offering all of its movies and shows online.

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So why won't anyone in Hollywood build my service? The reason isn't stupidity. When I called people in the industry this week, I found that many in the movie business understand that online distribution is the future of media. But everything in Hollywood is governed by a byzantine set of contractual relationships between many different kinds of companies—studios, distributors, cable channels, telecom companies, and others. The best way to understand it is to trace what you might call the life cycle of a Hollywood movie, as Starz network spokesman Eric Becker put it to me. We all understand the first couple of steps in this life cycle—first a movie hits theaters and then, a few months later, it comes out on DVD. Around the same time, it also comes out on pay-per-view, available on demand on cable systems, hotel rooms, airplanes, and other devices. Apple's rental store operates under these pay-per-view rules, most of which put a 24-hour limit on movies. The restriction might have made sense back in the days when most people were getting on-demand movies in hotel rooms and the studios didn't want the next night's guest piggybacking on rentals. It doesn't make much sense when you're getting the movie on your MacBook. But many of the contracts were written years ago, and they don't reflect the current technology.

A movie will stay in the pay-per-view market for just a few months; after that, it goes to the premium channels, which get a 15- to 18-month exclusive window in which to show the film. That's why you can't get older titles through Apple's rental plan—once a movie goes to HBO, Apple loses the right to rent it. (Apple has a much wider range of titles available for sale at $15 each; for-sale movies fall under completely different contracts with studios.) Between them, Starz and HBO have contracts to broadcast about 80 percent of major-studio movies made in America today. Their rights extend for seven years or more. After a movie is broadcast on Starz, it makes a tour of ad-supported networks (like USA, TNT, or one of the big-three broadcast networks) and then goes back to Starz for a second run. Only after that—about a decade after the movie came out in theaters—does it enter its "library" phase, the period when companies like Netflix are allowed to license it for streaming. For most Hollywood releases, then, Netflix essentially gets last dibs on a movie, which explains why many of its films are so stale.

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Couldn't the studios just sign new deals that would give them the right to build an online service? Well, maybe—but their current deals are worth billions, and a new plan would mean sacrificing certain profits for an uncertain future. Understandably, many are unwilling to take that leap.

This is not to say there hasn't been any progress. Last year Netflix signed a deal with Starz that allows it to get access to relatively new releases from Disney, Sony, and their subsidiaries. As a result, subscribers have lately been seeing some bigger movies on Watch Instantly—Superbad, Ratatouille, No Country for Old Men, and others. But this deal has its problems, too: As Becker explained, these movies will stay in Watch Instantly for only about 18 months; after that, they'll go to ad-supported TV networks, and Netflix will lose the right to stream them.

Does all this sound confusing? It should, because it is. And working through these contracts in order to build the perfect streaming service will take time. Reed Hastings, Netflix's founder, told the Hollywood Reporter last month that it'll be 10 years before we see a streaming service that offers any movie at any time.

For the studios, that's terrible. Just like in the music business, eventually the entire home-video market is sure to move online, and many consumers will abandon pirate sites in favor of easy-to-use legal services. The music industry lost a lot of money when it dithered over this transition, and now the movie business seems to be making the same mistake. It could be raking in a lot of cash by selling us easy online rentals. Until it works out a plan to do so, there's always BitTorrent.

Farhad Manjoo is a technology columnist for the New York Times and the author of True Enough.

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