Invasion of the Killer Internet Movies

SAN FRANCISCO (05/15/2000) - It's the greatest job in the space-time continuum, and I get to watch," intones a tripped-out Stephen Dorff in a voice-over to his new movie, Quantum Project. The actor's latest film, a 32-minute sci-fi love story that will be screened this week at Cannes, France, represents a milestone on the old-to-new-media continuum. Unlike most films that will be shown at the festival, Quantum Project's producers won't have to land a distribution deal before audiences can watch the movie. The tale of a physicist's passion for a painter is the first direct-to-Internet feature film. It hit computer screens May 5.

The company behind Quantum Force is SightSound.com Inc., a 5-year-old Mount Lebanon, Pennsylvania-based downloading technology developer that has signed generous deals with studios to acquire films early in their distribution cycles for Web audiences. Besides Quantum Project, which was produced by Metafilmics (What Dreams May Come), SightSound has signed a 12-picture deal with Miramax Films and a 35-picture deal with Franchise Studios, whose Whole Nine Yards, starring Bruce Willis, became available for download at SightSound last Friday.

The film opened in theaters in February and isn't even available on video yet.

This is not how things are done in Hollywood. The film industry relies on an established system that dictates a movie's march from cineplexes to free TV broadcasts. According to the unwritten rules, a movie goes into theatrical release; then after 6 months to airplane viewing and video release; then in months 10 through 12 to pay-per-view; and finally, after a year, to pay cable and free television. Studios assign each level - or distribution window, in movie-biz parlance - to an executive who oversees the deals and squeezes as much revenue out of the film as possible. But new companies offering options to stream or download movies over the Internet are threatening to throw this system of progressive fiefdoms out of whack.

"They're messing up everyone's business," says one film producer who predicts that Internet sites like SightSound, pitched as early venues for new films, will find little enthusiasm for them in the industry. (Some observers say SightSound has been able to do its deals only because it has given away sizable portions of company stock. While the deals are documented in SightSound's S-1 filing, its executives will not comment because they're in a quiet period.)SightSound isn't alone. Lots of companies are itching to acquire the rights to feature-length films. They may use the Net as a teaser to build buzz before a movie's release by streaming it at an inconvenient hour, or through a one-time download opportunity that is encrypted to prevent piracy. But just where the Internet window will end up is still being debated.

Dennis Young, copresident of Reelplay.com, a site that features marketing kits and film trailers for buyers and sellers, expects Internet rights to be a big issue at this year's Cannes Film Festival. "It's the hottest topic right now.

Everything in this business is exhibition windows," he says.

Young thinks that when the rights issues shake out, the Internet window will come at the end of the process, after all other windows have been exploited - or as a teaser in the beginning. He sites the early release of the trailer for Star Wars Episode I: The Phantom Menace as one key to the movie's huge box-office receipts. "Can you imagine what George Lucas could have done?" he asks.

Ari Emanuel, a managing partner at Endeavor, the talent agency representing SightSound, says the Quantum experiment was an attempt to lure other kinds of distributors. "Some networks are now looking at it," he says.

Other deals indicate that Hollywood fears an early Internet window will cannibalize its business. In January, Intertainer, a maker of broadband delivery technology, inked a multipicture development deal with Artisan Pictures Inc. that puts the distribution window on Intertainer after video release. The agreement encompasses five films with budgets of $500,000 each.

Artisan's first trial with the Web was an arrangement last year with SightSound for Pi, which had already gone through all its windows. Only 67 people downloaded the film. "We didn't expect hundreds of thousands, but we also didn't expect 67," says Amir Malin, co-CEO of Artisan. The deal with Intertainer involves typical distribution windows, with a new one carved out for the broadband delivery company after video release.

While Intertainer and SightSound can afford to be flexible on the point of the Internet window, sites that expect to make money from online viewers should be pushing the issue. But so far they seem to be laying low.

MediaTrip has been acquiring indie and niche-market films for free viewing through streaming technology. Austin Harrison, MediaTrip's CEO, diplomatically says his site's distribution tends to come after all other distribution windows. "The reality is the other traditional windows are going to take precedence," he adds. Yet he's hopeful that will change to some degree: "I'm talking to all the studios at a high level to figure this out."

Kozmo.com Inc. is rumored to be talking with the home-video departments of the studios, including Warner Home Video, Sony Corp.'s Columbia TriStar and Liberty Digital, to come to terms on digital distribution within the video release window. Kozmo delivers hard copies of titles for now, but it's moving toward a future when video-on-demand will mean quicker than one-hour delivery can get it to you by hand.

Some production companies are getting involved on their own, perhaps as a preemptive strike. Trimark Pictures launched CinemaNow to mine additional revenues out of niche-market films. Propaganda Films, the company behind Being John Malkovich, entered a relationship with AtomFilms.com that gives Propaganda an online distribution option for films in development.

Lewis Henderson, new-media agent at William Morris Agency, expects Internet distribution to land in the pay-per-view window, or just before video release.

"But it will all depend on the content," he says. To be sure, if it's not what consumers care to see, it won't make any difference when it hits the Net, if at all.

Quantum Project coproducer Barnet Bain has a response to that thinking. He says he just wanted to create a movie that uses Internet metaphors like stacked applications and a slowing of activity created by online congestion. "This movie will resonate with people who are familiar with this space." By this, he means computers and the Internet - "more than with people from Hollywood."

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More about Artisan PicturesCinemaNowContinuumFranchise StudiosIntertainerKozmoLiberty DigitalMetafilmicsMiramax FilmsQuantumSonyTrimark PicturesWarner Home VideoWilliam Morris Agency

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