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Downside of the Movie Download Business

New-media commerce is generally booming, but an exception is movie downloads. The pioneering movie video-on-demand services haven't caught on and some of their owners are heading for the exits, according to Kagan Research.

Walt Disney Co. has sold money-loser MovieBeam to video retailer Movie Gallery, which operates 4,600 video stores in the U.S. and Canada. Also, reports indicate that Blockbuster is negotiating to buy Movielink, owned by five of Hollywood's major studios.

Kagan Research analyst Wade Holden says video store operators Movie Gallery and Blockbuster are buyers because they will eventually expand VOD to allow consumers to burn movies on DVD discs, rather than just store them on hard drives or view the video stream. It's a diversification for retailers who face sagging in-store sales.

Mail-order DVD rental leader Netflix unveiled a movie streaming business in January and Wal-Mart indicates it will enter the digital movie field too. Download to burn DVD is just coming to market, with CinemaNow an early platform.

It's interesting to note, however, that VOD is gaining traction via multichannel TV -- cable and satellite -- which presents the irony of old media platforms being the big beneficiaries of a new business.

Kagan Research forecasts $8.7 billion in U.S consumer spend by 2016 for pure video-on-demand, subscription VOD and live-events-oriented pay-per-view. That estimate is roughly triple 2006 revenues from multichannel cable TV, satellite TV and telco video platforms.

Studio-owned Movielink delivers movies legally via Internet downloads. MovieBeam uses over-the-air datacasting in place in 31 U.S. metropolitan areas and stores movies on special set-top boxes.

Movie Gallery says expenses for acquiring and running MovieBeam should be under $10 million in 2007. Blockbuster, with 5,200 U.S. stores in the U.S., is reportedly seeking to buy Movielink for less than $50 million in cash and stock.

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