VCs pump $48.5 million into MovieBeam, which delivers the latest movie releases to a set-top box in customer homes.

February 13, 2006

MovieBeam, a company that offers a “video store in a box,” said Tuesday it received $48.5 million in a first round of venture funding, signaling strong investor interest in the growing business of on-demand entertainment.

The round included entertainment giant Disney; technology companies Cisco and Intel; and venture capital firms Mayfield Fund, Norwest Venture Partners, and VantagePoint Ventures.

Burbank, California-based MovieBeam calls itself a substitute for the local movie rental store as it digitally delivers the latest Hollywood flicks to consumers’ living rooms through a set-top box. Some 100 new releases will be “pushed” through a process called datacasting, or the broadcasting of data over the radio waves.

With its service, which debuts Tuesday across 29 U.S. metropolitan areas, the company is targeting the $10-billion U.S. movie-rental industry. About 30 million U.S. households rent four or more movies a month. A full 80 percent of these movies are new releases.

The box won’t come cheap. Customers will be able to purchase the set-top box at retailers such as Best Buy, CompUSA, and Sears for $199.99 after an introductory rebate of $50. They will also have to pay a one-time service activation fee of $29.99.

But MovieBeam is hoping that the service will appeal to diehard movie fans as it offers movies as soon as they are released on DVDs. This way, customers can avoid a trip to the video store and don’t have to worry that the new release they want to watch might already be rented.

Disney, Miramax, and Touchstone titles will be available on MovieBeam the same day as their DVD release, while other studios will provide the titles during the “video on demand” window which typically follows the DVD release by 30 to 45 days.

The equipments costs will give customers a hard drive in the form of a set-top box, a small antenna to receive movies, and a remote control.

What also differentiates MovieBeam from competitors like Blockbuster or Netflix is there are no monthly subscription charges. The movie rental prices will be similar to those offered in rental stores—$3.99 for new-release titles and $1.99 for older titles. High-definition titles, which could be a major attraction for consumers, will have an additional $1 charge.

MovieBeam has teamed up with six of the seven major Hollywood studios to provide the latest DVD releases to the service. The studios include 20th Century Fox, NBC Universal, Paramount Pictures, Walt Disney Studios, and Warner Bros. Sony Pictures is not part of the service.

Disney Spinoff

MovieBeam was spun off from Disney in January, four years after its inception. The Disney division tested the service in three cities for about 18 months starting September 2003.

The player will have a 160-GB hard drive and a central processing unit which connects directly to any television set. The movies will be pushed to the box through a long-term agreement with National Datacast and its nationwide network of PBS stations. To broadcast the movies to the set-top boxes in customers’ homes, MovieBeam will use PBS’ network.

Pushing data enables the delivery of hundreds of digital movie files to millions of customers simultaneously. Another advantage, according to CEO Tres Izzard, is that it is “super cheap.”

Services such as MovieLink and CinemaNow, through which consumers get movies over the Internet, take several hours to download.

To be sure, MovieBeam will not immediately offer older, more niche titles that stores and services such as Blockbuster and Netflix provide. But that is not a concern for Mr. Izzard, who says the bulk of the video renters, some 80 percent, rent new titles.

High Definition

Gerry Kaufhold, an analyst at In-Stat, said MovieBeam’s biggest asset is its ability to deliver movies in high-definition format. About 10 percent of the movies offered on MovieBeam will be in this format that promises better picture and sound quality. MovieBeam has anywhere from three to five years to capitalize on its high-definition advantage before the content and hardware for the format becomes mainstream, Mr. Kaufhold said.

High-definition DVDs on Blu-ray and HD-DVD formats as well as players will not come out before summer and they will be pricey. Hardware will cost at least $1,000 and discs will cost $23.45 a pop (see Blu-ray Discs Won’t Be Cheap). At the same time, consumers are already buying high-definition-enabled television sets, which they would like to start using as soon as possible, said Mr. Kaufhold.

MovieBeam will start offering older and less popular titles before the end of 2006 through its partnership with Cisco and Intel. Unlike the new releases which will be broadcast over radio waves, older titles will be available through Internet downloads with technology developed in part by the two companies.

Intel and Cisco are also working with MovieBeam to develop networking features that can bring the MovieBeam service to other devices.

It’s clear that the company will face competition from already-established rental stores and on-demand services. But Mr. Kaufhold said the company should be able to hold its own.

“[The service] fits a solid niche and can ramp up to a pretty good user base by the end of 2006,” said Mr. Kaufhold. “They don’t need to have tens of millions of subscribers to make this a success.”