Net and Tube: A Cool Couple

Web-linked TVs are closer yet face tech and business hurdles.

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Apple's Steve Jobs makes iTunes a movie rental store.

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The courtship of Internet and television has been awkward. Products like WebTV linger but never took off, and some like AOLTV simply flopped. Now a new run at the altar is underway that looks more promising. What's different? Instead of putting the Web on a television, companies want to send television across the Web. It's a compelling concept that's attracting big names.

Just last week, Apple unveiled deals to make 1,000 Hollywood movies available to rent from its iTunes store. Earlier this month, Microsoft announced its own pacts to bring more movies and shows to PCs and game consoles. The latest TVs can download Internet news and videos from a few sites, while new boxes enable unfettered Web connections. Netflix says it will soon sell devices that can download movies directly to a TV.

Perhaps most intriguing, Hollywood execs were all over the annual Consumer Electronics Show in Las Vegas this month. They seem closer to pledging themselves to a partnership with the Web. And if Hollywood steps up, downloadable movies and shows would sell lots of Internet-connected TVs. "Everybody wants to embrace downloads," says Steve Beeks, president of Lionsgate, a leading Hollywood studio. "I think you'll see lots of movement from all the studios in the coming months."

But don't get too excited. Even if electronics makers can solve the technical problems of linking TVs to the Internet—and they are many—Hollywood must resolve equally vexing business issues. "It's a tough balance," Beeks says. "Internet margins [on content] are higher, but we don't want to mess with the golden egg."

That egg is in the hands of the retail, cable, and satellite industries that now distribute Hollywood's shows for home viewing. Target and Wal-Mart have already warned studios that they must tread carefully with digital downloads or risk that the retailers will cut shelf space and marketing for DVDs.

Contracts also limit what studios can do. Too often, movies appear only for sale across the Internet, where consumers are more interested in renting. Selling a movie is easier because it's no different in licensing agreements from selling a DVD, says David Bishop, worldwide president of Sony Pictures Home Entertainment. "But if something looks like a rental or a subscription, we bump up against more issues," he says. Similar distinctions are at the heart of the strike by Hollywood screenwriters, who want a bigger share of income from digital downloads.

Subscriptions, meanwhile, are the turf of cable channels and satellite and telecommunication companies that deliver video channels to homes. They're beefing up offerings to keep consumers loyal, such as Comcast's Project Infinity. The cable company would eventually offer 6,000 movies, with half of those in high definition. It is a shot at satellite companies that can't deliver on-demand content with their one-way systems and at Internet outlets that hope to.

Comcast CEO Brian Roberts announced the upgrade in the cable industry's first keynote speech to the Consumer Electronics Show. A day earlier, Bill Gates had trumpeted his own deals to bring more Hollywood content to PCs and the Xbox console. While potential competitors, Gates and Roberts are also partners of a sort. The PC industry recently won an agreement to bring digital cable services to PCs and other noncable devices, such as TiVo.

But electronics makers haven't won a guarantee that all Internet services can tap the vastly higher broadband speeds planned by Comcast, AT&T, and other providers. Those top speeds would make it more practical to deliver high-definition content, but some providers want to control access to their fastest connections. Critics say that could stymie competitors to cable and telecom's new video service.

Then there are the tech challenges: how to corral the wild world of the Web and domesticate it for the living room. Progress has been made on one key hurdle. Studio executives seem more comfortable with software that can protect their movies and shows from wholesale copying. But that still leaves major bugs: the keyboard and the home network.