It In The News

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IT in the News February 15, 2006 MovieBeam

Problem/Opportunity A consumer has several choices on how to rent a movie for home viewing. Examples include: traditional drive-to movie rental outlets (70% of all rentals), video on demand through cable, or mail services such as Netflix. The industry trend is moving towards better picture quality and increased customer convenience. Since the industry standard for high definition movie disks is still being developed, how does a customer get convenient on-demand access to high def movies at comparable prices to the rental outlets? The answer may be MovieBeam, a company founded by Disney, which beams high def movies directly into the consumer’s home. Technology Hardware: HDTV or regular TV, special set-top box, remote control, antenna, transmitters, and servers Software: Software inside the set-top box to interface with the TV (supporting various viewing formats), software to regulate which movies have been paid for, internal apps / OS within MovieBeam Database: Specialized relational databases to track customer payment with movie release, large databases to electronically store movies, and demographic data Network: Uses digital broadcast frequency (courtesy of ABC) to “datacast” movies to the set-top box, various cabling options to connect set-top box to TV / audio processor, LANs/WANs within MovieBeam People: Customers that use the service, sales people, movie studio reps, IT support staff, and investors Process: The customer buys a set-top box, subscribes to the service, pays a fee to watch a move, movies are beamed to the set-top box via traditional broadcasting spectrum, and the consumer watches the move. Business Implications The movie on-demand trend is hardly new, what MovieBeam has done is diversify itself to provide a selection of high definition movies to cater to those who have HDTV compatible TV’s. MovieBeam, along with Netflix and cable ondemand movies, represents a serious threat to the traditional movie rental outlets that currently enjoy domination of the market. Why fight the crowds at the traditional outlet for a limited supply of movies when a customer can get the selection they want in the convenience of the own home and not have to deal with returning it? Other implications could include datacasting news, sports, or other TV favorites.

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IT in the News February 15, 2006

Trade-offs/Analysis Benefits and tradeoffs of the MovieBeam service are as follows: Pros: Super convenient in comparison to driving and US Postal service

Cons: Potential exists to crack security encryption leading to theft, posting on the Internet, or reselling Set-top box is expensive (~$200)

Competitive rental pricing once the settop box is purchased Good selection of high def movies for those who have HDTV’s Excellent partnership fits in logically with Disney and ABC.

May be missing a larger market by marketing high def movies Poor broadcast reception leading to corrupted movie files and upset customers Payback is best for those who rent a lot of movies May be too technically challenging for the non-tech savvy All of MovieBeam’s eggs seem to be in the same basket – was not doing well since inception four years ago Limited to select markets were service is available. Will novelty wear off when HD disc format becomes standardized?

Allows for good targeted marketing trough CIS via banner ads Rates high on the “cool factor”, may attract early adopters Disney has lots of capital to invest in the business unit

Logical next steps and why The next logical steps for MovieBeam include: •

Increase advertising. Even though the service has been available for four years I just found out about it today via NPR. Even if the service is not available in all areas, advertising would build interest/excitement.

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Diversify. Find other content, besides movies, to beam into set-top box. Examples include sports, news, or personalized TV favorites.

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Build loyal customer base. Profits per rental will be small; therefore MovieBeam needs to rely on high volume and increasing subscriptions to build growth.

Source: Attached ________________________________________________________________

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IT in the News February 15, 2006

MovieBeam offers 1st high-definition movie rentals By Robert MacMillan and Gina Keating February 14, 2006 NEW YORK/LOS ANGELES (Reuters) - A video-on-demand company spun out of Walt Disney Co. on Tuesday introduced the first delivery service for high-definition films to U.S. homes, offering some movies on the same day as their DVD releases. Burbank, California-based MovieBeam said it plans to offer first-run films from six of the seven film studios in standard digital-video format and high-definition (HD) films from Disney (NYSE:DIS - news) and Warner Bros. studios. About 10 percent of the films offered will be available in the high definition format, MovieBeam spokeswoman Michelle Cox said. Titles from Disney, Miramax and Touchstone will be available on the same day of DVD release, Cox said. Other studios will provide titles in the next 30 to 45 days after the DVD release, Moviebeam said. The service is aimed at heavy movie renters and initially will be offered in 29 U.S. cities, including New York, Chicago and Los Angeles, at prices competitive with rentals at video retailer Blockbuster Inc. (NYSE:BBI - news). "They appear to be ready to deliver true high-definition movies. That's a breakthrough," said Gerry Kaufhold analyst In-Stat/MDR. MovieBeam, which was founded by Walt Disney four years ago, appeared to have run out of steam when Disney took a $24 million write-down on the company last summer. It was revived last month with a $48.5 million cash infusion from Disney, Cisco Systems Inc. (Nasdaq:CSCO news), Intel Corp. (Nasdaq:INTC - news) and three venture capital firms. Delivering high-definition videos to consumers has been restricted by the limits of high-capacity networks needed to deliver feature-length videos to millions of consumers via satellite, telephone or cable TV networks. MovieBeam uses a technology called "datacasting," which broadcasts up to 10 new movies a week to subscribers using an exclusive transmission deal to send data signals over the Public Broadcasting System network. The MovieBeam set-top box can store up to 160 gigabytes of data, with a standard definition movie taking up about one gigabyte of space, while high-definition films occupy four to five gigabytes, Cox said. GETS JUMP ON HD VIDEO DISC MARKET

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IT in the News February 15, 2006

New releases are to remain in the system up to three months. MovieBeam's delivery also gets a jump on the emerging high-definition video disc market, which has been hampered by battles over standards. MovieBeam set-top boxes will carry Cisco's Linksys consumer electronics label and be sold through retailers Best Buy Co. Inc. (NYSE:BBY - news), CompUSA and Sears (Nasdaq:SHLD news). The box, which can be stacked atop a cable TV set-top box, is priced at around $200, after a rebate, with a $29 activation fee. It has a paperback book-sized antenna to receive movie updates. First-run standard format videos will rent for $3.99 and high-definition videos rent for $4.99. Older movies in the catalog cost $1.99 for standard format and $2.99 for high-definition -- roughly in line with rates at video stores. "If you're somebody who rents an awful lot of movies, this is potentially attractive," Forrester Research analyst Josh Bernoff said. "But, for the great mass of the movie viewing public, getting a separate set-top box just to get movies is an awfully big stretch." Despite frequent obituaries for the video store industry, seven out of 10 movies are still rented at retail outlets. An estimated 85 percent of rentals are for first-run videos -- the 50 or 60 latest releases prominently featured in stores. It is this piece of the video market that MovieBeam is targeting. Netflix Inc. (Nasdaq:NFLX - news), which offers DVD rentals for a monthly subscription fee from a library of 55,000 films, postponed the planned 2005 launch of its own movie download service, because of problems acquiring content, according to Netflix Chief Executive Reed Hastings. Media companies had resisted allowing widespread online downloading of first-run movies for fear of piracy and cannibalizing the profits they make on DVD sales.

Internetnews.com September 29, 2003 Disney Debuts MovieBeam Service By Mark Berniker While DVD has replaced VHS as the standard for video, media companies have shied away from competing with video store franchises, which distribute their product. But Disney, with the launch of its new MovieBeam service is getting into the business of electronic movie distribution. Walt Disney Co. (Quote, Chart) said it has launched MovieBeam, what the company calls an "on-demand movie rental service." The service combines a number of technologies, which the company says have been tested and are fully secure.

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IT in the News February 15, 2006

"We are using smart card security layered on top of multiple levels of security that prevent the duplication of illegal copies," said Tres Izzard, senior vice president and general manager, Buena Vista Datacasting, the Disney division running the new MovieBeam service. The diversified entertainment-media company said MovieBeam is being made available starting this week in Jacksonville, Fla., Spokane, Wash., and Salt Lake City. The company has plans for a national rollout in 2004, and will announce which specific markets the MovieBeam service will become available in the new year. Disney will charge customers $6.99 per month for an equipment service fee for access to the MovieBeam set-top box, which is being manufactured by Samsung. Izzard there aren't plans to build a more sophisticated set-top box, and said that service, content and communication upgrades will be sent directly to customer homes via its electronic network. "We are able to broadcast out software updates," Izzard said, adding Disney has contractual arrangements with PBS National Datacast and Dotcast to feed the movies in compressed data formats over a national datacasting network to MovieBeam receivers in customers homes. In addition, to charging customers more than $80 per year for the MovieBeam settop boxes, Disney will charge $3.99 for viewing new movie releases, and $2.49 for older titles. Customers are able to watch the movies as many times as they want for a 24-hour period. Disney said that 100 different titles will be available at a time, with ten new titles accessible through the set-top box per week. With the new service, Disney is aiming to compete with not only video stores nationwide, but cable and satellite operators offering similar movies-on-demand services. Disney was successful in lining up the major Hollywood studios to be part of its MovieBeam venture. However, Paramount, which is part of Viacom (Quote, Chart), the owner of both Blockbuster and a partner in the MovieLink movie-downloading service, has yet to commit to Disney's new video rental system. "We are in ongoing discussions with them," Izzard said. The major movie release companies participating in Disney's MovieBeam service include DreamWorks, MGM, Miramax, New Line Cinemas, Sony Pictures, Universal Studios, Warner Bros., 20th Center Fox and of course Walt Disney Studios. Disney said its new releases for the week of September 29 include "Lord of the Rings: The Two Towers," "Chicago," "Old School" and "Die Another Day." Disney said the Movie Beam receiver is a "device automatically receives, movies, stores them on its hard-drive, and gives consumers the opportunity to view them." Disney said the movies are "transmitted via a digital wireless signal to the MovieBeam receiver's small indoor antenna, replacing 10 titles. The data

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IT in the News February 15, 2006

transmissions take the form of secure data streams and are sent through the broadcast spectrum of television stations owned by ABC and National Datacast's network of PBS stations." Izzard said Disney has lined up relationships with several national retailers, where customers will be able to sign-up for the service, along with an agreement, which will lease them the MovieBeam receiver. The retailers Disney is working with include Best Buy (Quote, Chart), Circuit City (Quote, Chart) and several other national audiovideo retailers. In addition to the charges for the set-top equipment and the movie viewing, Disney also said there "will also be a one-time activation fee of $29.99 required in some areas." Disney said customers who sign up for the service through retailers or directly online will get the MovieBeam receiver, remote control and small antenna via FedEx within two days.

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