Amazon.com Inc. is reportedly in advanced talks with several major Hollywood studios about creating a service that would allow consumers to download and copy movies and television programs, sources familiar with the discussions said.
Sources reveal that Amazon is close to completing a deal with three Hollywood studios; Paramount Pictures, Universal Studios and Warner Brothers. In effect, consumers will be able to download movies and TV shows for a modest fee, and then will be able to burn that content onto ordinary DVDs.
Warner Brothers is part of Time Warner Inc., Universal Studios is owned by General Electric Co.’s NBC Universal and Paramount is part of Viacom Inc.
The No. 1 online retailer has stayed mum in recent months over plans for a music download service to rival Apple Computer Inc.’s iTunes, as well as film and TV shows from independent producers. An Amazon spokeswoman declined to comment about talks with major movie and TV makers.
One source said a deal was not imminent in the next two or three days, but added the studios were enthusiastic and an agreement, if one is concluded, might come soon.
At stake is a major breakthrough if Amazon can cut a deal that allows consumers to download movie and TV shows for a modest fee, and then burn that content onto ordinary DVDs.
"If Amazon can get to that fast track, it would eliminate the need for people to go out to rent or buy movies," says Piper Jaffray analyst Gene Munster. "If it does not, this service could be dead on arrival."
As of now, there is no easy way for consumers to burn downloaded content onto DVDs. Yet more than 45 million U.S. households subscribe to a high-speed Internet service, and most home PCs are equipped with DVD burners, according to Pali Research.
It is believed that Amazon’s proposed service might offer competition to Apple Computer’s popular iTunes digital download store.
Matt Rosoff, analyst at Directions on Microsoft, called Amazon’s move "strange and somewhat risky," since it is "entering a crowded space, dominated by Apple."
But Jake Ludington, analyst at MediaBlab.com, noted that should Amazon persuade the movie studios to let consumers’ burn DVD copies, the "landscape changes."
"The big question: What will the service look like to the consumer?" Ludington says.
Amazon already owns a movie Web site called IMDB.com, which boasted over 15 million users in February 2006, and sources said Amazon would utilize IMDB to capture movie fans’ attention then sell them downloads of films that could then be copied onto DVDs.
Amazon has been increasing its spending in research and development. Financial analysts have thus far reacted positively to the prospect of Amazon entering the digital download business, which boasts higher margins than the retailer’s traditional business. Amazon’s investment in technology and content grew 57 percent in the fourth quarter.
DOWNLOAD TO OWN
The studios already own an interest in online service Movielink, but it offers downloads to rent, not to own. The sources had no details on potential prices for the movies that might be offered via Amazon.
In February, sources familiar with the matter confirmed that Amazon was in talks with four major music labels on starting a digital music service.
Amazon watchers have cited the retailer’s experience in selling movies, TV shows and music and say it would be a logical extension of the product lines to have them sell downloadable versions of the entertainment.
Amazon says it has sold more than 55 million active customer accounts.
Apple, as of February, had sold 1 billion music downloads at a cost of roughly 99 cents each since it introduced iTunes three years ago.
In January, media reports put Amazon in talks with three independent movie studios — Image Entertainment, Ardustry Home Entertainment and First Look Home Entertainment — for content.
Amazon is a latecomer to the still fledgling digital download marketplace. Apple’s iPod music player and iTunes online store have swept up 80% of the market for paid music downloads. Last fall, Apple introduced the video iPod and began selling episodes of popular TV shows, such as Lost and Desperate Housewives, for $1.99 an episode. But iTunes content can be played back only on an iPod or on a Mac or Windows PC running the free iTunes program.
Microsoft has been trying for years to get consumers into the habit of using a Windows Media Center PC to download music and movies, to be played back on Windows PCs or portable devices equipped with the free Windows Media Player program. While that puts paid content on PCs and computing devices, there is no easy way to play back a downloaded movie on a generic DVD player.
To bridge that gap, Amazon will have to convince the movie studios that it is OK to let consumers make DVD copies. "The process must be simple and affordable," says tech reviewer Chris Pirillo of Lockergnome.com.
While Amazon watchers feel that selling downloadable versions of entertainment would be a logical extension of the company’s product line, Amazon and the three Hollywood studios remain incommunicado about the upcoming service.