Tuesday, November 28, 2006

A Start-Up Fueled by Star Power

With Hollywood Help, Morgan Freeman's Movie-Download Site Is Set to Battle Apple

Morgan Freeman and his business partner, Lori McCreary, combined their Hollywood connections and tech savvy to build ClickStar.

By Frank Ahrens

Washington Post Staff Writer
Wednesday, November 29, 2006; D01

SANTA MONICA, Calif. -- You expect to see Morgan Freeman up on the big screen, playing sagacious older men in such films as "The Shawshank Redemption."

So what is Freeman doing, at 69, hanging out with the digital hipsters and starting a movie-download business, set to launch this week?

"It seemed like a good idea," the actor said by telephone.

The distribution of movies over the Internet is a concept that's interesting enough to have grabbed the attention of Apple's Steve Jobs, the big movie studios and more than 250 others who have started some form of video-download business this year.

But whether Freeman's idea is a good one is open to debate. His venture, called ClickStar, will operate much like others that are struggling to make a name for themselves. And it's unclear whether Freeman -- with his connections to Hollywood stars and studio heads who are looking for digital distribution methods -- will be able to overcome the hurdles that have kept consumers from widespread adoption.

Apple, which already had success with music and TV-show downloads at its iTunes Store, added movies in September priced as low as $10. And even though it has sold 500,000 downloads since then, it has only a little more than 100 titles available -- all from Walt Disney Co., where Jobs sits on the board of directors.

Movielink and CinemaNow, which are backed by the major Hollywood studios, offer libraries of thousands of movies but charge prices comparable to a DVD purchase, a move meant to appease retailers such as Wal-Mart, which deliver brisk DVD sales. Neither service releases numbers, but analysts have gauged their impact as minimal.

And then there are the issues of slow download times -- as long as two hours for one movie -- and playback restrictions that have hampered consumers from watching downloaded movies on their TV sets. Apple is expected to introduce early next year a device that moves movies from the computer to the TV.

With Freeman's ClickStar, users will be able to purchase a movie for about $20 and watch it on the computer or, with the help of an add-on device, a TV set. And ClickStar users can start playback while the movie is still downloading.

Studies have found that consumers are turned off by that type of pricing. But could they be swayed if Freeman addressed some of their other concerns, such as download times, ease of use with other home electronics and a buy-in from Hollywood studios?

The Oscar-winning actor owns a small Santa Monica movie studio called Revelations. About four years ago, his longtime business partner and a former computer scientist, Lori McCreary, warned him that the movie industry could soon be facing the same Internet piracy problems that were plaguing the music industry.

"Morgan gets technology well enough to see where it's going," McCreary said.

Freeman demurred: "I'm sort of a go-a longer."

The business was built on the strengths of the two: McCreary's technology background and Freeman's Hollywood connections.

After talking to his many actor, director and studio-head friends, Freeman knew creative types were terrified by Internet film piracy. "[Steven] Spielberg had expressed incredible fear of [Internet downloads] because his movies are stolen all the time," Freeman said.

Freeman and McCreary made a short film to explain ClickStar, emphasizing the piracy protections built in. He then invited Hollywood hotshots to ClickStar's Santa Monica headquarters, a top-floor loft space in a modern building a block from the Pacific Ocean.

"We've had just about everybody down here," Freeman said, ticking off names -- actors such as Tom Hanks, Clint Eastwood, Danny DeVito and Pierce Brosnan, and studio chiefs such as News Corp. President Peter Chernin. Inside the loft, Freeman and McCreary built a living room with a big-screen TV and a couple of furnished bedrooms with computers. The idea was to get the Hollywood types into a comfortable, familiar setting so they could see how the product worked. It worked well enough to woo a couple of studios into joining ClickStar's launch.

Freeman and McCreary also recognize that consumers have to find ClickStar easy to use. Windows Media Center computers that use the Viiv (rhymes with "five") technology by Intel -- which is a principal investor in ClickStar -- will automatically display the service for downloads and playback on PC or TV. Also, DirecTV's new high-definition set-top boxes will come ClickStar-ready. Others will be able to access the service on the Web at http://www.cstar.com and watch the movies on a PC.

ClickStar's chief executive, James Ackerman, said users should initially expect a library of 600 to 1,000 movies from two or three major studios (that he would not name) and some indie studios. The company will also offer a documentary channel hosted by DeVito and a classic-movie channel hosted by Peter Bogdanovich, both of which launch Friday.

The first new feature-length film available for purchase on ClickStar will be "10 Items or Less," a film Freeman produced and stars in, set to be released simultaneously in theaters and on ClickStar on Dec. 15.

But is this enough for consumers to grasp downloads as a way to get movies?

The Diffusion Group, a Texas research outfit that conducted two recent studies on the viability of the movie-download business, found that nearly one-quarter of households with high-speed Internet would be willing to pay $10 to download a movie to watch on a home PC or video iPod. The percentage drops sharply as the price goes up. At $20 per movie -- about the price of a new movie on DVD -- only 12 percent said they'd pay.

The study asked the same users: If you could download a movie from the Internet for $10 but had to pay extra for a set-top box that would let you watch it on your television, would you still do it? If the box costs $200 to $300, 23 percent of all respondents said yes, the study found.

Alarmingly for businesses like ClickStar, however, when the hypothetical price of a movie rises from $10 to $20 to $25 and the set-top unit costs extra, the percentage of consumers willing to pay extra to watch it on TV falls off the table, statistically speaking.

Kevin M. Corbett, vice president of Intel's digital home group, said he thinks ClickStar and iTunes can find a sweet spot for pricing that will create a viable business. He was relieved, not upset, when Apple beat ClickStar to the movie-download business using a variation of ClickStar's model.

"I'd hate to be in conflict with someone as big and influential in media as Apple when we're trying to build a market," he said.