Industry News Roundup

Set-top box (STB) maker Scientific-Atlanta reached its lowest stock price in almost four years on Friday, October 18, after posting quarterly results well below expectations. The company's stock closed at $11.45, a drop of 14%, making it one of the biggest losers on the New York Stock Exchange that day.

Scientific-Atlanta is one of the major makers of STBs, but is feeling pressure from competitors, as well as facing an uncertain future with the advent of "PHILA," an interoperability standard developed by CableLabs that could put STB features in the next generation of television receivers, eliminating the need for converter boxes.

Video-on-demand (VOD) service Intertainer has shut down while it pursues antitrust litigation against the Hollywood film industry. On October 16, the company issued a letter to its 147,000 subscribers announcing the shutdown and asking them to write to the Federal Communications Commission (FCC) and US Department of Justice to complain about what CEO Jonathan Taplin called an "anti-competitive environment" caused by a handful of companies in control of film distribution.

On September 23, Intertainer filed a lawsuit in US District Court for the Central District of California in Los Angeles, accusing Sony Pictures, Universal Studios, and AOL Time Warner of price-fixing, conspiracy, and failure to fulfill licensing agreements in an attempt to suppress competition. Some of the defendants are backers of Movielink, a competing VOD service.

Intertainer claims to have paid fees to the studios on the assumption that they would provide as many as 200 films per quarter for delivery over the Internet, but was given only about 10 films by the studios. Hollywood is especially wary of the potential for piracy posed by putting its wares on the Internet.

Intertainer has promised to return once the case is settled. "I think we're going to win the lawsuit because in the history of antitrust litigation against the studios, they've lost every time," Taplin said. "Whenever they try to vertically integrate and own everything, the government slaps them down." Although he claims the company can survive at least three years without further financing, Intertainer laid off 10 of its 15 employees the same day it stopped transmitting films.

DVDs killing box office business? Film producer Rick McCallum thinks so. The producer of the Star Wars sequels Attack of the Clones and The Phantom Menace recently told reporters that DVDs are so affordable and so close to the original that they are killing repeat business at the box office.

The days of movie fans going to see films several times in the theater are gone, according to an interview in Variety. Pointing to the simple math, McCallum notes that the cost per individual at the theater now approaches $20, allowing for ticket, parking, and snacks; more than the retail cost of most DVDs and far above the typical rental fee of only two or three dollars. Given the choice, many people wait to see a film on DVD.

"I don't think there's a single movie that can survive on box office gross alone; it just doesn't exist anymore," McCallum observed. "A theatrical gross can't hack it anymore, and the business is barely surviving right now. This is the biggest potential growth area that we have. Studios need it, or they're gone. They're on the verge of collapse anyway. They are not making money. Anyone who says, or thinks, that they are, is out of their mind." The film industry has long relied on video rentals to recover costs on projects that tanked in the theater. With DVD, video sales are becoming an important revenue stream for the industry, one it will rely on increasingly as the format grows in popularity.