Maybe sooner..Blockbuster tests movies via the Internet
M. Sharon Baker Staff Writer
A small Seattle company named ReFlex Communications Inc. has begun delivering movies from Blockbuster Inc. over the Internet to 150 people in Seattle and Portland.
The subscribers, who in Seattle live in downtown's Harbor Steps, are among the first in the nation to be able to "rent" movies from Blockbuster over an Internet broadband connection. Blockbuster is offering the service in partnership with Enron Broadband Services, a subsidiary of Houston-based energy trader Enron Corp. that's now brokering telecommunications bandwidth.
Working with Blockbuster and Enron might give ReFlex a leg up in an emerging market, if the movie rental service entices cable and Internet users to switch to ReFlex's offerings.
"Our (movie rental) results to date have been exciting and extraordinary," said Dennis Muse, who signed on as chief executive of ReFlex a year ago. "The probability is high that we'll expand the trial, which runs through the end of March."
ReFlex is targeting apartments and condominiums, a market segment that Amy Helland, an industry analyst with Scottsdale, Ariz.-based Cahners In-Stat Group, predicts will grow from sales of $165 million this year to $1 billion by 2004.
"ReFlex is among a handful of competitors that have targeted the residential rather than the commercial high rise market," she said. There is no clear leader in the nascent market, she added.
"ReFlex has been very leading edge in what they've been able to do in Seattle," Helland said. "They have a very interesting product."
For Enron Broadband, the online movie rentals are still just a test. "We're really just gauging the market, how it's being received and what customers will pay. So far, the launches are going great, with only a couple of minor problems," said spokeswoman Shelley Mansfield.
Research firm The Yankee Group predicts that nearly 8 million people will receive movies via the Internet by 2003, generating more than $1 billion in fees. Analysts say movies could be just the beginning, as companies offer online gaming, television and other interactive programming and services over broadband Internet connections.
Founded a little more than three years ago, ReFlex delivers high-speed Internet connections to apartments and condominiums around the country by marrying the latest wireless technologies to fiber optic networks. The company is on a quest to become a national player, and at the end of last year had 7,000 subscribers in 251 buildings scattered about the nation.
The challenge for all new broadband access providers is to offer a compelling package of services that will draw subscribers away from their current cable and Internet services providers, Helland said.
Every market player needs "to offer subscribers a compelling reason to change, and thus they need to do whatever they can to juice up their offerings," Helland said. The Blockbuster deal gives ReFlex that initial edge, she said.
Last year, Enron and Blockbuster took the Internet, cable and telecommunications worlds by surprise when they announced plans to rent movies over the Internet. At the time, Blockbuster chief executive John Antioco predicted that "we'll double the market for video rentals and keep 30 percent of it."
ReFlex's customers aren't the first to get movies delivered online whenever they want. In a handful of cities, cable companies for at least a year have been allowing customers to order movies and watch them when they want with VCR-like functions such as pause and rewind. This differs from the well-established pay-for-view approach, where customers pay for a movie and then wait for it to play at a specified time with no VCR-like functions.
But ReFlex and the other partners of Enron and Blockbuster - SwitchPoint Networks Inc. in Salt Lake City and Verizon Communications Inc., which is conducting technical trials in New York City - are delivering movies over phone lines.
Doing so means cable operators instantly have many new competitors, and those competitors can reach parts of the country that cable currently doesn't. Only 50 percent of today's cable company networks can handle movie rentals, thanks to digital upgrades.
Muse hopes to roll out services to 900 buildings this year, and at least continue the current subscriber growth. Assuming that the company targets similarly-sized complexes with similar demographics, this could equate to 22,500 subscribers by year's end.
Overall, the company's penetration rate is 14 percent, but that figure takes into account the 15 buildings that were just turned on within the past three weeks, Muse said. The 17 buildings that have been receiving service since the end of 1999 have a 21 percent penetration, while those with service turned on in the first half of 2000 have about a 17 percent penetration rate.
The industry averages a 15 percent penetration rate, said Cahners analyst Helland, adding that the 20 percent mark is only being hit by a few.
How fast Muse can boost subscribers and his network depends upon financing.
"I have three different business plans to determine how fast we're going to grow the business," said Muse, a former high-ranking executive with MFS Communications, now part of WorldCom Inc. "We're currently weighing the current appetite for growth against the retrenching financial market."
ReFlex is backed with about $45 million from Enterprise Partners and The Sprout Group, the venture capital arm of Donaldson Lufkin & Jenrette. The telecommunications and technology sectors have been slammed over the past nine months, and Internet service providers have been particularly hurt as several high-profile players have come up short in their quest for subscribers and revenues.
Muse, who expects to start raising funds within a month, declined to specify how much he's seeking, due to the unstable financial markets. Last summer he raised $33 million, and companies such as his that are building their own network typically have large capital needs.
"The opportunities are great for those that continue to execute against a plan," he said. "It's clear from our network that demand is there."
Reach M. Sharon Baker at 206-447-8505 ext. 107 or sbaker@bizjournals.com. |
