TV Fattens Up on a la Carte

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Now that digital apps are the rising stars of show business, a new entertainment service called M-Go is looking to step into the limelight.

You might not have heard of it yet, but the Culver City startup is planning to make it into the public eye in a big way later this year.

The question: Can it stand out from more established competitors and attract enough viewers in the crowded field?

M-Go, with a staff of 125, is owned by DreamWorks Animation SKG Inc. of Glendale and Technicolor, a Paris company with major operations in the L.A. area. Unlike many of its e-commerce competitors, such as Apple and Google, its roots are in Hollywood rather than Silicon Valley. M-Go quietly launched an iTunes-like marketplace of movies and TV shows early this year after striking deals with major studios and TV manufacturers. The service allows individual purchases or rentals of movies and TV shows the same day as their DVD release.

But M-Go is still under the radar for consumers: a problem it hopes to remedy with a marketing push later this year. M-Go also will be upgrading its display and adding features this week.

The focus is on getting people to try it out, said Frederic Rose, chief executive of Technicolor, the majority owner of M-Go.

“The issue is how can we create a differentiated experience and how do we spread it,” he said. “We’re much further along than I thought we’d be.”

M-Go started with a flurry of activity early last year when it announced its app would be preloaded on Internet TVs from Samsung and Vizio, as well as some Intel devices. M-Go then made licensing deals with studios NBCUniversal, Paramount, Sony, 20th Century Fox and Warner Bros., followed by others with Relativity Media, Lions Gate Entertainment Corp. and DreamWorks Animation for online distribution of their fare. The deals involve a revenue share for the studios.

The content is available on mobile devices and Internet-connected TVs.

Prices vary, but last year’s “Silver Linings Playbook,” for example, costs $4.99 to rent and $14.99 to buy. A season of the TV show “Parenthood” in high definition costs $15.99; episodes cost $2.99 each.

The service launched in beta mode at the start of the year, so consumers aren’t familiar with M-Go yet, said Dan Cryan, research director of digital media at research firm IHS in Santa Clara. The marketing challenge is only heightened since its primary competitors in a la carte entertainment purchases, iTunes and Wal-Mart’s Vudu, are already established forces.

Still, Cryan said that he believes people are open to new options.

“Consumers can be attracted by competing services,” he said.

Home entertainment sales last year grew for the first time in five years – although only by one-quarter of a percent – to $18 billion, according to L.A. non-profit Digital Entertainment Group.

Growth has been slow because of swooning DVD sales. But subscription streaming services such as Netflix were responsible for much of the gains and contributed $2.3 billion in sales. On-demand rentals grew 11 percent to $2 billion. Digital download sales from services similar to M-Go grew 35 percent to $811 million.

The growth shows that consumers are adopting both methods of watching, Cryan said.

“Subscription TV services are not incompatible with buying and owning content,” he said.


Facing consumers

In launching M-Go, Technicolor is making its first major push into the consumer market. The firm is best known for providing postproduction services for movies and TV shows. It has 1,750 employees spread throughout 19 facilities in Los Angeles and Camarillo, with North American headquarters in Hollywood at the same site as Sunset Gower Studios.

Technicolor has been able to get into the content business with the help of partner DreamWorks Animation. M-Go’s chief executive, John Batter, was formerly the studio’s president of production.

The startup will look to its TV set partners and studios for marketing muscle, Batter said.

“We’ve been piloting a number of programs over the past couple months,” Batter said. “There are a lot of interesting ideas for integration. We’ll be hitting the accelerator in the fourth quarter.”

Last month, Vizio began shipping M-Go’s app preloaded on its new Internet TVs and set-top boxes. New Vizio remote controls come with a designated M-Go button, right next to one for Netflix. That’s seen as a breakthrough.

“It’s a good thing for M-Go to be on Vizio TVs,” said HIS’ Cryan. “Unless you get that device piece (of the puzzle) working, you’re dead in the water.”

Still, entertainment stores such as Apple’s iTunes and Google Inc.’s Google Play are already built in to all Apple or Google devices, he added.

What’s more, people are already accustomed to storing their data and making purchases through those companies, whereas M-Go is still an unknown, he said.

New-release digital movie sales are a historically unprofitable business. Industry insiders believe online distributors including iTunes buy new-release films at wholesale prices from movie studios – for example $16 each – and then offer the titles to customers at a lower price – $14.99 or the like – in order to spur other sales.

But rentals of new releases can be profitable, Cryan said. That’s because a single movie can be rented many times. Also, the price per rental of a new movie is often higher than for an older one. A high-definition version of this year’s “The Great Gatsby,” for example, rents for $4.99 on iTunes, whereas an HD version of 1999’s “Ghostbusters 2” rents for $3.99.

Older catalog material is usually licensed from studios in bulk, often with a revenue-share deal between the merchant and studio based on how much it is viewed, as is the case with Netflix.

Such catalog material is the specialty of Netflix, which gives its customers access to content for a fixed price.

Rose at Technicolor said he does not at all see his service as a competitor to Netflix because M-Go is choosing instead to provide content that is not available on Netflix. In fact, M-Go refers users to other outlets including Netflix if a title is not available on the service.

Batter said his deals with studios are structured on a wholesale model, with payments going back to content owners. He would not say if there are upfront payments as well.

Batter and Rose believe there is significant opportunity to gain share by offering novel features to users.

For example, M-Go is compatible with Ultraviolet, which allows viewing of certain studio movies on any online device.

Some of the new features have been under development at a Technicolor research and development site in Silicon Valley as well as at M-Go’s Culver City office; they are scheduled to start rolling out this week.

One will be an update to the recommendation engine to help users find movies and TV shows that suit their tastes, possibly based on their mood.

“We’re convinced there’s a market,” Rose said.

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