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BROADBAND—Tiny Firm Looks to Capture Part of Internet Film Future

Internet dreams die hard. As other content-driven Web businesses crash and burn, one local company is pushing forward with a plan to provide a variety of original and classic films, television and other entertainment through an Internet-based subscription service.

And now, tiny MovieFlix.com will be competing against the big boys: In a bid to avoid the sort of piracy problems that have plagued the music industry, a coalition of film studios announced last week they are developing a service to allow customers to download full-length movies over the Internet.

To some, that spells the end for small players like MovieFlix, which almost certainly will be shut out from what promises to be the most desirable and valuable content in cyberspace.

But founders Opher Mizrahi and Robert Moskovits prefer to think positive thoughts. They say the studio venture Sony Pictures Entertainment, Metro-Goldwyn-Mayer, Universal Studios, Paramount Pictures and Warner Bros. each own 20 percent of the service is the best news they’ve heard in a while.

“When there is competition that means there is a market,” said Mizrahi, who started MovieFlix with his UC Irvine buddy Moskovits in 1998. “Having the studios enter this space buoys the market and gives credibility to our business model.”

Perhaps. But competition is a relative term. MovieFlix, which plucks films and television shows out of the public domain, accepts submissions from amateur filmmakers and has content deals with independent producers, will be hard-pressed to compete for viewers with studios that are offering recent releases on the Web.

Betting on broadband

What MovieFlix can do, Mizrahi and Moskovits insist, is create a profitable niche in a medium that promises to gain popularity as high-speed broadband connections become more prevalent.

To do that, the company is moving from an ad-based revenue model to one that relies primarily on subscription fees and syndication deals with Webcasters such as Yahoo Inc. and America Online. While much of the site’s content will remain free, about a quarter of the most desirable offerings are available for $4.95 per month as part of its MovieFlix Plus service.

Unlike the studio service, which require users to spend 20 minutes or more downloading its movies, MovieFlix uses a streaming model that offers an instantaneous connection, albeit at the expense of some visual quality.

Since launching the premium service last month, MovieFlix, which says it has 400,000 subscribers and 2,200 titles, has signed up about 1,000 people willing to pay five bucks a month. For that, they can stream such classics as “Metropolis” and “The 39 Steps,” episodes of “Ozzie and Harriet,” animated shorts and soft-core erotica.

“The key for us is demonstrating that we can sign up a large group of subscribers at a good rate,” Mizrahi said.

Noting that only a tenth of American households have broadband connections, Sean Badding, vice president of the Carmel Group research company, said he sees opportunities for companies like MovieFlix.

“You’re going to see a lot of independent producers take advantage of technology that is making it much easier to produce high-quality (films),” Badding said. “The independent folks are going to ride the broadband wave just like the studios are doing.”

But not everyone agrees.

Forrester Research Inc. analyst Eric Scheirer said profitability was “wishful thinking.” Ironically, MovieFlix and other content providers can suffer from their own popularity, Scheirer said, because the more time subscribers spend online streaming material, the higher the company’s broadband costs.

“It’s going to be nearly impossible to make a go with this type of business,” Scheirer said.

Moskovits acknowledged that broadband costs are a concern, but said that increased competition has dramatically lowered prices for both high-speed Internet service and information storage, an important consideration for a company that streams full-length films.

“Right now, the broadband providers are outbidding each other in a war to get customers,” Moskovits said.

MovieFlix, which had revenues of $250,000 in 1999, anticipates revenues of $400,000 this year and $750,000 in 2002 as more subscribers sign up for the premium service and it completes more syndication deals. The company has received just $250,000 from a small group of angel investors.

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