Leonard Kleinrock, sometimes referred to as “the Inventor of the Internet,” spoke recently at an MPAA workshop called “the Expanding Universe of Internet Entertainment.”  In Leonard’s speech, he quoted Rick Rubin from a NY Times article, and Rick’s efforts to revive the music industry by pushing for a subscription music model.  Leonard mused about whether subscription is potentially the panacea for digital movies as well. 

Subscription music does show promise, but it really hasn’t taken off with consumers.  After several years, the leading subscription service, Rhapsody, claims to have 2.3 million subscribers (some say that's overstated).  The new Napster, with its recent acquisition of AOL Music, reportedly has 830,000 subscribers. That's the bulk of the business, but 3 million subscribers represent a minescule fraction of the people consuming digital music.

It’s an interesting question then, whether subscriptions will work for video.  Video and music clearly have different dynamics – you listen to music over and over, though you generally watch movies once.  Subscription movie services like HBO, Showtime and the like have been phenomenally profitable over the years, historically due to their exclusive movie “windows,” and increasingly due to their original programming.  So, in a world of ever-expanding choices, will subscription work?

When I was sitting in an analyst briefing by John Barrett of Parks & Associates, it struck me – the answer is not whether it will work, it’s where will it work?  All too often, we see the world as homogeneous, but in cases like this, there is high variability.  For example, when Parks asked consumers around the world how likely they would be to view a movie they wanted to see in various formats, including going to the theater, they found that it differed dramatically by geography.  For example, in Italy and France, 15-17% of respondents’ first choice was to watch a movie free (ad-supported) over the Internet.  That's pretty encouraging.  But in Canada and the U.S., that number was under 5%.  Watching the movie under a subscription model was interestingly unpopular around the world (2-3%), except for in France (10%) and Korea (15%). Perhaps consumers today are generally disinterested in the notion (or don't yet understand it), but ten or fifteen percent of an entire country could be a substantial business, and so I wouldn't be too quick to write subscription movies off across the board.

The bottom line from my perspective is that there is increasing interest in digital movies, and that consumers will want to have choice in how they buy and receive them.  But we need to be careful about assuming that one size fits all.  People around the world will interact with media in fundamentally different ways, and the more creative and respectful of the differences we can be, the more success we will have in giving consumers what the want, when and where they want it.