Google in talks with studios for pay-per-view movies. No, really

Streaming Video Stop me if you’ve heard this one before: According to a report in the Financial Times (sub. req.), Google is in advance talks with the major studios about a pay-per-view movie streaming service via YouTube. The service will launch in the U.S. before the end of this year and eventually be rolled out globally, according to the report.

Actually, you have heard this one before. Just about a year ago to the day, the Wall Street Journal reported more or less the same story. That one turned out to be a false alarm. But enough water has gone under the bridge since that I wouldn’t write off the latest report as just a recurring, seasonal rumor.

What’s changed?

  • It has dawned on the studios that the DVD market is not simply suffering a cyclical downturn due to a weak economy but is, in fact, dying. That reality, which a year ago only Disney chairman Bob Iger was willing to acknowledge, has left the studios hungry for new revenue streams.
  • The studios have begun to wake up to the reality of what Netflix has wrought by training consumers to equate digital distribution with all-you-can-eat subscriptions. It’s a great business for Netflix but produces lousy margins for the studios.  The window for establishing a successful pay-per-view alternative to Netflix is closing rapidly and the studios need a distribution partner with the ability to scale the business quickly. Who else ya gonna call?
  • Blockbuster’s apparently imminent bankruptcy is a wakeup call that the transactional DVD rental business (apart from $1 a night Redbox rentals) is also collapsing.
  • YouTube’s recent legal victory over Viacom has made it safe for the other studios to be seen talking to Google. Previously, even if the other studios didn’t agree with Viacom’s legal position, Hollywood solidarity dictated steering clear of helping YouTube boost its business (no word on whether Paramount is involved in the talks with Google).

That said, there are potential pitfalls for the studios to getting in bed with Google.

  • They will be picking a fight, by proxy, with Apple. One question not discussed in the Financial Times report is whether YouTube could deliver the PPV movies to the iPad. The current YouTube iPad app delivers free content. What happens when YouTube tries to deliver paid content that competes directly with Apple’s iTunes? Will YouTube be able to conduct PPV transactions on the iPad and other Apple devices?
  • One way Google can help the studios achieve scale for a PPV service would be to make sure the YouTube service comes out on top of search results for movies. But that could also land the studios in the middle of a brewing controversy over Google’s alleged favoritism in search rankings, which could be a significant distraction and expose the studios to liability.
  • The next listing in the search results could well be for a pirate site.

Not a no-brainer either way for the studios. But the clock is ticking.

Further reading:

Report: Google In Talks For Movie Rental Service

Google Pitching YouTube Pay-Per-View. Anyone Buying?

YouTube UK To Launch Free Movie Service

Boxee Builds a Streaming Movie Library, Indies First