By Neeraj Jha
Globally, technological developments are ushering in new sales outlets and additional means of distributing entertainment content to consumers. The Internet is affecting entertainment companies in various ways globally.

Consider the changes that are sweeping across filmdom all over. Time spent in front of a computer screen is likely to cut into time spent in front of a television screen. Internet is expected to increasingly take advertising dollar away from other media. It is also changing consumer purchase patterns with more products such as videos and music being bought online.

And there is considerable downloading of programming, especially music. The incentive: the level of immediacy that is lacking when a consumer goes to the store or waits for the order to arrive by mail. Increasingly, entertainment companies are doing cross-promotions between their traditional operations and their Internet sites.

Internet investing
Internet is taking the global entertainment industry by storm. Examples abound of current and proposed investments in Internet-based operations by traditional entertainment companies. Walt Disney, for instance, now owns about 42 per cent of the Internet portal company Infoseek Corp. And in January 1999, Infoseek and Disney launched GO Network with such features as Infoseek's Internet search engine, personalised information pages and links to affiliated pages including ABCNEWS.com, ESPN.com and Disney.com.

In February 1999, cable network company Viacom Inc had declared that it will create two new online sites. One is "Project Nozzle", which was intended to be an online service for children. The second is "The Buggles Effect", which was to be a music site featuring customised entertainment, information, online communities and electronic commerce. The idea was to build on the strength and popularity of its child-oriented Nickelodeon and music-oriented MTV cable TV networks.

In April 1999, two of the world's largest music companies, Universal Music Group (92 per cent owned by Seagram Co) and BMG Entertainment (part of Bertelsmann AG) said that they would join forces in providing online music channels and selling audio compact discs on the Internet.

Other examples of Internet interests include CBS Corp’s ownership interest in Sportsline USA Inc, which offers more than 4,00,000 Internet pages of information, programming and merchandise to sports fans; and video retailer Hollywood Entertainment Corp's ownership of Internet-based Reel.com, which has more than 1,00,000 video titles for sale. Another complex transaction involved USA Networks Inc which was to have exchanged assets for a sizable equity interest in Internet company Lycos.Inc. As a part of the deal, Lycos was to have acquired cable television's Home Shopping Network whose transaction processing infrastructure could have been useful in building Lycos' online shopping operations.

Yahoo.Inc had planned to acquire Broadcast.com Inc which provides both audio and video through the Internet, including broadcast of more than 400 radio stations and networks, more than 40 television stations and cable networks, live music, on-demand music from a CD jukebox and special interest shows available only on the Internet. Broadcast.com claims to attract an average of more than 1.1 million unique users a day.

Internet's effectiveness as an electronic catalogue for sale of products such as recorded music and video has already been demonstrated. In 1998, Internet accounted for an estimated US $200 million in music sales, according to Forrester Research. The Internet sites of two companies , CDnow Inc and N2K Inc (which merged in 1999), accounted for close to US $100 million of the year's Internet-based music sales. In the approximately half a year that Amazon.com's music store was open during 1998, it had a music sale of about US $47 million. Later, during the same year, Amazon launched a video store with more than 60,000 VHS and more than 2,000 DVD titles.

Piracy concerns
The evolution of downloading technology through the Internet has given rise to major concerns about illegal duplication of audio or video material which invites copyright infringement. Today's technology allows such material to be stored digitally in computer files, which can be swapped and stored and potential resellers have a field day with no payment to the copyrighted content. As home computers become increasingly powerful and loaded with more features, and Internet downloading becomes faster, the threat of illegal duplication grows. Currently, downloading of music is taking centre stage, but advances in technology will also make Net downloading of files commonplace.

Within the music industry, a compression technology called MP3, which permits songs to be downloaded and stored in computer files on the Internet and elsewhere, has raised concerns. A firm that uses this technology, MP3.com has come under fire for its services called My.MP3.com, which is effectively a computer-based jukebox that allows music fans to access songs that they already possess in physical compact disk form via the Net.

DVD and DTV
While the industry is receiving a huge amount of attention, there are other technology-related forces at work in the entertainment industry. On the home video front, the digital video disk (DVD) was introduced in 1997 and is becoming an increasingly popular medium. More than six million US household are expected to have a DVD player by the end of 2000 and many more will be able to play DVD disks on their computers.

Digital television (DTV) broadcasting was introduced during the fall of 1998. DTV has the capability to provide clearer, sharper and cinema-like pictures as well as multichannel and CD-quality sounds. Information technology can also provide new uses such as multiple video programmes or other services, including data services, on a single television channel. However, real use of DTV will depend on the availability and cost of equipment needed, the new services and the pace at which DTV programming becomes available.

Box office 1999
During 1999, ticket sales at domestic movie theatres rose about eight per cent over the previous year. What helped box office sales was summer in parts of the US and development of new theatres in recent years. Between 1996 and 1998, the number of movie screens increased by 15 per cent.

The ten highest grossing films accounted for about 28 per cent of all dollars spent on domestic theatre admissions during 1999. These 10 hits came from seven different distributors, with Disney's Buena Vista unit alone accounting for four hits.

The biggest surprise of the year was the phenomenal success of The Blair Witch project, a mystery story presented as a documentary, reportedly filmed at a cost less than US $100,000. Helped by publicity on the Internet, the movie sold about US $140 million worth of tickets at domestic theatres.

International markets remain important to the US movie industry. Trade magazine Variety says in 1999 the latest Star Wars film became the fifth film ever to top US $400 million outside North America. American films generated about US $7 billion of box office sales in international markets.

In 2000, prominent theatrical movies are expected to include Battlefield Earth, a science fiction film with John Travolta in the lead; Dinosaur, a combination of live action and animated movie from Disney; two Jim Carrey films, a comedy called Me, Myself and Irene and a retelling of How the Grinch Stole Christmas; a sequel to Mission Impossible, starring Tom Cruise; Patriot, a revolutionary war drama starring Mel Gibson; Perfect Storm, starring George Clooney and an X-Men movie based on the comic book.

Though no movie is likely to repeat the box office success of Star Wars: Episode I and the overall movie ticket sales will be down modestly from 1999 level. In addition to producing strong sales for itself, Star Wars would have boosted the overall ticket sales. Following its release in May, it generated large audiences for promotion of various other 1999 films in the form of previews at theatres.

Accounting changes
Film entertainment companies face a prospective change in accounting rules. Based on a draft proposal from the American Institute of Certified Public Accounts (AICPA), revisions could include new guidelines on revenue recognition for multifilm deals, accounting for abandoned projects and unprofitable films and revenue recognition for television syndication. If adopted, the proposed Statement of Position (SOP) may have a larger impact on reported earnings than on companies' cash flows.