Warner Tests Renting Film on Facebook for Web Cash
By MIGUEL HELFT and BROOKS BARNES
Published: March 8, 2011
Warner Brothers became the first major media company to offer a movie for rent on Facebook, a move that could position the social network to become a force in the digital distribution of movies, rivaling services like Netflix and iTunes.
Warner Brothers Pictures
Heath Ledger as the Joker in “The Dark Knight,” which Warner Brothers will rent to American users over Facebook for the equivalent of $3 in Facebook’s currency.
Warner said on Tuesday that it would allow Facebook users in the United States to rent the film “The Dark Knight” directly on the social networking site, and pay for it using Credits, Facebook’s virtual currency. If other studios make similar moves, Facebook could tap a significant revenue stream, bolstering its Credits currency as it seeks to create a rival to PayPal and other payment systems.
Warner said it might make other movies available on Facebook over time.
“This is definitely a test,” said Thomas Gewecke, president of Warner Brothers Digital Distribution, in a telephone interview.
While some analysts saw the move as a danger to Netflix — a threat investors seemed to take seriously as shares of Netflix dropped more than 5 percent on Tuesday — others said that for Facebook, which is already one of the most popular places to watch videos online, the payoff from Warner’s move might be more in the expansion of its online currency.
“I think this is much more about payments than about movies,” said Alex Rampell, the chief executive of TrialPay, an advertising company that offers free Facebook Credits to people who buy certain products.
Mr. Rampell said that millions of Facebook users were using Credits to pay for virtual goods inside games like FarmVille and Mafia Wars. “It seems like a logical step to use the currency to pay for movies,” he said.
Facebook began testing Credits in virtual games nearly two years ago. But the company, which keeps 30 percent of all transactions conducted through Credits, has made it clear that it wants to turn its virtual currency into a payment mechanism for all sorts of digital goods.
To expand the use of the currency, Facebook last year began selling Credits through prepaid gift cards at Wal-Mart, Target and Best Buy. Earlier this year, it opened up Credits to all application developers on Facebook. Warner appears to be the first major media company to take advantage of the service to charge for content.
Facebook said that more than 400 developers were already using Credits.
“We’re looking forward to seeing the new and interesting ways that developers and partners use Credits to offer virtual and digital goods in the future,” Jonathan Thaw, a Facebook spokesman, said in a statement.
Like other Hollywood studios, Warner is racing to figure out how to deal with two significant problems: piracy and plummeting DVD sales, both of which are growing worse as broadband access spreads across the globe. The industry’s best hope for a solution is to make more content available for digital purchase on more platforms.
But Hollywood is also fretting that certain delivery systems — particularly Netflix, with its rapidly growing streaming service — are becoming too powerful. If Warner’s go-straight-to-the-fans Facebook experiment is successful, it could be a way of skirting those middleman distributors.
It chose the “The Dark Knight” in part because a related Facebook page run by the studio has a robust four million fans. The rental costs $3, or 30 Facebook Credits.
For now, Facebook is hardly a rival to online movie rental services, and it is not clear if the company plans to become one. It did not specifically help Warner and has not signed a licensing or distribution deal with the studio. And even if other studios follow Warner’s lead, Facebook lacks a feature for users to find movies.
But some analysts said that Facebook could eventually inch its way more aggressively into the movie rental business.
“On a longer-term basis, we think that Facebook could become a credible threat” to Netflix, Ingrid Chung, an analyst with Goldman Sachs, wrote in a note to investors. Ms. Chung noted that for now, however, Facebook “lacks content, does not have wide distribution across devices that connect to the living room TV, has few people on the payments platform.”
Warner’s Mr. Gewecke is bullish on another experiment, this one involving the sale of movies through a newly introduced iPad app. Warner now offers “App Editions” for two films, “The Dark Knight” and “Inception.” Rather than gaining access to the films through iTunes, consumers instead download a free app, which lets them buy the movies for unlimited streaming.
The app route is significant because it allows Warner to sell “Inception” and “The Dark Knight” in 23 countries where iTunes does not currently operate a video store — including fast-growing and highly pirated markets like China and Russia. “This platform allows us to experiment with an early version of what you might call a ‘connected movie’ — the ability for us to offer new extras over time as updates,” Mr. Gewecke said.
“We think that is a great way to add more value to the digital ownership experience,” he added.