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Starz Launching Movie-Download Service

Cable network Starz Entertainment Group LLC said it plans to launch an Internet movie download service on Tuesday, backed by partnerships with Microsoft (MSFT) and Sony (SNE), amid a race to offer more videos over high-speed Internet connections.

The service, called Vongo, follows the debut of Apple Computer Inc. (AAPL)'s iTunes video service, which ignited interest across the media sector to make more video programming available at any time and anywhere outside of the living room.

Vongo is not the first movie download service — CinemaNow Inc. and the Hollywood studios-backed Movielink have been around for about five years.

But it is one of the first to offer a rotating slate of feature films, which currently play on its cable channel, on PCs and portable media devices for a monthly fee.

Collectively, these services remain a tiny portion of all movie viewing and it remains to be seen whether media consumers will take to watching feature-length programming on tiny portable screens, one media analyst said.

"This is more of an amoeba that needs to grow," Bruce Leichtman, president of Leichtman Research Group, said.

But much rides on the success of the service. Vongo, which will rely on Microsoft's Windows Media technology to provide copyright management and the ability to let customers watch movies on portable media devices, will also play a role in the evolution of Microsoft's portable media software technology.

Starz, a division of John Malone-controlled media conglomerate Liberty Media (L), currently has a deal with technology and media company RealNetworks Inc. (RNWK) for an online movie service. Starz executives said they were in discussions to "migrate the service to Vongo."

DIFFERS FROM PAY-PER-VIEW MODEL

First-generation portable media devices were criticized for lack of legally available programming.

The service will be mentioned in Microsoft Chairman Bill Gates' speech this week at the 2006 Consumer Electronics Show in Las Vegas, Starz executives said.

Vongo will also play a big part in Sony's Connect music and video service, Starz said.

Starz has access to about 40 percent of all first-run Hollywood films made available to cable subscription services such as Time Warner Inc.(TWX)'s HBO and Viacom (VIA)'s Showtime.

The cable network has deals for exclusives on new releases from Walt Disney Co. (DIS) and Sony, typically a year after movies have been released in theaters.

For $9.99 per month, subscribers will have unlimited access to watch more than 1,000 movies at any time on a laptop or a portable media player, the company said. The fee also gives users access to a live stream of the Starz cable channel.

For an additional fee of $3.99 per movie, programming not available on the main subscription service that is made available after six months of a movie's theater release can be downloaded for rental.

Vongo differs from the entrenched competitors which mostly offer movie download rentals on a pay-per-view basis. Vongo said it plans to give viewers access to a much wider breadth of films, which are also available on its cable channel.

Ultimately, the service aims to be a "one-stop" shop for all types of online and portable movie viewing, executives said.

RENT, NOT BUY

Vongo begs comparisons to Apple's iTunes video services, which let users buy TV shows for $1.99 per episode. Both offer viewers the ability to watch video away from the living room on portable media players with tiny color screens.

The similarities stop there.

Leichtman said Vongo's subscription approach could gain an edge with customers, who are already accustomed to paying monthly for cable and satellite channels rather than buying shows or movies individually over the Internet.

Unlike iTunes, which discovered a ripe market for music buyers already conditioned for decades to buy songs individually, the video market shares no similar comparisons.

"We should not think the success of iPod music extends to pay-per-use video," Leichtman said.

At this point, Vongo has no immediate competitors, but Leichtman said other pay cable networks like Time Warner's HBO could be positioned to offer similar services.

Liberty Media holds a minority stake in News Corporation, which owns and operates FOXNews.com.