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Hollywood Watches as Porn Studios Offer Download-to-DVD Movies

Hollywood has been tiptoeing its way toward letting consumers buy a movie online, burn it onto a DVD and watch it on a living-room TV.

While the studios hesitate, the adult film industry is taking the leap.

Starting Monday, Vivid Entertainment says it will sell its adult films through the online movie service CinemaNow, allowing buyers to burn DVDs that will play on any screen, not just a computer.

It's another first for adult-film companies, which pioneered the home-video market and rushed to the Internet when Hollywood studios still saw both as threats.

"Leave it to the porn industry once again to take the lead on this stuff," said Michael Greeson, founder of The Diffusion Group, a consumer-electronics think-tank in Plano, Texas.

"The rest of Hollywood stands back and watches and lets the pornography industry work out all the bugs," he said.

There are business and technology factors that make it easier for adult-film companies to embrace new technology faster than traditional media.

On the business side, Hollywood makes more money offering films on DVDs than in theaters. As a result, studios are hesitant to anger large retailers such as Wal-Mart Stores Inc. (WMT) and Blockbuster (BBI) by selling DVD-ready downloads directly to consumers.

Recently, most of the big studios have started selling films over the Web, including on CinemaNow, which is partly owned by the film studio Lions Gate Entertainment Corp. (LGF), Microsoft Corp. (MSFT), Cisco Systems Inc. (CSCO) and Blockbuster Inc.

Consumers can burn a backup DVD, but it can only be played by a computer, not a DVD player.

The adult film industry doesn't face the same business challenges.

"We don't have to divvy up the pie," said Bill Asher, co-chairman and co-owner of Vivid Entertainment, the largest distributor of adult entertainment. "We sell in smaller stores, mainstream chains, but no one dominant component where we're going to get that phone call."

There are also technical issues for Hollywood to resolve.

To prevent piracy, studios now use what's known as the "content scrambling system," or CSS, to keep consumers from copying DVDs and sending the files around the Internet.

The system, which is easily circumvented, is built into every DVD player to block the playing of movies on discs burned by a computer.

That obstacle has been overcome in the design of high-definition DVDs, which are just now becoming available.

Both rival high-def brands, HD DVD and Blu-ray, use new protection schemes that allow DVDs burned in a computer to play on a DVD player. But it will be years before new players that accommodate those discs replace older models.

The studios say they are preparing to allow the online burning of DVDs for playing on TVs once the new high-definition players become widely adopted.

Vivid says its downloads, which will cost $19.95, do not use CSS. Instead, online retailer CinemaNow is using an alternate, proprietary system that it says will protect the adult movies by preventing the burned DVD from being copied to other discs.

"They built a better mousetrap," Asher said of CinemaNow.

Despite the challenges, mainstream studios are taking some risks and inching toward downloadable DVDs.

Both Warner Bros. and Universal Studios have launched hybrid programs overseas in which consumers who download films also get a DVD in the mail.

But the real goal, analysts say, is to pipe major Hollywood movies and TV shows over the Internet directly to TV sets, bypassing DVDs altogether.

"How about I just turn my set on and press 'go,'" Greeson said. "That's the holy grail."

Hollywood is moving slowly in that direction, but must first devise ways to placate retailers, broadcast affiliate partners, movie theaters and others with bottom lines threatened by the move.

"The more they champion Internet distribution directly to the consumer, the more it seems they're turning their back on their old media partners, which they can't afford to do," Greeson said.

So yet again, unencumbered by such business roadblocks, the adult film industry could lead the way.

"The vanguard here is porn," Greeson said. "They made a tremendous amount of money on the Web, but they know they can make more if they get to the living room."