Kaleidescape, Warner Bros. agree to digital distribution deal

By Ben Fritz

Dec. 10, 2012 12 AM PT

After eight years of legal battle with the entertainment industry, Kaleidescape has found a friend in Hollywood.

Starting Tuesday, the manufacturer of high-end media servers will sell movies and television shows from Warner Bros., a first-of-its-kind deal for the company. Previously, the Kaleidescape system has only let users watch movies that they copy off a DVD or Blu-ray disc.

That function landed the Sunnyvale, Calif., company in trouble when the DVD Copy Control Assn., a consortium of studios and electronics companies that manages the anti-piracy technology on movie discs, sued Kaleidescape in 2004. Litigation questioning the legality of a server that enables people to break copy control on a DVD is still pending on appeal.

During that time, sales of DVDs have plummeted and studios have become more eager to sell their films electronically to prop up home entertainment profits.

“Now the stars and planets are aligned,” said Cheena Srinivasan, Kaleidescape’s co-founder and executive vice president.

Kaleidescape’s customer base is small — it has sold 14,500 servers, each of which costs at least $12,500 — but composed of affluent and avid movie watchers. The average customer owns 506 movies, compared with the U.S. average of about 100.

Executives at Kaleidescape said they hope that building a digital sales business will help put years of legal combat with Hollywood behind them.

“What happened eight years ago is not going to pay the bills for the next 10 years,” Srinivasan said. “We’re trying to find a way to put that to bed and move on.”

Because its high-end customers are used to watching perfect copies of DVD and Blu-ray discs, Kaleidescape is offering movie downloads at higher quality than traditional stores like iTunes. Though the movies will take longer to download — typically a few hours — they will match the video quality of DVDs or Blu-rays and include all of the bonus features.

Warner Bros. is charging a higher wholesale price for that premium version than it typically does for electronic copies. But Tom Barnett, Kaleidescape’s senior director of marketing, said the company will seek to charge about the same price that Amazon and other retailers do for DVDs and Blu-rays.

As part of the deal, Kaleidescape is working with the Ultraviolet consortium, an industrywide effort that enables cloud storage of digital movies, which Warner has aggressively backed. Any film purchased through Kaleidescape will appear in consumers’ Ultraviolet “locker” and be accessible on numerous digital devices. Movies purchased from other Ultraviolet-enabled retailers will be available on Kaleidescape.

About 3,000 Warner Bros. movies and 8,000 television episodes will be available from Kaleidescape starting Tuesday, including “The Lord of the Rings” trilogy and “E/R.” Ultraviolet functionality is planned to start in March.

“Kaleidescape is well-known for its user-friendly system that lets consumers access and watch movies from their home collections with the touch of a button,” Thomas Gewecke, president of Warner Bros. Digital Distribution, said in a statement. “Now their users have the same one-touch simplicity with purchasing new movies electronically.”

Srinivasan said Kaleidescape is in talks with other studios to offer their movies and TV shows through its digital store. The company is also working on a less expensive server that it hopes to sell for closer to $3,000.

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