Silicon Insider: Hooray for Bollywood

Bollywood is coming to your home computer screen, thanks to the aptly named COW.

If you have no idea what I'm talking about, you'd better start your education right now. Because while you were worrying about something that's not that important -- such as the inevitable shifting of lower-grade tech jobs from places like San Jose, Calif., and Phoenix to places like Bangalore, India, and Bangkok, Thailand -- another phenomenon is emerging that should have you very scared. This is the one in which the risk-taking of high-tech moves offshore to other nations -- and with it the potential for rapid growth, economic power and technical leadership.

A perfect example of this can be found in the story I referenced above. To translate: a clever new company based in San Diego, called Cinema on Web, has begun to license the Indian film industry (Bollywood), which is the most productive in the world, to offer all first-run movies on the Internet for a small fee.

The deal for the moviemakers is brilliant in its simplicity: In exchange for delivering their content to COW, they are allowed to set their own ticket prices. This brings a new dynamic to the price/demand equation that we currently don't see in traditional theaters or cable PPV, where you are obliged to pay the same price whether you are watching "The Rules of the Game" or "Gigli."

In theory, a filmmaker selling a flick on COW might choose to charge a buck a view in hopes of a mass audience for a mediocre movie, or ten bucks for a high-quality film targeted at a more exclusive or affluent audience -- or, after monitoring sales in real time, even adjust the ticket price dynamically with a changing audience or shelf life. This feature alone, uniquely possible with the Internet, makes the COW concept interesting.

Security, Distribution Benefits

Needless to say, that's only part of it. For the moviemaker, the appeal of COW rests not only on potentially vast distribution -- no long drives to a cruddy shopping center multiplex, no waiting for third-tier theaters to get scratchy copies late from the distributor -- but also security.

As Al Mason, COW's chief executive officer, noted when he announced the project, thanks to piracy, every new Bollywood film is inevitably available on Internet download sites before it even premieres in theaters. Understandably, this drives Indian studios completely nuts, and they are thus more than motivated to find an alternative -- even if it means adopting a radically new distribution system.

COW is one company's attempt to answer that need. As part of its solution, the company has teamed with technical partner DivXNetworks, which creates an Open Video system that allows filmmakers to deliver broadcast-quality movies to customers -- and take their money in return -- on secure networks available in a wide range of formats (wireless, dial-up, mobile and broadband) to an equally wide range of platforms, from PCs to consumer devices to, one assumes, even cell phones. This kind of versatility is especially important, given the likelihood that many future customers are likely to come from the developing world.

As much as it understands the needs of Bollywood filmmakers, COW also seems to appreciate the desires of its likely customers as well. Thus, the company has already run out and signed a distribution deal with the famous Indian movie star and producer Dev Anand -- the equivalent to an American audience, I suppose, of signing Clint Eastwood.

Licensing Deal Follows Pattern of Innovation

It would be easy to dismiss all of this as a kind of exotic novelty -- the Hello Kitty of online video. And the Bollywood connection only makes it seem more absurd. As one poster wrote on Slashdot about the news: "Excellent! I've been looking for a certain Bollywood movie. In it an East Indian guy saves a girl from a corrupt landholder and at the end they all dance. What was it called again?" -- the joke being that that seems to be the plot of EVERY Bollywood movie. Goofy storylines, hilarious musical inserts, decorous sex and hysterical acting -- it's hard to imagine COW being in much demand from Western filmgoers. Even Anand's proud announcement that COW is likely to include such "blockbusters" of his as "Guide," "Jewel Thief" and "Hare Rama Hare Krishna" is likely as not to provoke a chuckle from a sophisticated Western moviegoer.

But that would be a deadly mistake, a conflating of content and delivery system that a tech-savvy American would never make regarding, say, iMusic and the latest Ashlee Simpson single.

Reading the COW announcement, and then the dismissive comments made about it, I was reminded of two events in the history of Silicon Valley. The first is that of Ampex, which licensed its storied patents on video recording and playback to Japanese companies, in the belief that they would never be real competitors. The second is that of the U.S. semiconductor industry, which made the same mistake with memory chips.

We tend to forget that real innovation in tech almost always happens on the fringes, where desperate people are willing to take big risks to make dreams come true, get rich, answer a crying need or just survive. That's why the personal computer was invented by the Homebrew Computer Club, and the video game by a moonlighting computer programmer, Nolan Bushnell. And that's why Busicom, a dying Japanese calculator company threw a Hail Mary on a revolutionary chip set -- the microprocessor -- and made its supplier, Intel, the most important company on the planet.

As risible as Bollywood's movies may be to Western eyes, the men who run the Indian film business are seeing a real challenge to their multibillion-dollar industry -- high-tech piracy -- and they are willing to take real risks to meet it. Jumping onto a fundamentally new distribution system is not something giant corporations do lightly -- certainly we don't see Hollywood doing anything similar; rather, it is doing its very best to impede the progress of alternative access to its movies.

That may be a very big mistake, because even as COW is nailing down Bollywood, it is also launching after the world of indies -- independent films -- which are the real intellectual capital of Western filmmaking. Right now, independents face their own desperate challenge trying to reach their audiences through indifferent video rental chains and a dying population of art-film houses. Capture the indies and you own the movie world. COW, by shrewdly going after Bollywood first, has access to an inventory of tens of thousands of titles and an audience of perhaps 1 billion people -- the kind of core business that can fund a lot of loss leaders as you gobble up market share elsewhere.

Potentially Huge Customer Base

Like most start-ups, COW has big ambitions: it predicts more than 500 million pay-per-view customers over the next two years, each paying an average of $5 for first-run films, and a buck or two for classics. History suggests that it will take a little longer, and that COW may not be the big winner in this race, but that the eventual market size will be even bigger than their estimate.

The world wants cheap, downloadable first-run movies. And, as COW shows, the world will get them. If Hollywood continues to ignore that reality, or if, like Canute, it tries to order back the technological wave, it will pay the same price as those other dead tech industries that resisted change.

And, if you are worried now about a few thousand code-writing jobs going offshore, how will you feel when billion-dollar/million-employee tech industries start popping up in the developing world instead of here?

Michael S. Malone, once called “the Boswell of Silicon Valley,” most recently was editor-at-large of Forbes ASAP magazine. He has covered the Silicon Valley and high-tech for more than 20 years, beginning with the San Jose Mercury-News as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, The Economist and Fortune, and for two years he was a columnist for The New York Times. He has hosted two national PBS shows: "Malone," a half-hour interview program that ran for nine years, and in 2001, a 16-part interview series called "Betting It All: The Entrepreneurs." Malone is best known as the author of a dozen books. His latest book, a collection of his best newspaper and magazine writings, is called "The Valley of Heart's Delight."

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.