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I agree that TV and Movies are different models. Most customers, I believe, want different things from those mediums.
A few things I think will dictate who will be the winners in the next few years:
1) I want to view video content on whatever device I want. DVD, Tivo, Xbox, PS3, iPhone, PC, whatever. Figure out a way where I can watch my movies and shows wherever I want. Piracy already allows someone to do this, but there is a lot of room for a better experience. Video distribution sites that do this will succeed. Customer's don't like to be told "no".
2) Make a LOT of movie titles available, with high audio and video quality. If you own a big screen tv, and surround sound, you don't want some crummy camcordered version of a movie. Make it easy to search the library, and have plenty of titles available. Movie distribution is competing against Netflix. The only advantage it offers is not waiting 2-days. Understand this, and market it accordingly.
3) Provide 5.1 surround and high-def. The most common place to watch content is on the home theater. Anyone who is interested in downloading video right now is a technophile. Technophiles have 5.1 and high-def. Why do video download services still have 2 channel sound?
4) TV Show download is different. Don't have "selected" episodes available, but provide entire seasons. Don't charge $2-$5 per episode for something someone could have Tivo'd for free. Find a payment or advertisement model that works. #1 is even more important.
Davis, I couldn't agree more with your final statement. "...quit trying to fight the pirates and embrace business models for monetizing them instead".
They are the ones that have sucessfully made it onto all kinds of devices and will soon show how to monetize that advantage, I am willing to bet.
Hulu needs to move beyond browser based as that severely limits their reach onto the TV,
and yes - content owners need to get off their restrictions and realize that TV is sucessful because it is subscription based.