This week, Japan’s expanding online video service operator Nico Nico Douga made a surprise announcement, launching a movie distribution service in partnership with Warner Bros. Entertainment Inc.

With its service beefed up by major Hollywood titles, Nico Nico Douga, which has rapidly increased its presence over the past few years, is eyeing further growth and cultivating the video on demand (VOD) market.

The company also aims to bring a new twist to the movie industry by taking advantage of the most distinctive function of its service — which lets users comment on videos as they are watching them, enabling them to experience “social viewing,” which some experts say will be a key element of the video industry in the future.

“People can enjoy the same video content two, three or more times because of the comments. When pursuing that, we thought Hollywood movies would be made much more interesting by adding comments,” said Takeshi Natsuno, a director of Dwango Co., the parent company of Nico Nico Douga operator Niwango Inc., during the press event on Monday.

Hollywood is becoming more active about distributing movies online, so “we hope to carve out this business with Warner to establish a new way of movie viewing,” said Natsuno.

Nico Nico Douga started as a video-sharing website in 2006, and its popularity quickly spread among young heavy users of the Internet. One big contributing factor to the site’s rapid growth is the comment function, which enables users to add comments directly on the video screen itself. Once comments are sent, they usually scroll from right to left across the picture, like tickers, for all to see. Comments stay anchored to the point in the video where they were added and can then be seen on subsequent viewings — they can also be turned on or off.

This function has given users a new way of consuming video content, as they can enjoy the experience with others even though they may not actually be watching the video at the same time.

As of September, the service had 23.6 million registered users.

The new movie distribution deal announced Monday consists of three levels of service. The first is similar to regular TV programming in that there is a one-time streaming of a movie and users are informed in advance the time and date that a movie is scheduled to run.

For this level of service, paid members of Nico Nico Douga (called “premium members”) are charged ¥100 to view new titles and ¥50 for old ones. Those who are not premium members pay ¥400 and ¥300, respectively.

It costs ¥500 per month to become a premium member, which includes benefits such as priority access to live-streaming programs and time-shift viewing. There were 1.39 million premium members as of September.

The second level of the new service is movie rental, in which people can “rent” a digital copy of new movies for ¥400 and old ones for ¥300, each for two days. And the third level is to actually buy a digital movie for unlimited viewing — for ¥1,000 or more, depending on the title. For the rental and purchase services, the prices are the same for paid members and nonpaid users alike.

The new service started on Monday with approximately 100 titles including some major films, such as the “Harry Potter,” “Matrix” and “Lord of the Rings” series.

Late Tuesday night, Nico Nico Douga ran its first movie streaming: “Harry Potter and the Deathly Hallows: Part 2,” the Blu-ray and DVD of which also went on sale the same day. By the time the movie started streaming it had already attracted more than 35,000 viewers, and many comments were scrolling across the screen.

One thing that was different to a regular Nico Nico Douga program was that comments were not littered all over the actual movie picture. Instead there was a space above the movie screen for the comments, in an apparent effort to avoid comments overlapping the Japanese subtitles.

But users still appeared to enjoy making comments. For instance, during a fight scene involving the character Minerva McGonagall, one user commented that “Teacher McGonagall is so cooool!”

Some others commented on the price for the streaming, with one saying “¥100 is a really nice price,” to which another user replied, “I wouldn’t watch it if it was ¥300.”

By the end of the movie, the number of viewers had increased to more than 90,000. This means that even if all the viewers were monthly paid users and only paid ¥100 to view the film, Nico Nico Douga raked in more than ¥9 million worth of sales in about two hours — for one screening, of one film.

Nico Nico Douga’s move to enter the movie distribution business is likely to boost the trend of VOD that has been growing over this past year.

Last November, Apple launched its movie distribution service for iTunes users in Japan and released its Apple TV, and U.S.-based Hulu also started providing its VOD service to Japanese Internet users. What’s more, Culture Convenience Club Co., which runs movie rental giant Tsutaya, announced last month its plan to launch movie distribution to Android-powered tablets and smartphones.

As the amount of content and number of providers increase, social viewing will likely become an important element for the video distribution operators to be competitive, says Osamu Sakai, manager of the planning department at Video Promotions Inc., and who has written a book about the video media industry.

When there is so much content, users have a hard time choosing which films to watch, so social viewing could help them make decisions based on how people reacted while watching videos, says Sakai.

“But a lot of VOD providers have not been able to build a well-crafted social viewing system. … Nico Nico Douga has been based on social viewing from the beginning, so it has become a leading VOD operator in terms of social viewing now, which is very interesting,” he says.

“(Because of Nico Nico Douga) I think other companies will have to think about how they can incorporate social viewing rather than simply launching a VOD service.”

And that’s what has drawn Hollywood’s top content holder, Warner, to the service.

Taichi Fukuda, general manager of Warner Home Video and Warner Bros. Digital Distribution in Japan, said Warner has been paying attention to Nico Nico Douga and its progress.

“Nico Nico Douga is proposing the possibility of a new kind of entertainment. … We are very intrigued,” Fukuda said at the press conference.

Meanwhile, Sakai says there are some potential hurdles for Nico Nico Douga as well. For instance, he says the firm is aiming to attract more users by offering movie distribution, but Nico Nico Douga’s complex interface may not be friendly for those who do not have a lot of experience with the Internet and are unfamiliar with the site itself — which still has the image of an Internet-geek hangout. It may therefore be effective to create guidelines for new users to be able to easily access content that they can enjoy.

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