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While working with Netflix, it didn’t take Mitch Lowe very long to realize that this concept was keeping the industry afloat but could be done better. His idea was that he could make movies more accessible by including kiosks in grocery stores and more affordable by offering the movies for $1/night. This year has been miserable for distributors of DVDs, with sales down 13.5%. Yet thanks to Mitch’s company, Redbox, rental revenue has increased over 8%, despite low sales. Sony and Lionsgate are big supporters of the new kiosks, although other motion picture companies like Fox, Universal and Time Warner feel Redbox undermines their business.

Late last year, Universal Pictures ordered its distributors not to sell its DVDs to Redbox until the new movies had been on sale for 45 days. Fox and Time Warner also decided that their top movies should be out for at least 30 days before being available for $1 through the Redbox kiosks. This decision is being contested in court by Redbox and Netflix, who are also being affected by these new regulations. According to Time Warner CEO Jeff Bewkes, the $1 rentals should be treated like the “cheap show” movie theaters with an appropriate window of time for the entertainment industry to make the big bucks off consumers. Yet, Mitch Lowe from Redbox argues that they can afford to pay the studios more because they’ve “significantly reduced the cost of delivering movies to consumers” and they garner more repeat business. Motion picture giants are primarily worried that the undercutting of prices is what will jeopardize their whole business model.

Blockbuster, meanwhile, is crying the blues about their $1.02 billion profit this quarter. Their sales of DVDs are down 22% and their shares have declined 16%, they complain. Part of this, they say, is due to their reduced inventory as they try to gain access to more cash. “We were also facing new and very aggressive competition that are better capitalized and would likely take share from us as we pulled back,” whines CEO Jim Keyes. The landscape is complex and challenging, given the current recession, Keyes added. Yet, competitors are seeing giant leaps in profitability by meeting consumer demands, despite distributor moves to block their access to new movies. Redbox revenue grew 110% last quarter and Netflix saw modest revenue gains of 20%.

The general idea is that eventually DVDs will be rented from television sets much like pay-per-view. Consumers will not have to worry about scratched discs, mailing items back to the company, late fees, high rental prices or other restrictions. Sony is currently experimenting with something called “Bravia TV,” which would let consumers see new movies just after they come out in theaters but before they come out on DVD. They tried a 24-hour screening of “Hancock” for $9.99 last year, but have entertained the possibility of raising the price up to $40. “The fact that this $40 pay-per-view model has worked for major sporting events suggests that there may be an opportunity for a handful of films every year — event films and franchises with the same young male demo as sports would be good bets,” says film analyst Tom Adams.

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“Piracy is our biggest threat,” says the Motion Picture Association, stating that they lost $6.1 billion in 2005 as a result of bootlegged copies of top movies. A whopping 80% came from movie piracy overseas, they said, particularly in countries like China, Russia and Thailand. Most pirates sell DVDs of movies that have not been released on video yet, although downloads are still popular. In America, 71% of illegal downloads are done by those between the ages of 16 and 24, leading to losses in movie ticket sales and DVD sales.

One approach to putting an end to the piracy of movies is to crack down harder on the source of the pirated copies. According to Executive director of the Australian Federation Against Copyright Theft, Neil Gane, “Over 90 per cent of first-release pirated movies originate from illegal recordings being made in cinemas.” He says they’re working closely with cinema management to combat new download and pirated DVD leaks. He adds, “We are also focusing on syndicates that download and manufacture in large quantities, looking to cut off that element of supply.” Recently, a South Australian man received a 7-month suspended jail sentence for possessing more than 10,000 pirated movies, as well as DVD burning equipment.

Some of the anti movie piracy efforts seem a little misguided. For instance, Lionsgate, Paramount and Warner Brothers recently agreed to release some old and new movies in online/Div-X format through a store called “Film Fresh.” The problem here is that they’re assuming people are pirating videos because they really want to watch them on their computers, rather than at a theater or on their television sets. In reality, the computer is usually just the easiest way for people to get their hands on a movie that hasn’t come out just yet. It’s also the quickest way to share new content with friends and family. The motion picture companies believe that people will register with Div-X for the “privilege” of being able to buy these great movies for just $10 to $16 in the digital format. Yet it’s unlikely to put a dent in the bootlegging business.

Motion picture thieves are an incredibly intelligent foe, which makes them such a formidable force to the MPAA movie piracy prosecutors. “When you’re talking about digital content … it’s impossible to lock it down completely” said Greg Sandoval, who reports on these matters at CNET. He adds, “These hackers are very creative. Sometimes, they’re one step ahead of the security experts.” He says these thieves can strip the carefully encoded watermarks from DVDs and gain access to perfect advance copies of the films. So far, there are no solutions other than stiffer penalties, greater enforcement teams and more guilt trips on the average citizen.

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There isn’t any room left for doubt that the way we watch television is constantly changing. In the past few years, it’s pretty clear that the way we consume TV entertainment is much different. To start, the incredible increase in online viewing has those in the TV business asking, what is going to happen to the way we do business?

Considering that the old model of paying top dollar for commercial time seems to be fading away – at least in part – new ideas and ways of marketing can bring small business professionals into the world of big-time advertising. Imagine being able to click on Ringcentral reviews in a menu during a business show downloaded from one of the cable networks. Would a small businessperson like to purchase a small ad on a webpage where a popular show is downloaded? These are just a few ideas with how TV executives are going to have to approach the new age of advertising in television.

Having easy access to information like great Ringcentral reviews on your television is really only one of simplest of ways that consumers will benefit from the change in advertising models to come. On-demand content is one of the most popular new things in the world of television. The use of DVR and Tivo grows each year, as well as cable and satellite boxes that allow consumers to download content. It’s clear that the day is near when video stores are quite rare, since most will download their movies instead of driving to rent them.

It seems that interactive viewing is the true future of television entertainment. Most TV executives weren’t expecting this day to come so quickly, but Harris Polling found that 72% of viewers are using their remotes in some sort of interactive way. For consumers, the future looks bright for wide and expansive entertainment options. The more options that exist, the more targeted advertisers can be to reach their desired audience.