When it comes to Hollywood release windows, you can be sure that the studios never leave any money on the table. Consumers pay the most first, then a little less, and a little less, until there’s nothing left to squeeze out.

That’s what makes a move by a new video-on-demand startup so important.

In an upset to the long-established cash machine model, Zillion TV has convinced one studio to let it offer movies to its viewers, day-and-date with its DVD release for a very low price.

 

Zero.

The studio -- which Zillion TV CEO Mitchell Berman won’t name -- is willing to let consumers watch for free in the home-video window because it’s experimenting with another business model. To get the freebie, consumers will have to watch ads customized toward their interests.

The studio is willing to experiment because it wants to test his premise that new revenue streams can make all the players more money. “I need to prove my model,” Berman told TheWrap.

Zillion TV, which is now in a number of beta test homes and will launch commercially sometime later this year, is one of several new Internet-based startups working to deliver on-demand content to the TV – as opposed to the computer.

Each hopes to differentiate itself from traditional cable and satellite VOD by using broadband to deliver a virtually unlimited amount of content, and presenting that material in new ways that could increase viewership.

Others vying for a place in the VOD market are:

CinemaNow: Delivers a wide range of movies and TV shows through connected LG Blu-ray players, TiVO boxes, PCs running Microsoft's Media Center software and a number of portable devices. Content can be purchased or rented. New movies typically cost $20 to purchase and $4 for a 24-hour viewing period.

Vudu: Offers thousands of movies to rent or buy in standard and high-def. Users purchase a $150 box, which gives them access to 16,000 movies to buy or rent, many in high definition, for display on their TV. Prices run similar to CinemaNow's: typically $4 to rent, $20 to own.

Roku: The $100 player allows users to watch videos from Netflix and Amazon's Video on Demand service. Netflix subscribers pay nothing additional for the streaming service, while Amazon's titles are available for a fee. (Other devices that offer Amazon's Video on Demand service include TVs from Panasonic and Sony, plus TiVo digital video recorders. Netflix streaming movies can also be accessed via Boxee -- an open-source, free software that aggregates digital content on your hard drive plus content from various websites.)

Microsoft's Media Center: Once the Windows 7 operating system becomes available this October, it will include a new version of MMC software. The application, which aggregrates content from a number of websites, also will include the availability of content, as yet unannounced, from premium and possibly VOD content providers, for viewing on a PC or TV.

Sezmi: Another startup, it sees itself not as an adjunct to cable or satellite but as a full, less-expensive replacement for it, offering a core package of around 40 channels of popular programming -- which means it will carry the stuff most viwers want, not the hundreds of channels of filler that virtually no one watches. Most content will be regular programming, like "Grey's Anatomy" and "American Idol," but it will also include a large VOD element. It’s set to launch later this year. (For more on Sezmi, see accompanying story. [4])

But Zillion is the one that could be the real game-changer -- if the day-and-date, for-free model actually holds.

 

Some studios already have begun testing the waters on release windows. Last October, Fox Home Entertainment released M. Night Shyamalan's "The Happening" simultaneously to VOD and DVD, and Warner's has been doing the same with sporadic releases for a while, starting with Billy Bob Thornton's "The Astronaut Farmer."

 

But the VOD model has always been pay-per-view. As Warner senior VP of strategic promotions and communications Jim Noonan has said, the studio is "not interested in growing VOD to the detriment of the packaged-goods business."

 

Depending on the deals it makes with individual studios, Zillion will let customers watch content for free -- utilizing ads customized to their interests -- rent or buy the title.

Programming is ordered by genre, and viewers will display only the genres they like, or search for films by key words, using a Wii-like device with a minimum of buttons that is waved around to move a cursor across the screen.

 

Advertising is pushed to individual homes based on the types of products that users say they want to see. The company will share revenue between content providers, advertisers and local broadband providers, with whom Berman is making deals to co-locate the service.

“I would call the model somewhat revolutionary,” said Richard Doherty, an analyst with the Envisioneering Group. “It could be a true breakthrough.”

Others aren’t quite so sure. “I’d be shocked if a studio is willing to do that,” said Craig Moffett, an analyst at AllianceBernstein. “From box office to home video is the biggest strength in selling Blu-ray, so this is completely counter-intuitive,” added Denis Cambruzzi, a vice president at Adams Media Research.

There’s also the problem of hardware. Regardless of how compelling Zillion and most of the other services in the VOD game are, there’s always the challenge of how to deal with “box creep” -- how many set-top boxes can any household stuff into their shelves until they start throwing some out the window?

And all the new VOD and IP-based services face another important hurdle: consumer inertia. No matter how much people say they hate their cable or satellite company -- and there’s a lot of enmity out there -- getting them to translate that emotion into action may be a very tough task for anyone.

Even if some of the programming is free.