MovieBeam to shut down on December 15

One of the first online movie download services is calling it quits after failing to make its business model work despite over $100 million in funding.

It hasn't even been a year since MovieBeam was sold by Disney to Hollywood Video owner Movie Gallery, but the service told customers this week that it will shut its doors on December 15. Some newer customers will be eligible for a refund on the hardware.

Movie Gallery spent less than $10 million buying MovieBeam, a fraction of the $50 million it was recapitalized with last year after Disney spent a reported $70 million on the project. But this service has failed to achieve any critical mass, largely due to its high cost and unique delivery method that limited its ability to expand.

MovieBeam receives the content over the air with an antenna connected to a set-top box. A phone line is also required for billing and ordering purposes. Customers have to shell out $250 for the set-top box (although pricing has dropped to $100 with promotions) and pay a $30 activation fee. Pricing for movies ranges from $3.99 to $1.99 USD, with a $1 surcharge for high-definition content.

Because it doesn't use the Internet, MovieBeam is only available in 31 metropolitan areas, something that Movie Gallery had hoped to change following the acquisition. Along with previous rival CinemaNow, the service was also facing new competition from iTunes and Apple TV, Amazon Unbox, NetFlix and now Vudu.

It's not clear whether Movie Gallery will continue its endeavors in the online movie rental space, but it would not be surprising. Brick-and-mortar rental businesses like Blockbuster and Hollywood Video are seeing subscriber losses due to online upstarts like NetFlix.

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