But high tech visionaries promise the Internet will soon bring an end to the age of 200 channels with nothing on and possibly transform the entertainment business at the same time.

"In the future, everybody is thinking about streaming," Takashi Asai, head of the Japanese independent film distribution and production company Uplink, said at last months' Berlin Film Festival.

Streaming, or digital video transmission, lets users download TV-like video off the Internet and watch it on their home computers.

Though still in its infancy, the technology is expected to mushroom and expand its reach from short clips to full-length features. Industry representatives at the film festival said a world in which thousands of movies wait in cyberspace to be downloaded at lightning speed could be reality in three to five years.

Few imagine that the Internet will squeeze out cinema — the size of the screen and the pleasure people take from a night at the movies cannot be replaced with a set-top box, industry representatives said.

But when it comes to home viewing, high-tech mavens said the Internet has the potential to trump video in terms of quality and outdo services such as pay-per-view, cable TV, digital versatile discs (DVD) and pay-TV with the freedom of choice it offers the audience.

Out With the Old

"In five years, there will no longer be video distribution," said Stefanie Fringuelli, a media analyst at the investment bank West LB Panmure.

To prepare for the new age of Internet distribution, she said, film distributors will need to ensure they have Internet rights wrapped up in their cinema distribution packages.

As filmmakers use more digital technology in production — conjuring up the netherworlds of "Star Wars: Episode I - The Phantom Menace" or the raining frogs of "Magnolia" — home viewers will demand the kind of sharp digital pictures possible on their computers, analysts say.

Douglas Witkins, the president of Los Angeles-based Picture This Entertainment, said the Internet was already affecting direct sales of movies on video in the United States and Canada and that widespread Internet distribution was only a matter of time.

"Eight million U.S. college students are streaming already," Witkins said. "That has scary repercussions for our business. By one-upping other distribution windows, you run the risk that pay-TV and video distributors won't pay anywhere near what they did and you find yourself unable to recoup investment."

But Witkins said it will be some time before the Internet brought revenues comparable to video, pay-television or DVD, so many U.S. companies would for now put the Internet at the end of their distribution chains.

"You don't want to push it before its time but its time is certainly coming," Witkins said.

He said his company, which distributes films targeted at gays and lesbians, was already selling about 30 percent of its films online as mail-order video and that it was increasingly reliant on the Internet as a marketing tool.

Chance for Independents

While big budget pictures will continue to run the distribution channels from top to bottom, collecting revenue as they go, many in the industry see a chance in the Internet for independent filmmakers to set their own distribution terms.

Jimmy Bredow Pedersen, promotion manager of the Danish Film Institute, said that in the future avant-garde directors would be able to get films directly to online audiences.

"(The Internet) has the potential to be an important window for independent films, just as MP3 can allow anyone to get his music to fans without the need of a record company," he said.

MP3 technology represents a significant leap forward because it compresses the size of music as data without undermining quality — thus making it faster to download good quality music.

Pedersen said a streaming trial would start next month in Denmark in which short experimental films will be shown via broadband networks. If the trial works out, Pedersen said, the days of the cigar-chomping studio boss having the last word may be numbered.

Although some European companies are getting in on the action, Uplink's Asai warned that his experience at festivals like the one in Berlin caused him to question European receptivity to technology when it comes to film.

"The movie industry here is extremely conservative," he said. "They are thinking about cinema as art and for that reason may miss out on the opportunities technology has to offer."

He noted that the wider reach of broadband technology in the United States, combined with the increasingly close cooperation between Hollywood and Silicon Valley, meant that the United States may extend its online dominance to movies, too.

Europe Sees the Challenge

But Alexander Van Duelmen, general manager of distributor Kinowelt International, said that the new developments offered more opportunities than threats.

"I don't think the Europeans are so far behind," he said. "In fact, Europeans also have the chance to lead here. When you think of markets like eastern Europe, where far fewer people have (the video format) VHS at home, you have a huge opening to start people off with new technology."

U.S. companies such as Atom Films, Pulse Entertainment and Artisan are setting the pace for cyberfilm, joining forces with major media companies like Viacom Inc.'s Blockbuster Video determined to ensure that they do not become dinosaurs.

But European startups like Britain's Redbus Film Distribution, German media giants Bertelsmann and Kirch and smaller players like CineMedia and Kinowelt are making sure that Europe keeps pace.

Beki Probst, head of the Berlin Film Festival's European Film Market, said that 2000 was the first year that Internet companies had applied to attend the festival and that 2001 could see their breakthrough as players in the European film business.

"The Internet is just starting to play a role in film rights deals here, both in terms of locating markets that might be receptive to a film, and as a means of distributing movies," Probst told Reuters. "We hope to be a part of that."