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But is Hollywood’s new movie cloud really ready for prime time? Can any initiative like this thrive without Apple (NSDQ: AAPL) and Disney? (NYSE: DIS) And even more important, what happens if they don’t get it right?

At CES, UltraViolet’s backers – which include Warner Bros. (NYSE: TWX), Sony (NYSE: SNE), Universal and Paramount (NYSE: VIA), as well as major consumer electronics and retail brands – pushed aside complaints by early adopters that the system’s authentication process is too cumbersome.

The new format’s backers said that since new Blu-ray releases supporting UltraViolet began to roll off replication lines late last year, roughly 750,000 consumers have signed up for the program, which puts a DRM-steeped digital version of the movie they just bought on physical disc in the cloud and available for viewing on other devices.

For studios like Sony, which five years ago helped spearhead the formation of the 70-plus member group that created UltraViolet, the Digital Entertainment Content Ecosystem (DECE), the initiative is crucial.

“We are talking about true DRM interoperability for the first time,” said Mitch Singer, chief technology officer for DECE member studio Sony, speaking at the alliance’s CES press event. “Consumers don’t have to worry about or make technology decisions before buying content. You’ll buy a device, you’ll download an app, it’ll be associated and branded UltraViolet, and you know your content will play.

Driven by consumers’ cooling DVD purchasing habits, the home entertainment sector has declined for the last seven years, dropping 2 percent in 2011, according to the Digital Entertainment Group, a single-digit benchmark that was actually considered strong relative to recent yearly craterings.

Theatrical distribution — the other big-ticket studio revenue stream — has also seen better days, declining for the second straight year, with the domestic box office finishing 2011 with about $10.17 billion — off from $10.56 billion in 2010. Perhaps worse, movie attendance was the lowest it’s been since 1992. (Although, the lower-margin foreign exhibition market remains quite strong.)

The studios believe UltraViolet will help re-establish a higher margin urge to purchase movies on behalf of consumers, who have been more apt recently to engage in lower-margin activities, like stream films and TV shows on Netflix (NSDQ: NFLX) or rent DVDs for a $1.20 a night from a Redbox kiosk.

Coupled with restraints on rental outlets — like Warner’s 56-day delay on providing new titles to Netflix — the studios believe UltraViolet won’t just kick-start the nascent business of electronic sell-through, but good old-fashioned disc-buying, too.

In a nutshell, UltraViolet works like this: Buy an Ultraviolet-signatory DVD, Blu-ray or EST title, and a digital version of the film lives in the cloud ready for you to access and play on up to 12 different devices. The system is designed with families in mind — up to six members of a clan can access an UltraViolet account, even if they don’t live in the primary domicile.

There are plenty of perks planned. At CES, for example, Samsung introduced a new Blu-ray player capable of uploading the user’s entire existing disc collection to the cloud for a nominal fee. Further, take the family to a hotel outfitted by DECE member LodgeNet, a provider of media and connectivity solutions to the hospitality industry, and you can access your movie collection from your room.

There are big benefits for the studios, too. They believe this buy-once, play-anywhere scheme will free consumers to once again build movie libraries, since they will now have more options in an electronics universe increasingly devoid of optical drives.

And Hollywood is anxious to get started — about 19 UltraViolet titles have been released since the fourth quarter, including Warner’s Green Lantern and Horrible Bosses, Sony’s The Smurfs and Universal’s Cowboys and Aliens.

Perhaps most notably, the UltraViolet label has appeared on the disc jackets of Warner’s Harry Potter and the Deathly Hallows — Part 2, which was the most popular film of 2011, grossing well over $1 billion worldwide.

And a promotional blitz is set to begin in the coming months, with DECE also announcing at CES a promotional partnership with another studio-backed consortium, the Digital Entertainment Group (DEG), the organization that helped get Blu-ray off the ground — albeit, quite slowly — six years ago.

“We’ll start having marketing messages — you’ll start seeing TV spots,” Singer said. “The [UltraViolet label] will be on every single disc.”

That speed to get into the market was second-guessed at CES this week, with accounts of early adopters frustrated by UlraViolet’s extensive digital rights management, which requires users to register at two different websites.

Singer boiled down these troubles as “unfinished carpentry” on a “great house,” but others were vexed by their inability to get their UltraViolet movies to play on mobile devices made by Apple, which notably hasn’t yet signed on to DECE.

The failure so far to gain a foothold into Apple’s closed technology universe has been a major detraction from UltraViolet, as has the non-participation of Disney, which has its own DRM locker project in the works, Keychest. DECE continues to talk to both parties about joining its coalition.

But at CES, it became apparent that even some of the studios that are on board with DECE aren’t necessarily all in yet, with Fox (NSDQ: NWS) revealing its decision to hold off on releasing UltraViolet movies until there are more retail outlets to sell them and more devices that play them.

In terms of the former, the announcement last week by Amazon that it will begin selling Warner’s UltraViolet offerings was a key step for an initiative that needed more retail backing.

Concurrently, however, DECE revealed that Netflix had quietly let its DECE membership lapse. It wasn’t a surprise to many to see Netflix pull out of UltraViolet, given Netflix CEO’s Reed Hastings’ historical reluctance to get into the movie-selling business. At one point, Netflix’s player app was seen as a nice work-around for playing UltraViolet movies on the iPad and iPhone. Movie social network site Flixster, which was acquired by Warner last year, now has the only app for playing UltraViolet movies on both PC and Apple platforms.

For his part, Singer downplayed all of these concerns, noting that UltraViolet is still in its “very, very early” stages of development. “You could almost consider this a beta launch,” he added.

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UltraViolet was meant to improve the user experience for movie buyers, by allowing them to purchase a title once and watch it on multiple devices afterward. But the initial implementation of UltraViolet, which relies on Warner Bros.’ Flixster app to stream and download movies online that consumers bought in Blu-ray or DVD format, has been getting panned in customer reviews.

We’ve already covered customer dissatisfaction with the Flixster app in the first two UltraViolet releases, Horrible Bosses and The Green Lantern, and that dissatisfaction continues with the latest Harry Potter title. Of the more than 400 reviews for the Blu-ray version of Harry Potter and the Deathly Hallows, Part 2 on Amazon, more than half are 1-star reviews, and most of those are focused on the poor user experience for UltraViolet. That’s bad news for Warner Bros., which was hoping that a major franchise like Harry Potter could help introduce even more new users to the UltraViolet digital format.

It’s such bad news, in fact, that Flixster has sought to appease unhappy users by offering them the ability to download the movie for free from Apple’s iTunes instead. As pointed out by BTIG analyst Richard Greenfield, Flixster has begun issuing iTunes coupon codes to users who issue complaints at support.ultraviolet.flixster.com. Multiple reviewers claim to have gotten access to the iTunes version of the Harry Potter film, and Greenfield even got Flixster to comp him a copy without providing an actual UltraViolet code to prove he had purchased the film.

Before the launch of UltraViolet, iTunes was a popular way for some studios to offer a digital copy of a film to consumers when they purchased a physical copy of the disc. But since Flixster is the first application to officially support UltraViolet, that’s where the studios are placing their bets. To some, UltraViolet was even seen as an alternative to iTunes, which today holds about half of all digital movie sales online.

To further complicate matters, Apple and iTunes are not part of the DECE UltraViolet consortium. In fact, Apple and partner Disney are putting their efforts behind an alternative to UltraViolet called KeyChest.

For those reasons, it seems unlikely that sending dissatisfied is a long-term solution to UltraViolet’s ills. And for studios looking to tout the advantages of their new digital movie format, pushing users to iTunes seems ill-advised. Then again, if you can’t beat ‘em…

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On Time Warner’s earnings call Wednesday morning, Bewkes gave some details about the studio’s introduction of movies that will be available for consumers to “buy once and play anywhere.” With a common file format and digital rights locker enabled by Ultraviolet, Warner Bros. and other studios will begin making movies available for sale later this year that can be purchased and watched on a number of different devices.

Beginning with summer titles Horrible Bosses and Green Lantern in the fourth quarter, Bewkes said Warner Bros. will make the majority of its releases available through Ultraviolet. But key to Time Warner’s introduction of these services will be the Flixster social discovery app.

“Today, Flixster is one of the most popular applications for finding information about movies, and over the coming months we’ll begin to roll out new upgraded versions of the Flixster service, which will be deeply integrated with UltraViolet,” Bewkes said.

The Flixster app will not only let users create UltraViolet accounts and manage their movie collections, but it will have the added benefit of acting as a way for users to discover and purchase movie content. With social recommendations built in, Flixster will be able to share what they’re watching with friends, adding a new way for users to learn about movies that might interest them.

Movie studios, broadcasters and video distributors are increasingly turning to social recommendations as a way to increase interest in digital content. Hulu recently rolled out Facebook integration that it hopes will help grow audiences for streaming videos on its website, and Netflix is looking to follow suit. Warner Bros. itself has experimented with social viewing by making some of its movies available on Facebook, hoping that users sharing their views on the social network will further increase interest in its titles online.

Time Warner hopes that together, Flixster’s social features and integration with Ultraviolet will bring new life to the prospect of owning digital movies. According to Bewkes, “We believe that this could fundamentally change help people manage and watch their movie collections and it could significantly improve the value proposition of digital ownership.”

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Unlike today’s digital media ecosystem, where purchasing a movie generally means you only have access to it in one file format, one device or one service, UltraViolet was built to enable consumers to buy a movie once and have access to it anytime and anywhere. That means consumers will have their choice of watching a movie on a Blu-ray disc, streaming it to a connected TV or even downloading a file and saving it to watch later on a mobile device.

Thanks to the DECE’s standardization of a common file format and the creation of a new “digital rights locker,” consumers will also be able to buy a movie from one digital service or retail location and then watch it across any number of digital storefronts. So, for instance, consumers should be able to buy a movie from Best Buy’s CinemaNow service and watch it on Walmart’s Vudu-connected devices.

In addition to the technology problems the consortium has sorted out, the DECE has also worked to sort out some of the legal and business rules associated with sharing a piece of content across multiple devices and streaming services. UltraViolet GM Mark Teitell said in a phone interview that the technology part was easy, compared to sorting through some of the business issues.

Now that the technology and business rules are in place, and UltraViolet can be licensed to studio and retail partners, it will be up to them to actually create services that hook into the consortium’s digital rights locker, which is powered by NeuStar. But Teitell said there are companies working on beta programs now and services based on the initiative should be available this fall.

While the technology should make owning digital video easier, companies that want to take advantage of UltraViolet still have a lot of work ahead of them. Purchases of Blu-ray discs are growing, but not quickly enough to make up for lost DVD revenues, and digital isn’t filling the gap quite yet. Given the growth of video-on-demand (VOD) services like iTunes and Vudu, as well as subscriber gains by subscription VOD services like Netflix, there’s some evidence to suggest the decline in disc sales isn’t just a move to digital media instead of physical media, but a movement toward a rental model instead of an ownership model for video.

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In a recently released Google research paper entitled “A Window into Film” (hat tip to BTIG analyst Richard Greenfield), the search giant showed that interest in viewing movies on Netflix has grown dramatically over the past several years, mirroring growth in the company’s streaming video service.

The data confirms what everyone already knows: Consumer interest in owning DVDs has fallen off a cliff. Searches for DVD-related terms were down more than 45 percent from their peak. But while searches for DVDs have declined, Netflix search queries have exploded, increasing more than 90 percent in both 2009 and 2010.

Netflix now has more than 20 million subscribers, after growing by more than 50 percent in 2010. For Hollywood, that’s both a positive and a negative. A more robust customer base means Netflix has more money to spend to license content from the major studios. At the same time, Google search trends indicate consumers aren’t as interested in owning DVDs anymore, which is bad news, considering the DVD market had been a huge part of Hollywood’s home entertainment revenues.

The Hollywood studios hope to get consumers buying again, but recognize that to do so they’re going to have to make it easier for customers to purchase movies digitally. With that in mind, movie distributors have teamed up with tech companies to spearhead the Digital Entertainment Content Ecosystem (DECE), a consortium designed to create a “digital rights locker” that will enable consumers to buy a piece of content once and be able to watch it on any number of devices. The DECE’s Ultraviolet format goes live later this year, with plans to expand features and availability soon after. Even so, it might not be enough to change the shift in consumer behavior from a purchase model to an on-demand rental model.

Interestingly, there’s one bit of positive news for Hollywood: The extreme growth in Netflix subscribers and related searches has coincided with a decline in the number of users searching for pirated movies online. Searches for generic “free movie” and torrent terms have declined steadily since hitting a peak in early 2009 — at just about the same time Netflix search terms started to take off. So while studios might not be making as much from Netflix viewing as they would from a DVD sale, at least viewers aren’t trying to watch those films for free.

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The research firm expects that online rentals will increase to $341.7 million in 2013, which will be up 120 percent from $155.2 million in 2010. But digital purchases will only grow 43.6 percent during that time, from $230.6 million in 2010 to $331.1 million in 2013. Screen Digest expects iVOD to continue to outpace EST through 2015, when rentals will grow to $439.1 million, compared to $396.8 million for digital movie purchases.

The forecast merely follows the trend of viewer interest in renting content rather than owning it, especially for movies that are being delivered over connected devices like the Apple TV or Microsoft’s Xbox 360. Apple, for instance, moved to a streaming rental model when it released the latest version of its broadband set-top box last year. Apple held strong to its 55 percent market share for digital movie rentals in 2010, while its digital sales business was eroded by increased competition.

The trend is even more alarming when you consider that digital rentals generally cost around $5 each, compared to $15-$20 for a digital movie purchase. That means that consumers can rent up to four movies for every one title they choose to purchase.

In addition to the high price of ownership, digital movie sales suffer from the inconvenience of the current model, which generally requires users to download videos without being able to transfer them between devices. Hollywood studios are trying to remedy this model with the introduction of a digital rights locker that would allow consumers to buy a piece of content once and have their ownership stored in the cloud.

The Digital Entertainment Content Ecosystem (DECE)’s Ultraviolet digital rights framework seeks to allow them to buy a piece of content once and stream it on multiple devices. But the introduction of that framework, scheduled for later this year, may come too late in light of the rapid adoption of on-demand video viewing.

These numbers don’t include online video subscription services, like Netflix, which offers access to more than 20,000 digital streaming titles for as little as $7.99. Netflix reported more than $2 billion in 2010 and ended more than 20 million subscribers.

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Formed nearly two years ago, the goal of DECE is to create a digital storage locker that will allow consumers to buy a piece of content and be able to watch that content on any number of connected devices or portable media players. Now the consortium is finally coming to market with a consumer brand that will be clearly marked on products distributed by participating members.

Along with the UltraViolet brand, the consortium is unveiling a consumer portal for its digital rights locker at uvvu.com. The portal allows consumers to give family members  access to purchased content, register devices to watch that content, and manage Ultraviolet-compliant videos bought from multiple services. While users can access all that information at uvvu.com, retailers will be able to roll out their own branded portals that plug into the UltraViolet rights clearinghouse, allowing consumers to manage content from any participating digital storefront.

By enabling consumers to watch videos across all their devices, the DECE hopes to protect member studios’ content from being ripped or copied while also giving consumers a wider choice of where and how they can access it. But questions remain about how many devices consumers will be able to register to view their purchased content on, as well as how many consumer electronics devices will even support the new standard.

The consortium has yet to announce plans for when the first UltraViolet-enabled consumer electronics devices will be available, or when member companies like Best Buy or Amazon.com will begin selling digital video content that can be streamed or downloaded by multiple devices. But it’s a good bet that, now that the consortium has settled on a name, we’ll start seeing UltraViolet branding on consumer electronics devices and in digital storefronts by the end of the year, probably in time for the holiday season.

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For some, this is a kind of Holy Grail moment — making content available on any device regardless of the medium that it was bought in. And some companies are already implementing test versions of this concept, such as Amazon.com, which enables users to buy some titles on DVD and begin streaming them instantly on their computers. But, like anything, the devil is in the details. Which content, and more importantly, which devices will support the DECE’s new standard will ultimately decide whether the consortium succeeds.

At the center of the plan is the DECE’s “digital rights locker,” a “cloud-based authentication service and account management hub” that is designed to store purchase information and authenticate with multiple CE devices. As such, the locker will keep track of which content users have access to, and which devices they’ve registered to access that content. To do so, the DECE has issued an API allowing any online storefront or CE device to integrate with the locker.

The question is how many devices will actually be able to access that content, and what the user experience will be when doing so. In many cases, authentication and digital rights management software has mainly just served to frustrate users (as one can see in my own experience with the Comcast Access authentication system last month). If a user finds that he can’t get the content he wants on the device he wants — for instance, getting a movie purchased from CinemaNow to play on an iPhone — it will be difficult to get him to use a supported service to buy content more than once.

While the DECE still has to prove its technology and the user experience, the consortium has pretty impressive industry backing, including more than 20 new members announced today. Adobe, Cox Communications, Motorola, Netflix and others were added to the DECE’s roster, which also includes companies like Alcatel-Lucent, Best Buy, Cisco, Comcast, Fox Entertainment Group, Lionsgate, Microsoft, NBC Universal, Panasonic, Paramount Pictures, Samsung Electronics, Sony, Toshiba, Warner Bros. Entertainment and Widevine Technologies.

What the DECE doesn’t have is the support of Disney, which is working on its own cloud-based authentication system called Keychest. Apple is also missing from the group, and given the adoption and ubiquity of iPods and iPhones as media players and iTunes as a download store, it might hinder takeup without that company on board.

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ABC.com Has Streamed More Than Half Billion Episodes; Anne Sweeney, co-chair, Disney Media Networks, and president, Disney-ABC Television Group says ABC and Disney have sold “tens of millions” of episodes through iTunes. (paidContent)

Star of new West Side Story on Broadway Found on YouTube; director saw video of Argentine stage actress Josefina Scaglione singing on YouTube and flew her up for auditions (she got the part). (The Wall Street Journal)

Supreme Court to Consider Remote DVR Case Today; copyright owners still oppose Cablevision’ centralized DVR VOD system; high court to decide whether it will hear the appeal. (The LA Times)

Samsung: TVs Now All About Interactivity; president of the company’s digital media business says providing content through its devices more of a priority over the next five years. Will Samsung develop its own video service? (Bits Blog)

Netflix Launches the “FIND Your Voice Film Competition;” indie film competition has Josh Brolin as honorary chair and panel judge; winner gets a $150,000 production grant plus a whole lot of other goodies. (www.netflix.com/findyourvoice)

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