Computerizing film libraries will revolutionize video-rental scene.

Los Angeles computer companies stand to make a bundle by the end of the century helping Hollywood film studios computerize their film libraries so customers can rent movies without leaving the house.

By translating films' sound and pictures into computerized codes, companies that own large film libraries will be able to rent them through computers via fiber-optic telephone lines to computerized receivers in the home. That will eliminate 80 percent of the market for video stores as they are known today, according to industry analysts.

Companies that control film libraries, such as Warner Brothers, Universal Studios, Paramount Pictures, Twentieth Century Fox and Walt Disney Co., are all positioned to make huge profits from video-on-demand. But they won't talk about it.

A Disney spokesman said only that the company is "watching closely." Officials at Sony Studios (parent of Columbia and TriStar) and Paramount wouldn't discuss the matter either.

Once the technology is perfected, the $8-billion-a-year video rental market will likely be turned on its ear, according to Wall Street analysts. Studios will scramble to establish market share in the restructured video-rental market. And computer software, hardware and systems-integration companies would also share in that wealth. Other companies that stand to profit are those that make fiber-optic cable and the computer switches that would direct the digital audio/visual code from the studios to the customers.

The technology "could create enough jobs in Southern California to offset those lost from the defense industry," said Tom Adams, an analyst with Carmel-based computer consulting firm Paul Kagan Associates. But he cautioned that a mountain of research and testing must be conducted before the computer industry has any real idea of how many of the hundreds of thousands of Los Angeles County jobs lost in the last two years would eventually be replaced.

Nevertheless, Adams and Wall Street experts agree the neighborhood video store won't survive in its present form. But before those stores close their doors, computer engineers must solve a few technical problems. And that could take so long that video-rental stores will have time to reposition, industry analysts say.

Many consumers don't realize it, but the cable box hooked up to their televisions is a computer that turns electronic coding into sound and picture, said Adams. Cable companies pay $100 per cable box. But the computer needed to receive a two-hour movie condensed into a dense five-minute transmission for subsequent playback would cost $2,000 or $3,000 using today's technology, Adams said.

"I'm not sure how many people would be willing to pay that much," Adams said.

Companies that want a piece of the potential multibillion-dollar-a-year computerized video-rental market must find a way to make the computerized receiver/player for less money. At the same time, they must learn how to condense computer coding for two hours of programming into five minutes. Otherwise, the customer has to tie up the telephone for two hours to receive the film, local computer experts said.

Computer engineers must be able to compress the digital data and send it over a cable system in at most 10 to 15 minutes, said industry experts. Adams said Boca Raton, Fla.-based Home Video Entertainment is working on a system it claims can computerize a two-hour film and transmit it over a fiber-optic cable in five minutes.

Once the computer is developed to condense the programming, video delivery by phone faces another problem. The cable companies and telephone companies that will carry the signal must convert from copper wire to fiber-optic cable. Much of the long-distance system already is composed of fiber-optic cable, but most of the local telephone lines are still copper, said telecommunications experts. Converting the local lines would cost telephone companies billions of dollars.

Yet a third roadblock stands in the way of aspiring entertainment and computer companies looking for new markets. Computer experts said the full market potential to deliver video rentals by phone won't happen until the Federal Communications Commission sets the standards for digital high-definition television, Adams said.

The high-definition television infrastructure the FCC wants installed in the U.S. would use digital (computerized) technology. It would pick up the finer nuances in picture and sound. After the FCC sets the standard in 1995, studios will adapt and rush to open their own computerized video-rental systems, predicted Adams and other industry observers.

"The big push in digitizing video, audio and virtually everything that has been published won't come about until the federal regulators choose a national standard," said Jay Smith, president of Century City-based Multimedia Publishing Inc.

Once the standard is set, Los Angeles computer hardware and software experts, and companies that integrate computer systems, stand to make a fortune, he said.

"Most of the computer and electronics jobs needed to bring the entertainment industry into the new format will be created here in Los Angeles," Samit said.

Local computer industry experts said all the studios are quiet about their efforts to computerize their film libraries and take a bigger piece of the distribution dollar. Warner, MCA and Sony are on top of every aspect of development, Samit said.

On the darker side of the digital revolution, Samit said video-rental stores could be driven out of the market. Once the bugs are worked out of the system, video-rental stores' place in the market would be eliminated, Samit said.,

Most analysts agree that the digital revolution will pose a threat to video stores. But Raymond L. Katz, an analyst with Shearson Lehman Brothers in New York, isn't ready to say video stores be out of business in five or six years.

"Most of the computer technology needed to bring on-demand programming to the home from the film libraries is still in the experimental stages. I don't think we'll see it until some time in the next century," he said.

Wally Knief, a spokesman for Fort Lauderdale, Fla.-based Blockbuster Entertainment Corp. (which owns Blockbuster Video), said he knows about the research, but Blockbuster isn't ready to close the doors at its 161 Southern California outlets.

"We know about the technology, but we won't let it put us out of business. It won't be on the market for at least another 10 years, and we may be able to use the same computer technology to rent our own titles over the phone," he said.

Officials at Torrance-based Wherehouse Entertainment Inc. were unavailable to comment on the possible impact rent-by-phone technology would have on their business.

Craig Silvers, an analyst who follows publicly held entertainment companies and the issues that affect them, agreed that the digital revolution would not necessarily doom companies like Blockbuster and Wherehouse to extinction.

"I think we're still five years away from customers being able to access a computerized film library at the studios, pick a title they want to see, and have it sent to them over their telephone line," Silvers said.