Hughes links with Sony in plan to bring satellite TV into homes.

Hughes Communications Inc. is negotiating with Hollywood movie studios to gain rights to broadcast thousands of films via satellite to homes by 1994, possibly becoming the first company to deliver relatively new movies directly to TV sets nationwide.

Hughes' DirecTv subsidiary would squeeze into the competitive world of cable-TV, video-rental stores and ultimately, some say, movie theaters.

The El Segundo company hopes to have at least one studio deal signed in December and is looking to cement agreements with others in time for its March 1994 debut, according to Hughes spokesman Thomas Bracken.

Hughes announced Oct. 15 that Sony Corp. of America would design and engineer Hughes' broadcast center in Colorado.

From there, a video signal would beam upwards to a satellite and bounce back down to an 18-inch satellite dish at each subscriber's home, where a decoder box would translate the signal into a TV picture. Viewers would pay $700 for the home receiving system, plus about $3 to $5 for a current film and $1 to $2 for older ones. DirecTv will offer some 150 channels, including 40-50 movie channels that subscribers could order at intervals. Hit movies will be shown at 15-30 minute intervals.

Hughes' DirecTv is part of a coast-to-coast race by telephone, computer and cable-TV companies to bring "video-on-demand" service into households.

Also targeting 1994 is Virginia-based Bell Atlantic. The telephone company is testing how to use computers, information-compressors and other technology to deliver movies over phone lines. Also testing are L.A.'s two local telephone companies -- Pacific Bell and GTE California.

Twelve leading technology companies, including Eastman Kodak Co. and Apple Computer, announced Oct. 6 they had formed a joint venture dubbed First Cities to bring movies, "picture phones" (a moving image added to a telephone conversation) and other video programming to households by 1995.

Hughes' system is a "near" video-on-demand service. Full video-on-demand, a system that would allow customers to dial up immediately any movie they wish, is being researched by competitors, but it may be an impossible dream, sources said.

Hughes is investing $1 billion in DirecTv. Negotiations with the studios revolve around costs and when recent films would be available.

Hughes wants to deliver its films right after the studios release them to video stores, but before they are shown on cable systems such as HBO. Studios in the talks include Sony Pictures Entertainment (Columbia, TriStar) Universal, Paramount Communications Inc. and 20th Century Fox, Bracken said.

Hughes officials downplay their threat to video-rental and cable-TV operations, but industry sources say DirecTv would steal business.

"Obviously, this would hurt cable," said Tom Adams, video analyst with media-research firm Paul Kagan Associates in Carmel. But he said DirecTv might only catch on in rural areas, where 10 million to 15 million homes are still not wired for cable TV. Overall, "they're never going to match the awesome selection of a big video rental store," Adams said.

Blockbuster Entertainment Corp. is not worried, said Wally Knief, spokesman for the giant Florida-based video-rental operator that controls 14 percent of the market nationwide. "Blockbuster will get movies before Hughes will, period," he said. "The studios get too darn much money from home video" to upset the "food chain," whereby movies flow from studios to theaters, then to rental, to cableTV's pay-per-view, to pay cable (like HBO) and finally TV networks.

Howard Suber, an entertainment industry consultant and chairman of UCLA Film School's prestigious Producer's Program, predicted direct TV systems will put video stores out of business and added, "It's predictable that you will see the day when a major feature opens not in theaters but shown at 8 p.m. on a Thursday on a pay-per-view basis."

Nationwide video-on-demand via fiber-optic cable would involve a tremendous investment, said GTE spokesman Dan Smith. Also federal law must be changed for telephone companies to use video profits to bankroll laying fiber-optic cable, he said.

Meantime, GTE is delivering movies via fiber-optic to two households in Cerritos in a test program.

"The bulls say the whole nation will be wired by the end of the century," said Adams, "and the bears say 20-30 years."

Attempting to leverage its satellite capabilities and diversify from the shrinking defense business, Hughes wants to be an entertainment industry player and at one time considered acquiring a movie studio, according to Bracken.

Japanese electronics giants Sony Corp. (Columbia, TriStar) and Matsushita Electric Industrial Co. (Universal) triggered the synergy (hardware-software integration) movement in Hollywood with their acquisitions, but Hughes has chosen to make "strategic alliances" to gain entry into entertainment.

Hughes announced a $50 million agreement with Sony, which will provide the engineering system and broadcast equipment to make DirecTv function.

Charles Steinberg, president of Sony's Business and Professional Group, said in addition to the equipment, there is a possible software tie-in with Sony Pictures Entertainment's film library.

In addition to 50 channels of movies, DirecTv will show sporting events, major cable network programming and a combination of special education, foreign language and professional education channels. Bracken said Hughes is talking with the major cable programmers such as ESPN, CNN and HBO to become part of DirecTV.

Theater owners scoff at the notion that studios would bypass them for a first-run debut on DirecTv or any other pay-per-view exposure. Robert Friedman, president of AMC Theater's Entertainment Motion Picture Group, said Universal Pictures experimented with television when it released "Pirates of Penzance" in the early 1980s on pay-per-view and it bombed.

Friedman said the cost to see a first-run film on television would be too high to justify the poor quality and acoustics of the at-home experience. The small screen lacks the glamour and excitement that films need to generate so they can drive sales in the ancillary markets, Friedman said.