PD*10000606Projector.tv, the newest internet movie service, is in talks with local distribs Icon and Artificial Eye. It has already licensed 43 films from Metrodome for its video-on-demand business. The service aims to have 20,000 registered users within two to three years, each buying two to three films each month. London-based Projector also claims to be the first internet VOD service to be screening films during a major film festival.

The Edinburgh International Film Festival has signed a deal with Projector to show 10 features unspooling during the fest. Viewers at home will be able to pay £6.99 ($10.49) to watch fest entries during the June 16-27 event. The titles though are pretty obscure, including Chinese film Fog and docus Girl With Black Balloons and Superhero Me. “From the festival’s point of view, it means that more people can see competition films mostly by first-time filmmakers,” says Projector’s Kobi Prempeh.

Rival internet VOD operator Lovefilm streamed London Film Festival feature Vinyan live at the same time as its fest screening last September.

Projector tells me that it is in talks with other British and US film festivals about streaming their entries.

It has already licensed 2,500 films, of which around 500 are currently available to watch.

Lovefilm, the UK equivalent of Netflix, is the dominant internet movie service over here. It has 1.4 million subscribers – all of whom have access to streamed movies as part of their membership — making it the third-largest subscription movie service after Sky and Virgin Media. There are 5,000 titles available to watch over the internet, compared to over 67,000 on DVD. Lovefilm hopes to double the number of streamed titles to 10,000 available by Christmas – half the number currently available stateside on Netflix. It originally thought that download-to-own (DTO) was the way to go, launching its DTO service in April 2006 with King Kong. Instead, the BBC’s on-demand catch-up service the iPlayer attuned customers to streaming.

Projector’s numbers by comparison are miniscule: just 200 people so far have actually paid to watch a movie.

FilmOn is another London-based internet VOD service, run by colourful Greek Coca-Cola magnate Alki David. FilmOn also has a sister porn site, the charmingly-titled FilthOn. David, who is also a movie producer, is away shooting in Los Angeles and unavailable to talk about his streaming service.

Projector sees itself as the VOD destination for movies that have not been picked up for theatrical. But it doesn’t have the money to pay producers upfront minimum guarantees. Instead, it is offering filmmakers 50/50 revenue share arrangements.

As much as I find Projector’s talk of providing a platform for unreleased films laudable, the truth is that there is usually a reason why films are not picked up for theatrical. They’re not very good.

And I suspect “the long tail” — the idea that people would be buying older, more obscure movies or books because of infinite digital shelf space — is so much marketing bunk. It’s magical thinking and not how people actually behave. Rather than increase choice, the internet seems to have diminished it. Only big media has the power to punch through internet clutter into people’s consciousness. Look at the ubiquity of, say, Toy Story this summer or Stephenie Meyer’s The Short Unhappy Life of Bree Tanner in book shops.

Chris Auty, former CEO of film company The Works, says that the numbers of movie streaming do not stack up. Hosting costs for movies are quite expensive, and operators must pay for bandwidth for the entire movie even if – as with porn – most people only watch between 3 and 7 minutes of a streamed feature. “The more people who watch the service, the cheaper hosting becomes,” says Prempeh.

So why all this fuss about internet movie services now? The answer is the launch of internet-enabled TV. The BBC, ITV, BT and others are developing Project Canvas: initially, a set-top box which will plug TVs straight in to the internet. After that, there will be internet TV sets too. The divide between broadcast TV and the web will disappear. This creates an opportunity for thousands of micro TV channels – Deadline TV anybody? – specialising in anything from motorbikes to horse-racing. The UK competition authority waved through Project Canvas last month. It is expected to launch Q2 2011.

Lovefilm has been “very supportive” of Canvas, one TV analyst tells me. And why wouldn’t it be? The set-top box gives Lovefilm a whole new canvas to paint on.

And then there is the much ballyhooed European launch of Hulu, providing it can find British partners.

Simon Morris, Lovefilm’s group marketing officer, believes there will be a tipping point when more people watch movies on-demand via their TVs than buy or rent DVDs. It’s just a question of when.