Movie-on-demand service Vudu, which launched on Wednesday, aims to lure customers from video rental shops and digital cable television with over 5,000 movies from major and independent studios ready to download.

Unlike other Internet-based movies services, the two-year-old Santa Clara, California-based start-up said the service lets viewers watch high definition films on regular television screens by downloading them over the Internet.

Movies are stored on Vudu set-top boxes, co-founder Tony Miranz said.

The Vudu box, which starts shipping to stores next month, will cost $399 and movie rentals will range from $0.99 to $3.99. The service will also allow consumers to buy movies from $4.99 to $19.99 depending on the age of the movie.

The company has licensing agreements with major Hollywood studios Lionsgate, Time Warner Inc's New Line Cinema and Warner Bros Studios, Viacom Inc's Paramount Pictures, News Corp's Twentieth Century Fox, Universal Studios, The Walt Disney Co. as well numerous U.S. and international independents.

It will have popular movies like Dreamgirls and 300 as well as numerous classic films.

Vudu comes on the heels of other companies like CinemaNow and Vongo that have struggled to gain mass appeal in offering movies on demand over the Internet.

The most prominent name in the sector is Movielink, which was originally backed by several Hollywood studios for five years before eventually being sold last month to U.S. movie rental chain Blockbuster Inc.

As well as competition from DVD rental and online video sites such as Netflix Inc, Vudu will also face pressure from an increasing amount of on-demand movie content offered on major cable and satellite operators such as Comcast Corp and DirecTV Group.

Microsoft Corp's Xbox 360 video game console and Apple Inc's Apple TV device also will fight for attention from consumers seeking to watch downloaded movies on TV sets.

Vudu is being introduced in an area that's had some tough history, said Kurt Scherf, analyst at Parks Associates. It's been clear that the movie-on-demand model via the Internet has so far underperformed Hollywood studios expectations.

However, Park Associates estimates the market will hit $3 billion in annual revenues by the end of 2010.

Co-founder Miranz said Vudu will target a subset of consumers who seek instant gratification rather than the mainstream of U.S. TV households.

We're providing a better way to rent movies and we are very much complementary to cable and others. Consumers don't want to watch movies on their PCs.

Most new DVD movies will be available to buy as a download to the Vudu box within 48 hours of release for the same price, according Miranz.

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