On Feb. 3, Sony Pictures Home Entertainment (SNE) is going to make an honest man of me. Finally I will be able to buy a legal DVD of one of my favorite movies, Carol Reed’s 1959 “Our Man in Havana.” But there’s still no rhyme or reason to what films are available in any digital form. If, for example, you happen to have a videotape player around, you can watch an old VHS version of “The African Queen.” But you can’t buy it on DVD or download it from any of the Hollywood-sanctioned online services.

The basic problem is that Hollywood is attempting to preserve an analog business model in a digital age.

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At D5 last week, we announced our new RealPlayer, which makes it easy for anyone to download video from the Internet and keep it for personal use. Not surprisingly, we’re excited about the product. But what I want to discuss today are the divergent reactions to the product and the ideas behind it–it’s basically a Rorschach ink-blot test for how people feel about Internet media and consumer choice.

People who have seen the new RealPlayer fall into two groups. The first group has two reactions–the first being “Wow, this is cool,” followed quickly by “Of course, this was inevitable.” This group believes that progress is inexorably leading to more consumer choice and empowerment, and that this is a good thing. PVRs are becoming a standard TV-viewing feature, and consumers want the same level of control when they’re using the Web. I think of this as the “Manifest Destiny” group.

Different members of the Manifest Destiny group get excited about different aspects of the new RealPlayer. Idealists get excited either because they love how this technology empowers consumers, or because they have ideas that they want to propagate. The more business-oriented people in this group are excited about wrapping new business models around this expanded consumer choice. And of course techies want to know how it all works.

The second group also has two reactions (if they’re being honest). The first is “Wow, this is cool, but…” followed quickly by “Won’t this destroy” some sacred cow, typically an existing media business model. I call this group the “Flat Earth society” (and not in a Thomas Friedman sense).

This group typically asks a lot of questions about how the new RealPlayer works, seeking to find some fatal flaw. They ask questions about digital-rights management and the legality of downloading videos. We then explain the details, particularly how we respect DRM and how careful we’ve been in creating a product that has numerous substantial noninfringing uses. Indeed, the new RealPlayer is completely legal, just like a PVR, VCR or photocopier. After hearing our explanation, this group tends to sidle away glumly, kind of like Washington Generals fans learning the results of their team’s latest match against the Harlem Globetrotters.

The most surprising thing isn’t that both groups exist–having worked in Internet digital media for a dozen years, I know this dichotomy well. What’s truly shocking is how much the ground has shifted over the past two years.

Two years ago, the world seemed kind of split down the middle, with technologists on one side (Manifest Destiny) and content providers on the other (Flat Earth). But that’s not the case anymore.

To my surprise, of the people we’ve talked to so far, the Manifest Destiny group outnumbers the Flat Earth society by at least five to one. More shocking, even inside large media companies, Manifest Destiny thinking is not only ascendant but, in most cases, it’s carrying the day.

Why the big change? I think it has to do with the fundamental nature of media business models. Media businesses are generally based on accumulating the biggest audience possible, which means going where the audience is. Approaches based on locking down the content out of a fear of piracy are self-defeating. Media isn’t like water or oil, where there is fixed demand. Rather, the more prominent and available media is, the more the media gets consumed.

Successful media companies are generally made up of smart executives who get this. They know that simply trying to stop disruptive consumption patterns hurts much more than it helps. Indeed, the continuing free fall of the music industry, even after the industry’s many legal victories against P2P sites, speaks to the downside of misunderstanding this reality.

That doesn’t mean that DRM is 100% irrelevant, or that content-distribution windowing is going to go away, or that rights holders will no longer get paid for their content. But it does mean that embracing the consumer has got to be job No. 1 for everyone. When a great technology comes along–empowering consumers to download and save video, in this case–the winning approach for everyone is to embrace the technology, and then figure out the business models that work best with the technology.

In other words, the world isn’t flat, and more consumer choice and control really are Manifest Destiny.