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Diciembre 9, 2011

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Will Premium VOD Take Off in 2012?

In June, I wrote about the early release window (ERW) experiment, and the great debate surrounding the viability of premium Video on Demand (VoD) content.  With the end of 2011 drawing near, now is good a time to review the year’s development on that topic. At this point, it seems we should move beyond the enabling regulations and technical obstacles surrounding premium VoD1 and instead concern ourselves with market dynamics – who might be the big winners and losers. Despite some changing dynamics in content licensing and security (see the new Verimatrix white paper on this topic), technology is not the long pole in the tent any more, but rather licensing terms and subscriber adoption – at least for early adopters. And we are clearly still in the experimental phase of verifying if a home theater movie experience in a similar release window as theatrical release provides a viable business upside. There are still a significant number of unknowns, but continued experiments provide some interesting insights.

Consider, for example, that DirecTV, an early adopter of premium VOD, brought an Adam Sandler movie to their Home Premiere service in universal 20th century fox sony wb logosApril as part of an agreement with Sony (This was part of a bigger deal with other major studios. See table below for details). The movie was released without much advertisement, eight weeks after theatrical release and with a price tag of $30. For a period of two weeks, subscribers could rent it and have 48 hours to watch it.  Apparently that VOD offer did not find a lot of takers, which many, including DirecTV CEO Michael White, attributed to the $30 price point. Comcast planned to release the movie Tower Heist at the end of November but pulled it back due to theater owners’ protests. It’s tough to say why theater owners chose to protest this specific offering. It could have been the smaller release window of only three weeks, the holiday timing, or the fact that it was a bigger production. With a hefty proposed $60 price tag, though, VOD viewership would likely have been kept to relatively modest levels. Time Warner Cable started offering smaller productions like Margin Call the same day of theatrical release for $6.99, and the VOD release did not seem to have limited the notable success in theaters. In the case of Melancholia, the movie was released even before the theatrical release to be consumed at home for $9.99. The following chart summarizes some of the action so far:

Operator

Studio

Movie

Delay

Cost

DIRECTV Fox Diary of a Wimpy Kid: Rodrick Rules 8 weeks

$30

DIRECTV Fox Water for Elephants 8 weeks

$30

DIRECTV Fox Cedar Rapids 8 weeks

$30

DIRECTV Sony Soul Surfer 8 weeks

$30

DIRECTV Sony Battle: Los Angeles 8 weeks

$30

DIRECTV Sony Just go with it 8 weeks

$30

DIRECTV Universal Your Highness 8 weeks

$30

DIRECTV Universal Paul 8 weeks

$30

DIRECTV Universal The Adjustment Bureau 8 weeks

$30

DIRECTV Warner Bros. Sucker Punch 8 weeks

$30

DIRECTV Warner Bros. HallPass 8 weeks

$30

COMCAST Universal Tower Heist 3 weeks

$60

TWC Lionsgate Margin Call

No delay

$7

TWC Millennium Films Trespass

No delay

$7

TWC Magnolia Pictures Melancholia

4 weeks earlier

$10

  So there has definitely been progress in the last few months, but additional experiments around this model are likely going to be visible before everyone places bets on the final outcome or the winning formula.  Strategies concerned with striking the right balance seem to vary between studios and that is expected when creating a completely new release window in a competitive marketplace. While the experiments come from different angles, it will be interesting to observe how the result will shake out. In my opinion, here’s what needs to happen before we can move beyond “experimental” to “established” business models for ERW:

  • Operators need to combine a compelling value proposition and a significant marketing campaign. This could involve increased advertising or bundling with physical media/digital copy strategies. The average consumer needs to be aware of the potential for a choice and to get accustomed to this option.
  • Content owners should work towards identification of the scenarios where the ERW and theatrical window releases will complement each other, and drive an increase market penetration as a whole rather than being seen as competing with one another. Finding the sweet spot of the release timing, pricing and marketing effort will be part of that.
  • It’s going to take a certain amount of patience for the studios, theater owners, content creators and certainly consumers to get comfortable with the new business model and equipment restrictions that support the delivery.

Would you pay for an early release movie to watch in your home (what Ben Schwarz calls “expensive VoD”)? What do you feel is the right formula for studios to make this successful? I plan on continuing to follow the developments of premium VoD throughout 2012 – stay tuned!   1 also called Home Theater or Home Premiere

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