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THE MORNING BUZZ: Is the VOD Threat Another Case of Crying Wolf or Is the Wolf Finally at the Door?

1 Oct, 2002 By: Stephanie Prange

Yet another VOD provider took a potshot at the rentailer yesterday. This time it was Starz Encore chairman and CEO John J. Sie, who called VOD the “killer app to repatriate the $8-plus-billion-per-year that consumers still spend renting videos and DVDs.”

“SVOD will break through the clutter, reach consumers, and give them the power to select movies and other programming on demand with DVD-like control with no per-transaction fees and no trips to the video store,” he said.

The VOD proponents' new scheme is the subscription model, rather than pay-per-view. “People will pay the cost of having broadband at their home if broadband offers rich entertainment content they control and enhances their television enjoyment,” he said.

Ah, but how much would that subscription cost? Between my cable bill (which costs a pretty penny even at the semi-basic level), the cable broadband bill for quick Internet access (on top of that cable bill), magazine and newspaper subscriptions and Web site hosting costs from Earthlink (for our family Web site), that subscription bill is getting pretty darn big. I'd much prefer a $3 to $4 cash “on demand” transaction at my video store to paying oodles for access to movies I might not even have time to watch.

On the other hand, my husband might be a good target, Unlike me, he loves new technology. He falls into that “early adopter” group we often talk about in relation to DVD. But even for him, the devil is in the details. If that VOD service had great movies and TiVo-like functionality at a decent price — say at most $50 a month — he might be interested. But $50 is about as much as even he's willing to pay.

Are the studios willing to give away their first-run films at that subscription price?

An ace in the hole rentailers have is the roughly $10 billion (by Video Store Magazine estimates) consumers spend on renting videos every year. It's a powerful market, although not all of that money goes back to the studios; it's split with retailers. Sie makes it clear he would like to take those billions away.

If the rental market weakens, as recent numbers indicate it might, it will be a much easier target. Studios might choose to gamble on VOD once again. But now, it's probably still a case of crying wolf. My first week at the magazine in 1993, Bell Atlantic chairman and CEO and VOD proponent Raymond Smith said in our pages that the video store model was “no longer viable.” In 2002, his multibillion-dollar merger with TCI is dead, and the video rental market is still here.

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