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Erik's Spin


SVOD's Slippery Slope

9 Feb, 2015 By: Erik Gruenwedel

The Interview

On Feb. 17 Sony Pictures Home Entertainment will release infamous ‘R’-rated political comedy The Interview on DVD and Blu-ray Disc.

If anybody still cares.

On street date, it will have been 56 days since the movie launched online and in select indie theaters — despite terrorist threats against the movie’s distribution in any form. The film from Seth Rogen co-stars James Franco as a bumbling TV journalist whose interview with North Korean leader Kim Jong-un is co-opted by the CIA into an assassination attempt.

If the Christmas Day capitulation of the nation’s largest theater chains to a murky group of cyber hackers allegedly operating on behalf of the North Korean government wasn’t bad enough, Sony Pictures — victim to the hackers’ IT attack — succumbed to an even bigger foe: SVOD.

That’s because Sony Pictures inexplicably made The Interview available to Netflix on Jan. 24 — about three-and-a-half weeks before the packaged media release!

Sony Pictures undermined much of its ability to generate incremental revenue from The Interview through packaged media, opting instead to enable Netflix’s 39 million domestic and 3 million U.K. subscribers to binge-view the movie for free.

While Sony Pictures likely extracted a large license fee from Netflix, the deal set a dangerous precedent putting subscription streaming ahead of packaged media in the distribution food chain. Sales of DVD and Blu-ray Disc titles may be slowing, but consumers still spent 80 cents of every home entertainment dollar on physical product in 2014, according to DEG: The Digital Entertainment Group.

Subscription streaming may be buzz worthy, but it endangers all home entertainment channels — notably retail and rental — if not regulated.

“Every move Sony made [with The Interview] was wrong ... it was all reactive,” said Ralph Tribbey, editor of industry tip sheet The DVD & Blu-ray Release Report.

He said studios — not just Sony Pictures — need to re-think their business models and approach toward SVOD. Unless they are willing to bypass a theatrical run, studios need to return to recognize that the theatrical window promotes higher-margin retail, followed by broadcast and streaming.

Netflix, which is seeking $1.5 billion in new debt-funding to underwrite content acquisitions, is pursuing content exclusivity by paying premium license fees. Indeed, it ended 2014 with $9.5 billion in content obligations.

Tribbey argues that studios must resist the temptation of exorbitant license fees by retaining the traditional distribution food chain (theatrical, retail, rental, streaming) — with SVOD at the end of the line.

Putting The Interview on SVOD ahead of packaged media exacerbates the mindset physical media sales are declining and digital distribution is the answer.

“It’s a self-fulfilling prophecy,” Tribbey said.


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