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Analyst: Home Entertainment ‘Windows’ Coming to Fruition

17 May, 2010 By: Erik Gruenwedel

Hollywood studios improbably are rejiggering movie release windows that just might actually put the $1-DVD-kiosk-rental-genie back into the bottle, an analyst said.

While generally caught off guard as little regarded Redbox over the years morphed from innocuous Kiddy Meal add-on at McDonald’s to margin-killing 99-cent rental stalwart, studios have aggressively sought to cut deals with Redbox or delay it (and Netflix) access (by 28 days) to new release movies.

Media analyst Richard Greenfield with BTIG Equity Research in New York said studios appear to be finalizing a sequential distribution chain based on margins that puts DVD/Blu-ray Disc rentals near the end of the line.

Specifically, studios, after a two-month theatrical window, would offer – in order – new releases as premium priced (from $25) video-on-demand (VOD) on cable and the Internet, followed by electronic sellthrough on iTunes, Amazon VOD, Wal-Mart’s Vudu, DVD/Blu-ray sellthrough, electronic rental via cable/web VOD, store-based rentals, kiosks and lastly, subscription-based rentals such as Netflix.

Premium-priced VOD was first suggested several years ago by studio executives, including Kevin Tsujihara, president of Warner Bros. Home Entertainment Group, who, in a 2006 interview with Home Media Magazine, said it made sense to offer content at a premium to consumers willing to pay for it.

Fast-forward four years and transactional VOD is up 35%, underscored by a joint cable/studio “virtual video store” $30 million consumer marketing campaign.

“This is a meaningful contributor to the profitability of the movies,” Tsujihara told a panel last week at the National Cable & Telecommunications Association confab in Los Angeles.

With the Federal Communications Commission recently agreeing to plug up the so-called “analog hole,” premium-priced VOD could finally see the light of day.

“We would expect premium priced, early release VOD movies to become a reality before year-end,” Greenfield wrote in a blog.

While a redefined home entertainment release schedule will not necessarily drive growth in the industry given the maturity of DVD, it would most likely slow the pace of decline, according to Greenfield.

“Hopefully, the studios actively embrace and push out these sequential release windows before digital, IP content eliminates half of the aforementioned windows,” he wrote.

But challenges remain. While Sony, Paramount, Lionsgate and Summit secured guarantees totaling more than $1 billion from Redbox over the next five years, Greenfield is incredulous that Disney (which does not have a deal) will allow box office hit Alice in Wonderland to hit kiosks and Netflix on the June 1 street date.

“Insane,” the analyst wrote in an email. “It makes no sense.”

Eric Wold, analyst with Merriman Curhan Ford in New York, said Disney has had that option but never expressed discontent with a current agreement that provides Disney titles to kiosks via distributors.

“I’m not sure why Alice in Wonderland would prompt Disney to go from their informal agreement with Redbox or Netflix to one with a window,” Wold said. “I haven’t heard any rumblings and assume the status quo for now.”

The film has generated nearly $1 billion worldwide in ticket sales (including $331 million domestically), a financial tally Disney could easily leverage kiosks and Netflix with.

With home entertainment veteran Bob Chapek now in charge of overall distribution at Walt Disney Studios and instrumental in shortening the theatrical window for Alice, an 11th hour agreement similar to the 28-day embargo forged between Redbox/Netflix and Warner Home Video, 20th Century Fox Home Entertainment and Universal Studios Home Entertainment could be in the works. A Disney representative was not immediately available for comment.

“Consumers cannot rent a movie (legally) the day it hits the movie theaters, why should they have easy access to renting it for $1/day the same time it hits Wal-Mart for sale at $16?” Greenfield wrote. “We understand what a consumer wants, we just see no reason why the studios should enable that behavior.”


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