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Comcast Bullish on VOD Test

26 Apr, 2007 By: Erik Gruenwedel

Ongoing trials by Comcast Corp. to put video-on-demand (VOD) on par with DVD in the movie-distribution food chain continue to show promise, said the largest cable operator in the United States.

During an analyst call to discuss first-quarter (ended March 31) results, Steve Burke, president and COO of Comcast, said tests in Denver and Pittsburgh to release movies on pay-per-view for $3.99 the same day as the DVD launch would likely expand to include an undisclosed third market.

Trial partners include Lionsgate, 20th Century Fox Entertainment, Paramount Pictures, The Walt Disney Co., Warner Bros., New Line Cinema and NBC Universal.

“The increase in purchasing of movies is very substantial,” Burke said. “And that increase would translate to a substantial increase in studio revenue from pay-per-view.”

He said internal research showed the VOD business was incremental, not cannibalistic, of DVD sales, which he said Comcast has shared with the studios.

Comcast reported that VOD revenue in the quarter increased 26% in the quarter to $181 million, and has increased more than 20% on average over the past nine months.

“We are optimistic in the not too distant future that we are going to be able to expand [VOD] across the rest of the country,” Burke said.

The COO's view is not shared by all, including analysts at Pali Capital and AllianceBernstein in New York, who reportedly consider the release of studio movies on VOD the same day as DVD detrimental and volatile to both sellthrough and rental markets. Instead, they suggested studios charge a premium price to consumers by releasing movies on VOD in high-def prior to the DVD release.

In an interview last year, Kevin Tsujihara, president of Warner Bros. Home Entertainment Group, questioned the lag between the availability of a movie rental or sellthrough and VOD.

“It's the same transaction,” Tsujihara said. “If it doesn't make sense for the consumer then the VOD business on a-la-carte basis is being somewhat handicapped from being able to compete against physical alternatives.”

Indeed, Comcast said it saw strong demand for high-def and digital video recording set-top boxes in the quarter, underscored by the addition of 535,000 HD set-top boxes.

About 38% of Comcast's 25 million customers have either an HD set-top box or DVR combination, according to company officials.

For the quarter, Comcast posted income of $837 million on revenue of $7.4 billion, compared to income of $466 million and revenue of $5.5 billion during the same period last year.

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