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Studio Chiefs: Content Holders Drive Change

28 Apr, 2006 By: Erik Gruenwedel

L-R: Peter Chernin, president and COO of News Corp., and Robert Iger, president and CEO of The Walt Disney Co.

Movie studios continue to hold most of the cards in the face of rapidly changing delivery channels, unlike the music industry that saw its business decimated by tech-savvy pirates, said two top entertainment executives.

Peter Chernin, president and COO of News Corp., and Robert Iger, president and CEO of The Walt Disney Co., said the video industry has a long history of tailoring its product in different ways and at different price points. They spoke on a panel at the Milken Institute Global Conference in Los Angeles.

They said decisions to repurpose content to portable media devices and the Internet, and alter theatrical and DVD release windows, are predicated on maximizing revenue potential and not worrying about tradition.

“We'll abandon the movie theaters in a millisecond if somebody can prove to us that we can replace those several billion dollars in revenues with more revenues,” Chernin said. “But I'm not convinced that is an easy thing to happen. I think it is an easy, glib thing to say, ‘Get rid of it,' but I think the real question is: [Fox] own[s] an overall pot that generates between $4 billion to $5 billion. How do I grow that pot?”

Chernin said packaged media is significantly underestimated despite indications the format's revenue potential has softened.

“The fact is people like holding a DVD,” Chernin said. “It is an incredibly convenient distribution thing. There is an assortment of DVDs generally within a mile of virtually every household in America. Wal-Mart does a pretty good job selling them at a loss on our behalf, and they are cheap to make. So I wouldn't assume those things are going away overnight.”

Iger, who decided to sell prime time ABC content through Apple's iTunes without consulting TV affiliates, said one of the big challenges migrating product to new delivery platforms is the stress it put on the relationships with traditional distributors, including Wal-Mart, TV affiliates and cable.

Disney has sold about 7 million video downloads to date, Iger said.

“If we had asked permission or entered into an extensive dialogue, in all likelihood it would not have gotten done,” Iger said. “It is really hard to embrace change when that change is viewed as potentially threatening. We view it as an opportunity.”

By contrast, Fox gives network affiliates 12.5% of revenue generated through repurposing TV content through alternative channels. In addition to offering episodes of “Rescue Me” and “The Shield” in advance of their network airing for $4, Fox is considering offering preview screenings of the season finales of “24” and “American Idol” on a paid platform.

This fall, Fox will allow DirecTV subscribers to watch 20 football games at once, including updates when a team moves within the 20-yard line.

“My job is not to protect the existing business; my job is to maximize the existing business,” Chernin said. “What you really want to do is grow the newer businesses faster than the older ones erode.”

Both executives, whose companies support Blu-ray Disc, lamented the ongoing format war with rival HD DVD.

“Peter and I talk about this all the time,” Iger said. “It is frustrating to us and, in the end, it is not good for the consumer.”

“Unfortunately, we can't act as monoliths and make those ultimate decisions. But we've chosen the same format to support, and hopefully the others will see the light,” Chernin said.

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