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Time Warner CEO Blasts DVD Rental

7 Jun, 2007 By: Erik Gruenwedel

Time Warner chairman and CEO Dick Parsons

Saying it would be “a cold day in hell” before he frequented a video rental store, Time Warner chairman and CEO Dick Parsons lashed out at the rental industry he claimed grosses movie studios less than 20 cents for every dollar earned.

Speaking June 7 at Merrill Lynch U.S. Media Conference in London, Parsons said the media giant was attempting to migrate a shift toward a TV network-enabled video-on-demand model in addition to same-day VOD releases with DVD.

Warner July 10 will test release Astronaut Farmer, starring Billy Bob Thornton, on VOD/DVD, followed later this year by historical action film, 300, in Belgium and Scandinavia.

The studio's penchant to upgrade VOD on the distribution food chain at the expense of DVD rental received critical support after same-day VOD/DVD test releases, conducted for the major studios by Time Warner Cable and Comcast Corp. in Pittsburgh and Denver, showed little negative effect on DVD sellthrough — the studios' Holy Grail.

The results found that DVD sellthrough increased 10% with VOD — the latter allowing the studios to increase margins upwards of 60% due to the lack of packaging and shipping costs, among other factors.

Parsons said Warner Bros. bundles VOD rights to its entertainment shows licensed to the networks. He said the strategy is to keep the networks from cannibalizing their programming to third-party download sites such as Apple Inc.'s iTunes Music Store.

He said the tactic would help the networks reinforce their ad-supported business model with content consumers could watch on their own schedules.

The CEO said same-day VOD/DVD test releases were “very meaningful” and would act as a catalyst to Warner implementing rollout of content on a larger scale more quickly. He downplayed any negative impact VOD might have on DVD retail, saying the transition would bolster retailers.

“Everybody is upset [VOD/DVD] is going to upset the 800-pound gorilla, Wal-Mart or Best Buy, but we don't think so,” Parsons said.

He said it would work better for big box retailers who don't share in the revenue turns generated by video rental services — services that ultimately become previously viewed sellthrough.

“VOD can actually help DVD sellthrough as well as change the economics dramatically for the studios,” Parsons said. “It is good for the cable company. It is good for the studios. And it is good for the sellthrough guys.”

He said once the test data catches up to potential, it would prove to have a “tremendous upside.”

“It will be a cold day in hell that I would actually get up from my apartment [in Manhattan] and go to a video store and rent a movie,” Parsons said. “And I've never actually been in a Wal-Mart.”

Time Warner Cable has 14.7 million subscribers and claims the largest VOD penetration in the nation's largest media markets, Los Angeles and New York.

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