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Warner Ups Same-Day VOD and DVD Delivery

21 Sep, 2007 By: Erik Gruenwedel

After months of testing and pronouncements by executives, Time Warner Inc. is ushering cable video-on-demand onto the national stage alongside lucrative DVD sellthrough.

Last week, Time Warner Cable Inc., Comcast Corp. and Cox Communications, among others, released Warner titles We Are Marshall, with Matthew McConaughey, and Lucky You, with Drew Barrymore, on VOD.

Warner Home Video released the titles the same day (Sept. 18) on standard DVD, in addition to also releasing Marshall on Blu-ray Disc and HD DVD.

Locally, Cox sent mailers to subscribers touting Marshall on VOD the same day as DVD for $3.95 for 24 hours.

Time Warner Cable and Comcast have been aggressively testing in Denver, Pittsburgh and Atlanta releasing Warner fare simultaneously on VOD and DVD.

Since first bowing The Astronaut Farmer on both platforms in July, the studio has released Unaccompanied Minors and TMNT simultaneously on DVD and VOD.

In October, Warner will release nationally on DVD and VOD The Land of Women, License to Wed and The Reaping.

Warner is the only major studio bowing new releases day-and-date on the platforms.It previously released Letters From Iwo Jima, The Good German, 300 and Aqua Teen Hunger Force on the same day on DVD and VOD in test markets only.

Time Warner Cable said it had about 126 million VOD streams in July and expects to exceed 1 billion streams this year. The company projects $400 million in VOD revenue this year.

Time Warner said 7.7 million of its subscribers use digital video, including VOD and pay-per-view, which generated $13.4 million, or 24%, of the company's second-quarter revenue. The company claims to generate more than $1,000 in revenue per subscriber per year.

“We are seeing a huge uptake on our side and virtually no impact on [sellthrough],” Landel Hobbs, COO of Time Warner Cable, told analysts last week at Merrill Lynch's Media & Entertainment conference in New York. “On some of our early tests, we saw a 500% increase in VOD buy rates.”

To help implement same-day VOD/DVD releases, Time Warner is updating its user menu for streaming movies. Its Maestro Navigator will allow users easier access to movies and such options as scene selections, special features and payment.

The New York-based unit of Time Warner Inc. reached 26.3 million homes, or 14.7 million subscribers (ended June 30), including 1.8 million in Los Angeles and 1.4 million in New York.

Speaking at an investor conference, Dick Parsons, Time Warner chairman and CEO, said cable VOD generated greater margins than DVD rental, with upwards of 65 cents per dollar, compared to 20 cents through traditional rental.

“Eventually the digital revolution is going to hit that space in a way that I think is very much going to benefit the movie companies in terms of allowing them to resell their libraries and take costs out,” Parsons said.

In June, he told analysts in London it would be a “cold day in hell” before he frequented a video rental store.

Jeff Bewkes, president and COO of Time Warner, has admitted to investors that same-day VOD/DVD releases has hurt physical DVD rentals. But he argued that, economically, it was a good thing.

In the markets not taking up the DVD and VOD tests, Bewkes said physical DVDs were running through the sellthrough process and then showing up at Blockbuster as used inventory for sale.

“This was cutting into sellthrough traffic,” he said.

Philippe Dauman, president and CEO of Viacom Inc., which is also involved in the tests, said, “We saw some lift in DVD sales [in test markets Denver and Pittsburgh] and a downturn in video rentals. We are still evaluating the data, especially in the additional test city (Atlanta), which has a different retail environment.”

He remains cautious about the new model.

“We have no current plans to roll that out on a nationwide basis,” he said. “It is a very important decision for us. We are open-minded. We will see where the data takes us.

“You need to see the impact across a broader array of your product. You need to do it over a period of time. You can't just base it on two or three movies. We want to try in a few other markets that have different retail characteristics. It makes a difference what kind of market it is. Whether there are a lot of Wal-Marts in the area, a lot of Best Buys or not.

“We want to really be sure that the tests validate an important move. Once you make the move it is hard to go back.”

Todd Zaganiacz, president of the National Entertainment Buying Group (NEBG), which comprises about 300 independent video retailers, said he wasn't happy with Warner apparently circumventing traditional rental with VOD.

“They have never been afraid to say they hate rental and will do anything in their power to end it,” Zaganiacz said. “We feel Warner is jumping ship prematurely.”

Time Warner Cable's Hobbs said 2.3 million of the cable operator's subscribers own an HDTV, which represents more than 30% market penetration. More than 2.9 million (37.8%) of its subscribers pay for digital video recording capability.

“We take a $7 to $8 incremental service charge per DVR, so there is a great return on this product,” Hobbs said. “We are actually starting to make real money in this area, and the consumer likes it.”

He extolled Time Warner's Enhanced TV platform, which enables consumers to watch ad-supported movies and TV programming, clips and previews and trailers on-demand.

“Consumers have told us they don't mind the ads, if we give the convenience of [on-demand],” he said.

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