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Analyst: Down 4Q Box Office Could Expedite Premium VOD

27 Dec, 2010 By: Erik Gruenwedel

Studios could accelerate rollout of premium video-on-demand (VOD) next year as fourth quarter box office results continue to disappoint, an analyst said.

Premium VOD is Hollywood’s newest marketing effort aimed at generating higher margins from consumers willing to pay extra to watch select theatrical releases in the home 30 to 60 days before the disc release.

Following a 45% drop in Christmas weekend box office revenue, fourth quarter revenue ($2.2 billion) through Dec. 26 is down 8.5%.

The holiday weekend was led by Universal Studios’ Little Fockers, which generated an estimated $34.1 million compared with behemoth Avatar (Fox) with $86.5 million in ticket sales during the same period last year.

This year’s Christmas three-day weekend had one less day than in 2009, which ended on Dec. 27.

Regardless, with the 10-day box office (Dec. 17-26) down 28.1% from last year during the key holiday movie period, studios will be hard pressed to maintain their four-month release windows, according to analyst Richard Greenfield with BTIG Research in New York.

“We continue to expect multiple studios to begin trialing early-release, premium-priced VOD by late [first quarter],” Greenfield wrote in a post.

Indeed, Time Warner CEO Jeff Bewkes has said Warner would roll out initial premium VOD releases in the first quarter without impinging upon the theatrical window. Bewkes earlier this month stressed the significance of theatrical distribution for introducing movies to the public and whetting the appetite for 3D movies, especially among the coveted 18-to-34-year-old demographic.

“We think we can come up with an incremental, serve-the-consumer kind of offering that does not undervalue theatrical content and the consumer view of what that value is,” Bewkes said.

Year-to-date overall box office revenue is up 0.5%, an increase that is largely attributed to more expensive 3D tickets ($3.25 average surcharge) and not theatrical attendance. In fact, the number of consumers going to the movies in the fourth quarter is expected to drop 12% from last year – a decline Greenfield characterized as “staggering” for studios increasingly dependent on 3D technology to get people to go the movies.

The analyst said that with the exception of Alice in Wonderland and Toy Story 3 (both Disney), and Despicable Me (Universal), 3D releases underperformed in 2010.

“Did a Jack Black comedy, Gulliver’s Travels really need to be in 3D?” Greenfield wrote. “We suspect even if the movie was bad, lowering pricing (to 2D levels) would have ended up selling more tickets.”

Eric Wold, analyst with Merriman Curhan Ford in New York, said 3D releases generated 24% of box office revenue in the first quarter; 19% during the second quarter; 16% during the third and 23% through Dec. 26.

“We now believe 3D is on track to generate about 20% of the total box office during 2010 (down slightly from our latest projection update of 21% set in September — due mostly to poor overall box office results from Yogi Bear and Gulliver’s Travels),” Wold wrote in a note.

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