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Analyst: Premium VOD to Have ‘Minimal’ Impact

4 Apr, 2011 By: Erik Gruenwedel

The planned rollout later this month by DirecTV of select movies on premium video-on-demand eight weeks after their theatrical release will have minimal, if any, effect on Hollywood’s distribution food chain, an analyst said.

Premium VOD represents studio efforts to create a new distribution window whereby homebound consumers (notably young families with children) could access new releases (for $30 a title) weeks or months before they are available in traditional packaged and digital media.

Yet, the rollout, which has theater operators bristling with contempt, is coming at a time when 2011 box office revenue and attendance are down 20.3% and 21.5%, respectively.

Indeed, despite the opening theatrical success for Universal Pictures’ animated Easter film Hop, the top 12 movies for the April 1 to 3 weekend generated less than $123 million in combined revenue — down 27.1% from the same weekend last year, according to industry figures.

Those numbers don’t portend success for premium VOD considering the platform’s price point is nearly 75% above the average theatrical ticket. And if consumers are gravitating less towards the movies studios are making, conventional wisdom asks why would they pay a premium to watch them after the theatrical release?

“We continue to believe the consumer demand for this offering will be extremely limited and have minimal, if any, impact on either theatrical box office or home video revenues,” Eric Wold, director of research with Merriman Capital in San Francisco, wrote in a note.

Wold says most of the “risk” associated with premium VOD will be limited to media headlines and not theater operators’ bottom lines. He said of the top 20 movies released in 2010, all generated 97% of their box office in the first two months of release. Indeed, the analyst remains bullish on 3D releases, saying the format will encompass 30% of theatrical revenue this year, compared with 21% last year and 11% in 2009.

Regardless, former Disney/Fox executive Bill Mechanic told Bloomberg News limiting movies to a higher-margin singular distribution window would be “completely destructive” to the overall film business. He said premium VOD represents a “myopic” view of distribution, in that its merits have not been thought through.

Instead of creating a cannibalistic window, Mechanic said studios should focus on making movies that satisfy audiences rather than internal cross-platform marketing campaigns.

“If I get $30 for a movie [on premium VOD] and I wipe out theaters … wipe out DVD and wipe out everything and I just have the one business, then only a few movies will work and those will be the biggest and best known,” Mechanic said.

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