By : Erik Gruenwedel | Posted: 05 Oct 2009
egruenwedel@questex.com

With speculation escalating about a possible majority-share acquisition of NBC Universal by cable giant Comcast, analysts say fallout from the deal could result in a change of release windows for packaged media.

Reports suggest Comcast and NBC Universal, the latter owned by General Electric, would form a new entertainment company that will control Universal Pictures, Universal Studios Home Entertainment, NBC television affiliates, a 30% stake in Hulu.com, and cable channels Bravo, Syfy, E!, USA Networks and Telemundo, among others.

Indeed, pre-acquisition fallout included the departure of Universal Pictures chairmen Marc Shmuger and David Linde, who were replaced Oct. 5 by Adam Fogelson as chairman and co-chair Donna Langley.

Separately, television executive Rich Ross was named chairman of Walt Disney Studios by CEO Bob Iger to replace Dick Cook, who was let go Sept. 18. Ross, who reportedly helped turn around the fortunes of Disney’s cable operations, will oversee units Touchstone, Miramax and Disney/Pixar, in addition to Disney stage and music productions.

With a 51% stake in Universal’s filmed-entertainment business, Comcast’s clout on reworking of packaged media’s standing on the distribution food chain cannot be ignored.

“Sounds scary,” said Richard Greenfield, analyst with Pail Capital in New York, regarding the impact on DVD and Blu-ray.

With more than 25 million subscribers, Comcast has been an early proponent of new-release movies available through video-on-demand (VOD) the same day as DVD, underscored by ongoing tests conducted with Warner Home Video, Lionsgate and other studios and cable operators.

Michael Nathanson, senior analyst with Sanford Bernstein in New York, said the cable leader would aggressively position new releases movies for on-demand viewing in high-definition ahead of DVD and Blu-ray Disc at a premium price.

“Charge consumers $7 to $10 per title for the exclusive right to watch a film in HD on their couches without having to drive to Blockbuster or a Redbox kiosk,” Nathanson said in a research note. “No doubt, Warner Bros., and maybe Fox, will [follow].”

The analyst said Comcast would have to improve the VOD interface, which heretofore has contributed to lukewarm consumer adoption of VOD. Nathanson said box-office blockbusters, which have maintained their retail sales and margins despite the recession, would continue to be released on Blu-ray and DVD day-and-date with VOD.

Movie rentals, however, have been a perennial thorn to studios whose margins on packaged media pale in comparison to cable VOD and electronic distribution. With the emergence of $1-per-day new release rentals at Redbox and other kiosks, Comcast/Universal would be more inclined to try pre-DVD electronic distribution at a premium price, Nathanson said.

Indeed, Jeff Bewkes, CEO of Time Warner, parent of Warner Home Video, in previous financial calls, said an electronic sellthrough title generates $13 to $14 in studio contribution compared to about $10 for DVD. The return is even better with rental, where studio contribution ranges from $2.80 to $3 for electronic compared to 75 cents to 80 cents for DVD rental.

“That is a pretty good trade,” Bewkes said.

 

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