DirecTV Eyes Premium VOD Launch

3 Mar, 2011 By: Erik Gruenwedel

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DirecTV appears set to become the first distributor offering early theatrical releases in the home through premium video-on-demand, or VOD, beginning this summer.

The El Segundo, Calif.-based satellite operator would offer select 20th Century Fox, Sony Pictures and Warner Bros. movies four to eight weeks after the theatrical release, and at least a month before the retail street date, according to the  Los Angeles Times.

Premium VOD is the latest studio initiative aimed at offering homebound families (especially with young children) major studio release digital rentals priced from $25 to $30. Fox and Warner have long championed the nascent high margin platform as a means of upping home entertainment revenue and offsetting declining disc sales.

Walt Disney Studios Home Entertainment, which recently upped the wholesale disc to Netflix and kiosk vendors, is considering offering premium VOD titles as well. The studio last year made waves when it expedited the retail release of Alice in Wonderland at the expense of theater operators.

Lionsgate president Steve Beeks, in a recent conference call, said the minimajor would also consider premium VOD following further market observations.

In a Feb. 23 analysts’ call, DirecTV CEO Michael White said the company would begin testing premium VOD this summer. Needless to say, theater operators are not in agreement with senior executives at Regal and AMC — the No. 1 and 2 domestic theater operators — saying they would not screen titles earmarked for premium VOD.

"If a film has a four- to six-week 'window' to a home, we're not going to give it screen time," Regal CEO Amy Miles told the Times.

Merriman Capital analsyt Eric Wold believes theater operators will draw a firm line in the sand that he said studios are unlikely to want to cross given the substantial box office revenue and marketing buzz that theatrical releases generate.

“Remember there was even a potential boycott of … Alice in early 2010 when Disney discussed releasing the movie to DVD at 12 weeks after its theatrical release instead of the typical 16 week time frame,” Wold wrote in a note.

Time Warner CEO Jeff Bewkes and Bob Chapek, president of distribution at Disney Studios, contend major box office releases generate the bulk of their revenue in the first weeks of release and maintaining the three- to four-month theatrical window for the sake of tradition is unfeasible in the current economic climate.

Indeed, analyst Richard Greenfield with BTIG Research in New York said studios should up by at least 10% rental fees charged theaters to screen movies beginning in the summer.

Wold counters the studios would be the bigger losers should theater operators boycott premium VOD titles when factoring in the millions spent in production and marketing costs for a major blockbuster release.

“[Ticket sales] are typically the largest portion of revenues generated from a release and are also used to determine the value of downstream revenue sources (most notably cable and free TV release),” Wold wrote. “In addition, exhibitors have hundreds of other movies to choose from to put on their screens to replace that movie.”

Finally, Wold, whose clients include theater operators, questions consumer demand for premium VOD, arguing it represents a niche market at best.

“We continue to believe there will only be limited demand for premium VOD — especially given that the movies will be released on DVD as early as a few weeks later which can be rented for as little as $1 a night,” he wrote. “We are not concerned about any meaningful impact to box office results, especially given the risk of complete loss of theatrical box office revenues if studios step on the exhibitors' toes too hard.”
 

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