NATO CEO: Premium VOD Tops Theatrical Challenges

13 Jan, 2011 By: Erik Gruenwedel

Premium video-on-demand and piracy rank the two biggest challenges facing movie theater owners in 2011, according to John Fithian, CEO of National Association of Theater Owners.

Speaking Jan. 13 in a conference call hosted by MKM Partners manager director Eric Handler, Fithian said studio efforts to bolster declining home entertainment disc sales through premium VOD presents a greater risk to the industry than softening theatrical admissions, which fell 4.8% in 2010.

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.

“We certainly understand the desire of the studios to improve their home entertainment movie revenues,” Fithian said. “The danger of course is if a [business] model is constructed that invades the theatrical window too far … the studios really risk losing two dimes to make one nickel. If they go way too early [to home entertainment] the decrease in cinema sales is one dime.”

Fithian said research indicated that additional consumer options to watch movies in the home actually increased theatrical attendance as well. He said home entertainment is not a threat to theatrical if the windows are enforced.

The CEO said theater owners hope studios work collaboratively to roll out premium VOD in an accretive manner and not just launch premium VOD on their own.

“That’s a bad scenario,” Fithian said. “It is not in anyone’s interest to damage the cinema business.”

He said the theatrical window has been the strongest part of the “movie pie” in recent years. “That wasn’t the case five years ago when DVDs were selling like hot cakes.”

The executive said piracy, whereby new releases are illegally recorded in theaters, burned to discs or put on the Internet, continues to cost the domestic theatrical business upwards of $600 million annually in lost revenue.

Fithian said 3D movies would continue to drive the industry in 2011, provided the quality remains on par with the hype. He said the number of digital screens capable of handling 3D movies increased from 3,400 at the beginning of 2010, to more than 8,000 at the end of the year. There were 29 movies released in 3D last year, with more than 31 slated thus far in 2011.