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Premium VOD: Will Studios Blink First?

12 Apr, 2011 By: Erik Gruenwedel

Following another underwhelming weekend box office, studios and theater operators appear resolute on a faceoff in the coming weeks over premium video-on-demand (VOD) – a standoff some observers believe studios will back away from.

Movies Just Go With It (Sony Pictures Home Entertainment), Hall Pass (Warner Home Video) and The Adjustment Bureau (Universal Studios Home Entertainment) are reportedly set to bow later this month on DirecTV for $29.99 – just 60 days after their box office debuts.

With Sony now apparently reconsidering offering Adam Sandler’s comedy Just Go With It weeks before its June 7 retail disc date, according to Los Angeles Times’ columnist Patrick Goldstein, others say the budding release window could be stillborn as studios second-guess alienating exhibitors.

Eric Wold, director of analyst with Merriman Capital in San Francisco, said the studios have the most to lose forging ahead with premium VOD in light of the fact they have fronted much of a movie’s production and marketing costs. He believes those studios determined to roll out premium VOD (notably Warner) would concede rental splits to exhibitors.

“We believe studios have the most to lose from either reduced movie awareness (trailers, posters, etc.) or absolute boycotts of individual films [by theater owners AMC, Regal and Cinemark],” Wold wrote in a note.

The analyst said such a stance could ultimately produce improved rental margins for theater owners. Wold believes just a 1% improvement in film rental costs could generate $22 million in pre-tax earnings for Regal, $17 million for Cinemark and $4 million for Carmike. Film rental costs among the top four exhibitors represent 53% to 55% of admissions revenue, the analyst said.

“We would not be surprised if premium VOD plans are curtailed (e.g., limited to non-blockbuster or independent films) or abandoned completely after all is said and done,” Wold wrote.

Studio representatives were not immediately available for comment.

Regardless, Goldstein said introduction of the nascent premium VOD window would sow the seeds of uncertainty among a moviegoer already confronted with recessionary spending habits and evolving home entertainment options, such as $1 kiosk disc rentals and Netflix streaming.

“Trying to get consumers to pay more to see a film 60 days out isn’t a new window of opportunity,” Goldstein wrote. “It’s just a bad idea.”


About the Author: Erik Gruenwedel

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