Analysts Predict Studios' Premium VOD Plans Will Have Limited Impact
A niche product in search of a market. That is how Piper Jaffray analyst James Marsh describes studios' plans for a $30 premium VOD service that would beam films into satellite and cable TV homes 60 days after their theatrical release.
The lack of nationwide availability of the necessary technology, the high price and consumers' perceived lack of interest in paying up for but a few titles offered to them slightly earlier are among a range of arguments analysts and observers cite as hurdles for the planned service. Plus it runs the risk of alienating key studio partners -- exhibitors, directors and unions whose members get paid based on theatrical revenue.
With details emerging at CinemaCon in Las Vegas last week that Time Warner's Warner Bros., Sony Corp.'s Sony Pictures, NBCUniversal's Universal and News Corp.'s 20th Century Fox will launch the offer with DirecTV under the brand Home Premiere in April, industry watchers started discussing the potential impact on the film business, its financial balance of power and the relationships that currently underpin it.
Studios are looking to use premium VOD to make up for DVD weakness, but how big is the market potential?
"It's not clear to me who the market for this product is," said Marsh. "I hear studios talk about people who wanted to see the movie but couldn't get a babysitter. But in general, people who go to the movies go for other reasons than just to see the movie. They want to get out of the house or see it in Imax or 3D or go on a date. The bulk of cannibalization would probably come not from the theatrical window but from VOD. The studios will up-sell some people who would normally pay $5 for regular VOD releases."
Marsh predicted that only a very small number of people will be incremental viewers of a movie in the premium VOD window.
"I think that's a tough sale," he argued. "There's a tremendous amount of content that people have missed in movie theaters, and I'm not sure what the incentive is to pay six times what you would pay for a regular VOD title just to see it 60 days earlier [than on regular VOD]. It's going to be a marketing problem. I think it's a very small group of people that will want to see that -- maybe if they have a bunch of people over at their house and they can justify the price that way."
Other Wall Street observers polled agree. "We view this as a too-high-for-mass-appeal price point that should have limited fallout for box office," Wunderlich Securities analyst Matthew Harrigan wrote in a report last week titled "Spartacus Revolt at Caesars Palace." "Despite this, the exhibition window, particularly with international growth, should continue to become more rather than less pivotal to the studios for both value-determinant marketing and eyeball-counted initial receipts."
Early talk about likely premium VOD test titles has focused on Sony's Just Go With It, Fox's Cedar Rapids and Warner Bros.' Hall Pass. Why no blockbusters? "The content that's most spectacular like Harry Potter in 3D will all look better on the big screen," suggested Marsh. "It's going to be mostly films with decent buzz where people are frustrated they missed it in theaters -- something like Inception."
But will consumers shell out $30 though to see a movie 60 days after its theatrical release and 60 days before it hits the regular cable VOD window? PricewaterhouseCoopers found in a recent study on attitudes towards the availability of video content that 71% of consumers said the timeliness was not a priority for them and that they would have no interest in paying more to see the movie sooner. More than 70% of respondents told PwC that they are willing to wait three months or more for rental availability rather than pay a premium to see the movie sooner, with reasons ranging from not being in a hurry to not having the capability or convenience.
PwC said that those people who were ready to pay wanted to shell out no more than $3 to download a movie -- and it would have to be available within a 30-day window. "Many consumers said if they really wanted to see the movie, they would have seen it at the theater," the firm said.
Asked about potentially purchasing a disc after leaving the theater or within two weeks of the theatrical release, the willingness to pay a premium reached 36% and 38%, respectively. After a two-week window, the willingness to pay a premium dropped off, with 26% saying they would be willing to pay after one month.