Premium VOD plan leaves many unanswered questions

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One of the important messages that former U.S. Senator Chris Dodd, the newly appointed czar of the Motion Picture Association of America, delivered at the inaugural CinemaCon in Las Vegas was the necessity of the studios and exhibition to work together. The two industries cannot survive and cannot achieve success without each other.

Then, later that week, word got out that four studios including Fox, Sony, Warner Bros. and Universal were moving ahead with a contentious plan to join DirecTV and others in offering major films through a premium video-on-demand service. This service would beam movies into satellite and cable-TV homes a mere 60 days after their theatrical release for a premium price of $30.

Studios are looking to use premium VOD to make up for declining DVD income, but has anybody truly evaluated how big this market’s potential is and the effect on exhibition? Theatre owners and operators totally depend on the studios for content, and anything that jeopardizes the traditional distribution pattern will most likely result in financial stress and loss of dollars for the exhibition community.

The problem facing exhibition, in addition to loss of revenue, is that the studios could arbitrarily change the time limit on movies being piped into homes. Whether or not films do play at home after 60 days, this potential threat to go to VOD even sooner is enough to make the mortar crumble on some of the new and fantastic cinemas being erected.

We all know that people go to the movies because they like to be entertained, and the question is whether they will pay more for a regular VOD title just to see it 60 days earlier. The jury is out whether or not there is enough incentive to make an individual want to pay a high price for the privilege of watching a relatively new title at home.

Other analysts echo the view that this price point might be too high for mass appeal and should have limited fallout for box office. Various executives in the business say this plan will mostly involve films with decent buzz that have people frustrated they missed them in theatres.

PricewaterhouseCoopers just released a study that casts serious doubt on consumers’ willingness to pay for movies on digital platforms. The PwC study surveyed 202 adults who engaged in piracy, and found that 76 percent of respondents said they are “somewhat willing” to pay a nominal fee if the content can be accessed closer to its release date. But consumers are willing to pay no more than $3 to download a movie and less than $1 for a TV program. This same group stated that even if the pricing was remotely comparable, two months is too long to wait, and of those willing to pay, 83 percent want the content within one month or less.

What will be the effect of the new VOD policy on piracy? The same PwC study also revealed that 81 percent of those polled are at least somewhat likely to use pirate websites over the next six months. The study also revealed that the proliferation of legal ad-supported websites like Hulu is contributing to increased piracy. Such sites are causing confusion as to what is pirated content and what is legitimate, free content.

So the next question is: What is the financial impact of the new VOD window? Some feel it will result in modest incremental revenues to the studios and not much impact on exhibition now, but no one is projecting results if the studios close the window even further.

The movie industry must protect its relationship with exhibition and should monitor very closely the premium-VOD test runs and the resulting financial effects. Some executives feel that the studios are being shortsighted. If it ain’t broke, don’t fix it. Why kill the goose that lays the golden eggs?

CinemaCon’s Impressive Debut

A major highlight of the calendar year for the motion picture industry is their annual gathering in Las Vegas in March. The inaugural show from the National Association of Theatre Owners certainly did not disappoint. CinemaCon met the expectations of those in attendance and was hailed as a major success for NATO. There were few hiccups, but nothing that cannot be fixed in the months ahead.

This editor has attended his share of conventions over the years and found the following aspects of CinemaCon to be most informative and unique:

* Chris Dodd, CEO and chairman of the Motion Picture Association of America, delivering his first speech as head of the organization.

* James Cameron providing a groundbreaking demonstration of the advantages of shooting a movie with a higher frame rate than the 24 frames per second that has been standard since the silent era.

* Outfitting the Colosseum at Caesars Palace with state-of-the-art equipment and turning the venue into a wonderful location to show footage and films to the entire delegation at one time.

* Operating a trade show on two levels with suites on a third and being able to direct all the attendees to the right location.

Exhibition and distribution were getting on famously until the story broke about the four studios joining with DirecTV to send films by satellite and cable into homes 60 days after their theatrical release. Not that it was a surprise to anyone, but the breaking of the story was quite distracting and ill-timed by distribution.

But even that mishap could not deter CinemaCon from ending on a high note with their first awards ceremony. Congratulations to all those who made the convention a success.