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Will Premium VOD Be A Premium Flop?

Movie studios are looking for even more ways to gouge audiences, and now are keying in on creating a new window that would enable viewers to watch recently released films without going to the movie theater — but for a higher price. With a new proposed “premium” VOD service, studios like Sony Pictures, (s SNE) Warner Bros. (s TWX) and Disney (s DIS) hope that they can capture the at-home viewing audience while still maintaining the high cost of watching a movie on the big screen.

The studios are currently in talks with VOD firm In Demand to make movies available to cable customers some 30 to 60 days after they open in theaters. Premium VOD offerings would cost anywhere from $20 to $30 a showing, compared to the $5 a piece for traditional VOD titles, and average ticket price of around $8 for watching the movie in a theater.

In Demand is a partnership of cable heavyweights Comcast, (s CMCSA) Time Warner Cable (s TWC) and Cox Communications and serves multiple cable providers with VOD services. By partnering with the company, the studios could get at-home distribution to tens of millions of households. According to a report by Bloomberg, Disney is also in discussions with consumer electronics manufacturers to make its titles available in the same window on over-the-top video services.

But the premium VOD offering faces several challenges: for one thing, the plan alienates theater owners, which are already unhappy with the way that the studios have handled the DVD release window. Earlier this year, theater owners threatened to revolt against Disney for planning to release the film Alice on DVD three months after its theatrical release, as opposed to waiting the usual four months. Creating a new window that threatens to take away more potential theater revenue would only cause more friction with exhibitors.

Creating another premium-priced window could also alienate consumers, who are already dealing with rapidly increasing viewing costs. The average movie ticket price increased 8 percent over the last year, and consumers are showing their dissatisfaction by voting with their feet. Despite a higher take at the box office over the summer, fewer people actually went to the movies, as U.S. summer movie attendance in 2010 was at its lowest point since 2005. Much of that increase is due to the growth of 3-D movie watching, but the higher prices are already starting to cause some backlash.

More importantly, the at-home audience already has a wealth of choices at its disposal without having to resort to what amounts to a $30 rental of a film, even in a “recently released” film window. While theoretically the cost of a $30 VOD purchase is lower than the cost of a family of four going to the movies together — especially when one considers the cost of concessions, etc. — that $30 VOD rental will be compared to a $5 VOD rental through the same service. As a result, the amount of potential consumer demand is bound to be limited.

Offering a new, higher-priced VOD service may seem like a good idea to the studios — after all, they’re creating a new product with higher margins and trying to appeal to an audience that is more inclined to stay at home and view content on demand than go to the theater. But by selling it at such a premium, they’re not appealing to the budget-conscious folks that they’re trying to appeal to at all. And meanwhile, they’re annoying their usual distributors in the process – all of which sounds like a recipe for disaster.

Photo courtesy of (CC-BY-SA) Flickr user tnarik.

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10 Responses to “Will Premium VOD Be A Premium Flop?”

  1. This has to be one of the dumbest ideas I have heard. THis is going to make the Hindenburg and Challenger disasters look small when it fails. I only go the movies a couple of times a year because I think they are too pricey. I would never buy a $20-$30 showing of a movie. Particularly when I can just download it. The executives at these firms who come up with these ideas must all be high school drop outs. haha

  2. Shok Me

    The only way people would pay this amount is if it was offered in conjunction with the theatrical release.

    For myself I only go to the theater if the movie is 3D IMAX something I can’t duplicate at home. As many films are talking heads, I simply wait for them to appear later on DVD, cable, or VOD.

  3. Where did you get an average ticket price of $8? Any metropolitan area is seeing ticket prices at least 50% higher than that. Cost for a couple to see a first run movie? At least $24. You want to take the kids, too? Tack on another $20. Popcorn and drinks? Another $20.

    The last time the wife and I took the kids to a movie it ran us close to $75. $20-$30 seems downright cheap. It won’t be simultaneous release, which would be better, but we rarely go to movies on opening weekend anyway.

    The price won’t be for everyone, but people said that about $5 VOD titles when you could get a Blockbuster account or Netflix subscription. Doesn’t seem like that has really been a problem.

  4. Paul Sweeting

    It might not have been an epic fail (and still might not be) had the studios introduced a premium VOD window three years ago, at a price in line with what a Blu-ray disc costs, as some in the business were urging at the time. Market conditions were different, Netflix’s streaming app was just beginning to appear but was not yet ubiquitous, even Redbox was still a relatively small player. It might yet have been possible to establish a reasonable value proposition in the minds of consumers around an early (30 days post theater) home-theater window at a premium price. True, they would have faced serious opposition from theaters and Blu-ray retailers but no more so than they’re going to face now anyway.

    Unfortunately (but predictably) the studios let their obsession with piracy once again cause them to miss the opportunity. Instead of moving when market conditions were ripe, and the strategy obvious, they wasted years trying to push a petition through the FCC to close the analog hole by letting them use selectable output control. And of course now that they’ve finally gotten what they want on SoC, the HDCP hack has opened a digital hole.

    More critically, Netflix and Redbox are now everywhere, Apple and Google have entered the video distribution business, bringing their own strategic priorities with them, consumers’ price expectations for on-demand access have changed and market conditions are much less promising.

    That’s what happens when you base your strategy on downside protection instead of upside opportunity. But, hey, at least the analog hole is plugged.

  5. You make great points, Ryan. Personally I think this plan serves too many masters. Either help the theater owners, or help the consumers for whom the theater is not always the best way to enjoy a film.

    For myself, I love the theater for event movies, but many times I find myself at the theater, having spent way too much money to get the whole family in, wanting to kill a guy near me talking on his cell phone. For those occasions I’d love to have paid $30-$40 to enjoy it at home. But waiting too long to do so ruins the fun for me.

    It’s a tricky market. Many of us have spent a great deal of money to create home theaters with excellent quality. The movie industry obviously wants to figure out how to get higher dollars by tapping into the money spent by those folks who sometimes get a better experience at home.