Can Premium VOD Make Up for Losses at the Box Office?

movie theater

Hollywood is faced with a dilemma: how can the industry get more people to watch the movies that its studios produce? As consumers increasingly have more options available with which to entertain themselves and ticket prices continue to increase, taking a trip to the local theater megaplex to see a movie is falling out of favor. So studios are trying to reach people in their homes instead, with a video-on-demand offering that will make movies available through cable systems at the same time they’re in the theater. But will the plan work?

BTIG Research analyst Richard Greenfield notes that ticket sales over the last 10 days are down some $140 million, or 28 percent from the same period last year. With a blizzard keeping many on the East Coast bundled up inside, we can expect sales to continue to decline in the final week of the year. Sales are down 8 percent quarter-to-date and could finish down 9 percent if the trend — and the blizzard — continue. But more disappointing than the weak ticket sales is weak attendance; according to Greenfield, at the same time, that attendance is down 12 percent in the quarter so far. It’s clear that even with higher ticket prices due to the premium placed on 3-D movies, studios aren’t able to make up for the drop in attendance.

Part of the reason for the decline, of course, is simply that box office sales in December 2009 were buoyed by the release of 3-D masterpiece Avatar. That film more or less singlehandedly kept box office sales afloat during what was an otherwise lackluster holiday movie season last year. Take Avatar out of the final month of the year, and holiday ticket sales in 2009 would probably be just as anemic as this year’s.

The decline has some Hollywood studios seemingly giving up on theaters altogether. Those studios are looking to boost sales by offering consumers some first-run movie fare in the home, through so-called “premium VOD” offerings that could launch early next year. The initiative would allow viewers to rent films through their cable provider at the same time titles are available in theaters, for around $30 or $40 a movie.

Theater owners are strictly against the proposal, of course, as they believe premium VOD could cut into already anemic ticket sales. Some have threatened to cut distribution of movies that end up in the premium VOD window. All of the discussion about whether or not the theater chains will cede to studios’ interest in the new window overlooks the question of whether or not consumers will actually use such a service.

For families, premium VOD could actually be a reasonable value proposition by making a film viewing less expensive and more accessible than packing up the car with several kids and paying for tickets, popcorn and candy. But for most people, paying $40 to rent a movie in the home might not seem like such a great plan when there are plenty of other entertainment outlets available to them.

Hollywood is suffering from increasingly fragmented attention of its audience, for sure. But its bigger problem might be that the movies it is offering up just aren’t very good. When a movie like Little Fockers tops the box office, it’s clear that Hollywood needs to work on its quality control a bit before it starts to concoct new ways to get former moviegoers to pay for new films.

Photo courtesy of Flickr user Hey Paul.

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