Analyst To Studios: It’s Time To Force Early VOD On Theater Chains

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With both the theatrical and home video channels in revenue decline, and amid panic that digital piracy will soon crest into a tidal wave, BTIG Research analyst Richard Greenfield says Hollywood must once and for all scrap its long-sacred policy of releasing movies in theaters several months before offering them for video on demand. It’s actually a strategy that another part of the movie business — independent films — has been using lately and with some success.

In a BTIG blog post Tuesday, the widely read analyst suggested studios release movies via video on demand the same day as they debut in theaters, and charging consumers $20 to $25 for rentals. Typically, movies these days are out in theaters for three months before they’ve available in VOD, and the window has in the past been even wider than that.

Acknowledging that a number of studios experimented with early VOD last year, only to be smacked in the press and met with boycott threats by exhibition chains, Greenfield suggested they find strength in numbers. “If more than half the studios substantially reduced the theatrical-to-home video window,” he wrote, “exhibitors would simply have no choice – they have too much debt leverage to not play half the movies that are released into theaters. No more tests or trials, studios simply need to shift their model and the exhibitor backlash will evaporate.”

Last year, Warner Bros. (NYSE: TWX), Sony (NYSE: SNE), Universal and Paramount (NYSE: VIA) endured a series of threats and public rebukes from the National Association of Theater Owners when they experimented with a VOD model that made movies like Adam Sandler’s Just Go With It available for $30 on DirecTV (NYSE: DTV) eight weeks after their theatrical debut.

The so-called Home Premiere offering on DirecTV has quietly faded away, however, with neither the participating studios or the satellite company publicly offering up any insight into how well it sold. Separately, in October, Universal announced a limited VOD trial among Comcast (NSDQ: CMCSA) cable subscribers in Portland, Ore., and Atlanta, making the Ben Stiller/Eddie Murphy comedy-thriller Tower Heist available the same day as three weeks after its theatrical release for $60. The studio scuttled the plan after exhibition chains Cinemark and National Amusements refused to book the film.

So what would cramming early VOD down the throats of exhibitors offer Hollywood? Greenfield believes it would engage a segment of the market that has stopped seeing movies in theaters and with a higher-margin transaction. While studios get to keep $4 of every $8 domestic movie ticket, Greenfield argues, they could keep as much as 80 percent ($20) of a $25 day-and-date VOD purchase. “The reality is most people who were planning to go out to the movies would still go,” Greenfield also contends.

What about piracy? Never mind creeps with camcorders in movie theaters, what happens if VOD purchasers start creating more pristine illicit copies in the comfort of their home and go into the MegaUpload business en masse? Well, nearly all of Netflix’s streaming catalog is available through online piracy, Greenfield says, but the company still gets 21 million subscribers to pay $7.99 a month.

Given back-to-back years of recession at the domestic box office – the market declined 3.7 percent last years to $10.17 billion – convincing Hollywood to risk civil war by blowing up a century-old business model might be a tough proposition. Then again, independent producers and distributors – who don’t have much leverage to lose with the big exhibition chains – are enjoying notable success with simultaneous VOD releasing.

Lionsgate (NYSE: LGF) and Roadside Productions, for example, released Kevin Spacey title Margin Call on October 21 in theaters and through VOD providers like Netflix (NSDQ: NFLX) and Time Warner Cable (NYSE: TWC). To date, the $3.5 million film has grossed more than $5 million in each of those channels.

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