Market Watch

Premium VoD to Launch in 2011

November 19, 2010

Laura Aguilera Laura Aguilera Senior Research Analyst, Service Providers & Platforms
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Time Warner has reaffirmed its commitment to launch a premium video-on-demand (VoD) service in Q2 2011. Premium video-on-demand, known also as 'home-theater on-demand', enables viewers to watch movies at home 30-60 days after theatrical release date, and weeks or months before release on DVD, Blu-ray and standard video on-demand (VoD). The company plans to charge consumers from $30 to $50 per film, which will be available in HD and eventually in 3D.

The films would be made available in a partnership with iN DEMAND, the on-demand cable content aggregator owned by Comcast, Cox, and Time Warner Cable, which reaches 40m households. Premium VOD is also likely to be made available on other platforms including connected devices such as the Xbox console and PlayStation 3, and online movie services operated by retailers, such as Wal-mart's Vudu.

Hollywood Studios have seen revenues from DVD sales decline steadily this year, and are working hard to find new sources of income. With a new proposed premium VoD service, studios hope that they can capture a big ticket price without adversely cannibalizing theatrical revenues. Typically, theaters enjoy a 120-day exclusivity period before movies graduate to physical disc and day-and-date VOD. The proposed Premium VOD window would shorten the exclusivity period 30 to 60 days. The appeal of the premium VoD concept to studios is its high premium price. At the reported 80 percent studio participation, the $40 premium VoD ticket would yield $32 for a studio. That is double the $16 wholesale price of a DVD; 60 percent higher than the $20 studios get from a Blu-ray sale, which are today, by far, the highest per transaction studios enjoy in any pipeline.

Premium VoD however still has to prove itself as a consumer proposition. It is unlikely the consumer will be willing to pay a premium price for a single viewing in the home for every title. It is more likely that movies will see different degrees of popularity in this window on a title-by-title basis. Moreover, early access to titles in the home also carries the potential to promote piracy, raising the specter of in-home 'cam' copies for example -- versions recorded directly from the living room TV screen using a video-camera.

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