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Premium VOD is a Train Wreck Though It Just Doesn't Matter

April 22, 2011
By Will Richmond

Yesterday marked the official launch of "Premium VOD" by DirecTV, a plan under which movies will be released just 60 days after their theatrical opening (half the usual time) for 48-hour rental by subscribers for $30. The first movie being offered this way, which DirecTV dubs "Home Premiere," was Sony Pictures' "Just Go With It" starring Adam Sandler. Three other studios, Warner Bros., Universal Pictures and Fox have already signaled their intent to release movies on Premium VOD with DirecTV and other pay-TV operators who have expressed interest.

Theater owners and the Hollywood creative community are livid about Premium VOD, which they perceive as paving the road to cannibalizing theatrical attendance which would in turn harm a movie's overall economics, creating a dangerous downward spiral. In addition, there's concern that if consumers switch to watching movies on the small screen then the creative license implicit in a big screen emphasis will get squeezed. While their concerns are completely justified, the good news for them is that Premium VOD will be lucky to achieve even minimal success. Instead it will more than likely end up being a short-lived experiment that will have virtually no impact on larger Hollywood dynamics. Here's why:

Price/value isn't compelling - The biggest issue Premium VOD has is that its price/value ratio isn't compelling. Yes, I agree there are some families for whom staying home and watching Premium VOD will be perceived as a better value than going to the theater, and will switch. But they are in the minority. Anyone with young kids will attest that going to a matinee is a real treat; even those with tight budgets will be hard-pressed to tell their kids that from now on, we're staying home. And positioning a movie as costing $30 induces a sense of "sticker shock" causing the buyer to re-consider the break-even costs of just going to the theater instead. In the battle between low-price and high-convenience, low-price is going to win. Getting movies sooner just isn't worth it to most people. Once they missed a movie in the theater, its value drops accordingly.

Niche market appeal - Once you get beyond families, the Premium VOD value proposition is even sketchier; outside of expensive major metros, the equivalent amount will buy 2-3 tickets plus a snack. So who's Premium VOD really going to attract? I'd love to see the studios' research on who the target is. It's hard to believe it's very broad.

Movie options are abundant and relatively cheap - Studios seem to believe that making movies available sooner in the home will attract demand. But the problem is that there are already so many choices for watching movies in the home - pay-TV, Netflix, iTunes, Amazon, Vudu, etc. etc., that it will be very hard to break through the noise, solely with a "sooner" positioning, which is more than offset by a ridiculously high price point. Consumers are savvier than ever; they'll quickly realize that they can get the same movie for $4-5, a sixth to a seventh the price of Premium VOD, just by waiting a couple more months for it to appear on pay-TV or online VOD.

Pay-TV operators will lose interest quickly - In my first review of Premium VOD last September I noted that it would be a public relations dead end for pay-TV operators. Pay-TV is already perceived as expensive, an image that is only increasing as low-cost services like Netflix and Hulu Plus gain traction. Promoting an expensive new product like Premium VOD only further paints pay-TV operators as greedy and tone-deaf to their subscribers' recession-driven budgetary constraints. The last thing pay-TV operators need at this point is to give subscribers another reason to consider cord-trimming or cord-cutting to save money. Some operators may be willing to experiment while others will wisely stay away. Even for those in the former category, as Premium VOD interest is shown to be tepid, they'll quickly move on.

Put it all together and Premium VOD looks ill-considered and totally unlikely to offset declining DVD sales, which is its main goal. At best it will be a minor revenue source for studios and at worst a complete distraction from the bigger issues of optimizing a movie's economics in a digital world.

Maybe I'm missing something big here, but my guess is that by this time next year it's very unlikely we'll be discussing Premium VOD any more.

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