One analyst called it the "nuclear winter scenario" for Netflix.
Late yesterday, the LA Times reported that Cinemark, the 3rd-largest theater chain in the U.S., will boycott "Tower Heist," the new Eddie Murphy-Ben Stiller comedy, because of a test unveiled by its studio Universal Pictures to offer the movie just 3 weeks after its theatrical release for $60 on video-on-demand. Cinemark is concerned that the test would cannibalize box office sales. From my perspective, it needn't worry much as the test is likely to be yet another flop in what has become known as "Premium VOD."
Premium VOD, whose aim is to collapse the theatrical window from its typical 16 weeks in order to offer a high-priced VOD option, officially kicked off last April, when DirecTV introduced its "Home Premiere" option with Adam Sandler's "Just Go With It" for $30 just 60 days after it opened. At the time both Warner Bros. and Fox also expressed interest in the idea (in this Variety interview Warner execs laid out the rationale for Premium VOD). Fearing the adverse impact to box office, theater owners and the creative community strongly criticized the move.
However, something funny happened after Home Premiere's launch: DirecTV never said anything about its results or whether it considered the effort a success. That's likely because it was a flop, just as the "Tower Heist" plan will be. As I wrote at the time, Premium VOD suffers from at least 4 key flaws, its price/value isn't compelling, particularly in the still-struggling economy, it appeals only to a niche market, it flies in the face of abundant, cheap movie viewing options, and pay-TV operators stand little to gain and therefore will quickly lose interest.
All of this remains the case with "Tower Heist" and then some; if $30 was too much to charge, $60 is completely off the mark for consumers accustomed to $4.95 VOD rentals and $15 DVD purchases. Yes, there are the cases where a large family could opt to stay home and watch via Premium VOD and have it be more cost-effective than going to the theater, but that's a very small opportunity, hardly worth roiling large theater owners like Cinemark.
Facing declining DVD sales, studios are justifiably eager to find new replacement revenues. But rather than charging higher prices for earlier access, they should be working aggressively to make movies ever more convenient to consumers. This week's news that Microsoft's Xbox 360 gaming console will soon include VOD programming from Comcast is the kind of effort studios should be backing more aggressively, as well as new ownership models supported by initiatives like UltraViolet.
Charging higher prices for earlier access is just a distraction for the Hollywood community at a time when it should instead be laser focused on how new technologies and platforms can help it build relationships with movie fans.