Karen Raugust looks into how a number of recent video-on-demand initiatives by the studios show their interest in this still-problematic but potential-filled distribution method.
Studios are looking toward video-on-demand distribution to eventually join or even replace DVDs as a primary means of distributing feature film content into the home. They currently walk a fine line between supporting the development of VOD technologies and maintaining the lucrative DVD business for as long as possible. But several new, high-profile video downloading initiatives from Apple, Google and others are demonstrating that consumers may have an appetite for downloadable video content. The studios, too, are starting to become more active in the VOD space of late, experimenting with ways to make VOD distribution of feature films viable.
Connectivity and Convergence
Many observers predict that consumer acceptance of VOD-delivered films will grow when households are able to easily connect their television sets with the Internet. The last-10-foot issue has to be resolved, says Jim Ramo, ceo of Movielink, one of the leading Internet VOD services for feature films.
[VOD services] have to be readily available and easy to get in the living room, agrees Bruce Eisen, president of CinemaNow, another leading Internet provider of VOD films.
Several products, including software applications and set-top boxes, are coming on the market this year, which should begin to make that connection a reality. Microsofts Media Center computer, for example, can be connected to an Xbox 360 gaming device, which can be linked to both the Internet and the television, allowing consumers to download films for immediate viewing on the TV screen.
While the television offers the best option for in-home viewing of video entertainment in terms of picture quality, the Internet may ultimately prove to be a superior delivery method. Unlike cable or satellite television, the Internet effectively has no storage limitations, making it theoretically possible for consumers to access any film at any time, rather than choosing from a selection of a few hundred films that rotate on a monthly basis, as is currently the case with TV-based movies-on-demand offerings.
In addition, the Internet would eventually allow studios to create their own services rather than working with cable or satellite companies and/or aggregators such as iN Demand. (Currently, most of the studios Internet-based VOD distribution is through an intermediary, such as CinemaNow or Movielink.)
Disney has avoided working with intermediaries by creating its own VOD initiative, MovieBeam. The service was relaunched in 29 metro areas in February after being put on hold for two years after a three-city test. MovieBeam piggybacks on PBS terrestrial airwaves to deliver 10 movies a week to a $200 set-top box that can store 100 films at a time. Content is from Disney and the other studios (except Sony), and includes some high-definition titles. Consumers pay for the box, plus a one-time set-up fee of $30, plus $2 to $4 for each movie. (MovieBeam and Intel are working to develop a peripheral device to allow the films to be transferred to a computer as well.)
Currently, consumers mainly watch PC-delivered films from services such as Movielink and CinemaNow on their computers, especially on laptops used by travelers and children. Meanwhile, TV-delivered VOD movies naturally are watched on the TV screen. The latter has become an important business for cable operators such as Comcast, which is offering 300 movies a month, 90% of them at no extra charge above the monthly fees, as an incentive to attract consumers to digital television. Comcasts free-on-demand service is called MoviePass; it debuted in January 2005 through a partnership with Sony Pictures.
As the Internet and the television screen converge, all types of VOD services, whether primarily TV- or Internet-delivered, will begin to compete with one another directly, as well as with DVD and other forms of home entertainment, legitimate and otherwise. In one indication that this convergence is on the minds of VOD providers, satellite television operator DirecTV plans to launch a broadband-based VOD service in 2006 featuring 2,000 movies and other types of content; it already offers a television-based VOD service to its satellite TV subscribers.
Release Windows
Another significant barrier to consumer adoption of VOD content, according to cable companies and Internet VOD services, has been that the studios have released films for VOD in the pay-per-view window, typically 60 days or more after the video release (although all the studios release windows are shrinking). Many observers believe that having video-on-demand films available during the same window as the DVD is a critical step to encourage consumers to try VOD.
In a number of recent initiatives, film studios and VOD distributors have announced plans to offer VOD content at the time of the DVD release, or earlier. A recent example of a day-and-date release was the independent, live-action film Bubble, which debuted in theaters, on DVD and through VOD on the same day.
Typically, an earlier-release strategy goes hand-in-hand with a switch from a rental-pricing model, which has been the norm in this industry, to a pay-to-own model, also known digital sell-through. The thought is that a VOD film priced approximately the same as a DVD, and available at the same time, would appeal to film lovers. Meanwhile, consumers decision to purchase the VOD version instead of the DVD would not cut into studios profits.
Both the cable and satellite companies and the leading Internet VOD companies are reportedly in talks with the studios about earlier release windows for VOD. Eisen says CinemaNow is in negotiations with several studios to make electronic sell-through a reality on that service, for example.
A recent studio initiative is Warner Bros. In2Movies VOD service, which it announced this spring for the German, Austrian and Swiss markets. In2Movies offers permanent downloads, priced similarly to a DVD, that users can keep on their hard drive. Eventually, they will be able to burn them to DVDs or other portable media as well. The service, which is a copy-protected peer-to-peer model, will start with 80 new and catalog titles.
On the TV side, some cable companies, including Comcast, have suggested a VOD/DVD purchase model, where the customer could purchase a film through VOD and watch it immediately; the purchase price also would include the DVD, which customers would receive in a few days and be able to keep in their permanent collections.
Comcast also has partnered with IFC Entertainment, a subsidiary of Cablevision that distributes independent films, to offer four to five indie films a month on VOD, starting on the same day as their theatrical release. Beginning this March, the initiative, called IFC in Theaters, will be available in Comcasts movies on demand section for $5.99 per film.
Fox executives have floated the idea of establishing a premium window for high-def VOD films delivered via cable and satellite, with titles releasing 60 days after theatrical and available for 60 days prior to DVD. The company believes avid fans would be willing to pay $25 to $30 to see the film at home early and in high-def, especially for group viewing.
Disneys MovieBeam initiative reportedly also will include some films that are released on VOD the same day as the theatrical release.
Some analysts caution that earlier release windows, while important, do not exist in a vacuum, and that adequate promotion of VOD content is just as important. Thats both a challenge and an excuse, says Bruce Leichtman, president and principle analyst at Durham, New Hampshire-based Leichtman Research Group, of the release window issue. He notes that a sort of Catch-22 has developed, with cable companies not promoting their VOD films because of the late release window, resulting in low viewership, which in turn has acted as a disincentive for studios to agree to an earlier release date.
Clearances, Catalogs and Competition
A third piece of the puzzle that must be in place before VOD can go mainstream is the expansion of VOD catalogs, so that their number of offerings rivals those of an online or bricks-and-mortar store. We have to get our catalog sufficiently robust to get consumers excited about downloading films, says Ramo of Movielink, which offers 1,400 titles, 1,200 of which are features.
Rights clearance issues usually relate to music, Ramo explains. Films released after 1995 typically have all rights cleared, but before that no one thought about VOD and the studios have to go back and negotiate VOD rights with musicians, music publishers and other intellectual property owners. Progress is being made, and VOD catalogs are slowly expanding.
Competition in the VOD market looks like it will intensify this year. A number of well-known brands, including Amazon.com and Netflix, are rumored to be on the verge of entering the VOD market, for example. These follow several high-profile content downloading initiatives that have debuted recently mostly focusing on TV rather than film content including Apples video iPod, the Google Video Store and AOLs In2TV streaming video service, which offers classic TV shows from the Warner library through the online service.
Although there will ultimately be a shakeout once the market becomes too crowded, at this point, many in the business believe that the entrance of new players, particularly brand-name ones, will add consumers and improve everyones fortunes. Rising tides will raise all boats, Eisen says, noting that the press surrounding Apples and Googles efforts have brought new customers to CinemaNow. Theyve raised awareness on Main Street and Wall Street.
Adams Media Research estimates that consumer spending in the U.S. on VOD totaled less than $400 million in 2004. So the market has a long way to go before it becomes mainstream. Not only do the issues mentioned above have to be resolved, but fundamental changes in consumer behavior are required.
Leichtman notes that many people compare video downloading to music downloading and expect it to take off in the same way. But music has always been purchased in the form of singles, while TV content (including films) has always been available for free or subscription and not on a pay-per-unit basis. That means the industry has to educate consumers on why VOD delivery adds value and is worth the price.
It may be a decade before VOD becomes a mainstream delivery method for feature films, many observers believe. As Ramos concludes, Were very much at the beginning, and this is a long-term evolution.
Karen Raugust is a Minneapolis-based freelance business writer specializing in animation, publishing, licensing and art. She is the author of The Licensing Business Handbook (EPM Communications).
