Technology

Forward Fast

5/17/2009 2:00 AM Eastern

Studios are pushing the fast-forward button as more movies come to video on demand on the same day they hit DVD or, in some cases, even day-and-date with their theatrical release.

ParamountIn the first quarter of 2009, the big Hollywood studios doubled the number of titles that were released day-and-date on VOD and DVD, compared to the fourth quarter of 2008, according to transactional media-measurement firm Rentrak. And the run of major titles continues in the second quarter, with day-and-date releases of New Line Cinema’s He’s Just Not That Into You and Warner Bros.’s Gran Torino.

“There is a lot of momentum and buzz around day-and-date,” said In Demand CEO Rob Jacobson. “It is increasing exponentially.”

Added TVN Entertainment chief operating officer Doug Sylvester: “I think we’ll see this trend accelerating in the future until day-and-date becomes the norm.”

“We have a lot of films right now that are concomitant with the DVD release,” Comcast chief operating officer Steve Burke said during the company’s recent first-quarter earnings call. “We also have a number of studios that have shortened the window between the DVD release and when the films are available for video on demand.”

This narrowing of windows has produced such strong results, executives said, that the day is coming when studios might release a major film to theaters and to video-on-demand simultaneously, or in concert with its second or third weekend on the big screen (albeit with a premium price point).

And it’s not just the companies that make a living with on-demand that see the growth opportunity. “It is good for the overall business,” said Warner Bros. vice president of digital distribution Andy Mellett. “Now a 30-day window seems impossibly long — you’re losing all your momentum. Our longest window is usually 14 days to VOD, and we envision having fewer of those.”

That’s a vast change from just a few short years ago. It used to be that movies wouldn’t come to video or DVD until six months after the theatrical release, then there’d be another 30- to 45-day window before a film would find its way onto television platforms like video-on-demand. Studios, worried about cannibalizing DVD sales, were extremely resistant to shrinking those windows.

“There was a lot of concern initially about bringing the date closer because packaged goods [DVDs] are such an important part of the studios’ business,” agreed Mellett.

The change has come for a variety of reasons. Cable giants Comcast and Time Warner Cable created large-scale tests to ease the studios’ concerns about cannibalizing their own business with on-demand titles. In most Comcast markets, Comcast sold movies for $3.99 prior to the tests; now the films sell for $5.99. The improved technology and subsequent growth in VOD usage makes it more appealing to the studios releasing the films. Day-and-date releases to on-demand may help suppress the value of DVD piracy. And with so much promotional money poured into movies, studios are concerned with maximizing their marketing dollars.

“There was a challenge in creating awareness in a very crowded world,” Sylvester said.

Nolan Gallagher, CEO of Gravitas Ventures, a licensor and programmer of VOD movies, said the “elephant in the room” was always Wal-Mart. The studios worried about alienating their largest retail partner if the day-and-date releases hurt DVD sales. (The rental market was less of a concern, in part, because the studios get 70% of the cut on VOD viewings versus only 30% to 40% on rentals, according to Gallagher. “The economics of video-on-demand is something we like,” Mellett said.)

In 2006, Comcast developed a two-year trial, working with eight movie studios. Denver, Atlanta and Pittsburgh were used as test markets (against three control markets) to measure VOD use, DVD sales and DVD rentals (which are more difficult to measure.)

There were plenty of skeptics — in 2007, analysts at Pali Research publicly declared day-and-date “would be a grave mistake for the movie industry in the long run” in terms of DVD sales, because they believed such a move would hurt sales.

Comcast senior vice president and general manager of video Derek Harrar said the trial, which began with the Warner Bros. release The Astronaut Farmer in 2007, showed a huge boost in VOD without hurting DVD sales — some rentals improved marginally, others fell marginally.

“The trial was a very necessary step for us, it gave us the data to move forward,” said Mellett, adding that in some cases, the promotion for the VOD boosted awareness of the DVD and helped sales.

Warner Bros. and 20th Century Fox were the two big studios quickest to embrace day-and-date. Jacobson said studios have sought titles likely to have lower sales and higher rental potential for their day-and-date releases. “That way, their retail partners like Wal-Mart and Best Buy won’t be as upset,” he said.

Comcast offered just nine day-and-date releases in 2007, but 35 last year and 25 in just the first quarter of this year. In Demand released 73 day-and-date titles last year, but the programmer expects significantly more than 100 this year.

And some of those movies — including the box-office hit Twilight, Oscar winner Milk and the critically acclaimed Frost/Nixon — have significantly higher profiles than The Astronaut Farmer.

“It’s pretty intuitive,” said Harrar. “The movies are being promoted by the studios when the DVD comes out, so the movie is much more front-of-mind for consumers.”

Added Sylvester: “Operators are very excited by the awareness day-and-date creates, not only for one title but for the VOD platform.”

While VOD has been a hit across all genres, Sylvester said, consumer research shows on-demand is very strong with teenagers, especially girls (the key demo for a film such as Twilight) and with parents, who prefer knowing their kids are safe at home. Also, Comcast began offering Summit Entertainment’s Twilight at midnight, so it was available on-demand hours before DVD stores even opened.

All the executives interviewed agree that the day-and-date releases, with the accompanying DVD promotion, helps “train” consumers, in Mellett’s words, to look to VOD as a go-to place for entertainment.

“Once viewers have had a good experience with VOD, they think of this as an option,” Sylvester said.

Said Jacobson: “Our platform provides a great impulse-purchase opportunity, and you don’t have to worry about returning the movie.”

But not everyone is on board.

Jacobson said NBC Universal’s Universal Studios has just “put its toe in the water.” Other studios, including Sony, Paramount, and Disney, are largely resistant to day-and-date and, to a lesser extent, to even shrinking their DVD-to-VOD windows, preferring to give the DVD sales a run without competition.

Still, Harrar and Mellett said competition will force the studios’ hand. And Sylvester said he believes the hard breaks between platforms will “continue to erode and then go away.”

Another major barrier also began eroding in 2006, albeit on a much smaller scale.

In the last few years, some independent films — mostly from IFC Entertainment and Magnolia Pictures — have been released simultaneously to theaters and on-demand. Both of those companies, of course, have synergistic reasons for the move (IFC, which releases a film every other week, is owned by Cablevision Systems; Magnolia by HDNet). But Lisa Schwartz, IFC Entertainment’s executive vice president of distribution, said day-and-date also makes strategic sense for films like Steven Soderbergh’s two-part Che or Italian import Gomorrah.

IFC executives said the network’s national audience would express frustration after reading great reviews for art-house films, only to learn those the movies would not play in their town. “Not every town has an art-house theater, so we’re getting a different exposure, which is great for the consumer and the filmmaker too,” she said.

While exhibitors were apprehensive, IFC’s partners have seen that it does not damage ticket sales. Gravitas’s Gallagher added that VOD starts word-of-mouth support, “which is crucial for indies’ theatrical releases.”

Said Schwartz: “All boats rise. If you live in New York City and like seeing films at your favorite theaters, this doesn’t change your behavior. But for people not going to the movies, this is a great opportunity.”

Last year, IFC added Festival Direct on Demand for films that hadn’t yet made it past the festival circuit. Magnolia has done the same with films like Soderbergh’s The Girlfriend Experience, which just “opened” in VOD and then HDNet weeks before its theatrical release.

These theatrical day-and-dates have a higher price point than typical VOD fare (between $7 and $14) and then are pulled from the small screen before their DVD release.

But, as shelf space increases, Schwartz hopes to eventually bring those movies back to on-demand timed to the DVD release.

“It’s not easy to execute, to make sure no one is stepping on each other’s toes,” Schwartz said. “With all the partnerships, there is a lot to orchestrate.”

Sylvester believes a major studio may eventually release a blockbuster film day-and-date with VOD. “People would pay a pretty hefty premium, like they do for a pay-per-view event, to see a movie opening weekend, if not soon after,” he said. “We’re doing research and seeing partners doing testing.”

Comcast’s Harrar insisted that such VOD premieres wouldn’t hurt ticket sales, pointing to focus-group comments from people who don’t like going to movie theaters because they have to pay babysitters or because they simply prefer to watch at home. Still, even the most aggressive studios aren’t sold yet.

“It’s certainly a good thing to look at, but it’s much further off,” said Warner’s Mellett. “There needs to be further evolution of the on-demand platform, improvements made to navigation and interface and increased awareness. And it would require testing.”

Echoing a point made by Pali Research’s analysts back in 2007, Jacobson suggests that there may be a middle ground.

Given that most theatrical money is made in a film’s opening weeks, and theaters are moving movies out more quickly now, studios might opt for “a wedge window between the theatrical and DVD release,” where the movie would be offered on-demand for a higher price.

“The old business models are collapsing as we continually consume media in different ways,” Jacobson said.

September