The numbers couldn't be more stark: Movie sales and rentals on DVD generated $23 billion last year in the U.S. compared with only $1 billion or so from pay-per-view.
But Warner Bros., enticed by lucrative revenue splits and the chance to boost the revenues of Time Warner Cable, is hell-bent on luring millions more to video on demand, either through their cable box or Internet services such as Apple's iTunes Store.
The studio, like its rivals, also wants to fend off piracy by making its movies easily accessible through legal means. To that end, Warners has compressed the PPV-VOD window on most of its movies, making them available the same day that each movie's DVD hits the retail stores. So far, no other major studio has followed suit. (...) Andy Millett, senior VP of digital distribution for the studio, doesn't deny that Time Warner Cable will benefit from a big leap in buy rates, but says Warners devised the day-and-date strategy to help all cable operators.
He calls cable VOD "a sleeping giant" and points to the potential revenue bonanza: The studio keeps 70% of every VOD rental compared to a paltry 30% or so for each disc rental.
The five other majors are aware of the favorable split, which is one reason why four of them -- Disney, Paramount, Fox and Universal -- are continuing their 18-month-long day-and-date test with Comcast Corp., the biggest cable op in the country. Comcast has set aside its cable systems in Pittsburgh, Atlanta and Denver for the test. Sony has taken a pass because it's convinced the $4.99 rental price of each title should be a couple of bucks higher.
These Comcast experiments may not cause other studios to follow the Warner Bros. blueprint, but the tryouts are likely to stay in place because of an ongoing industry nightmare: Too many people are using illegal file-sharing to download movies off the Internet without paying for them. (...)
But Millett says his studio competitors are being unduly cautious. "In our tests with Comcast and (research firm) Frank N. Magid Associates," Millett says, "we found that day-and-date PPV has had little negative impact on rental of DVDs" in the stores and through subscription outlets like Netflix.
In the early results of Warners' go-it-alone strategy, the studio has chalked up gains of between 30% and 60%, depending on the title, he says. With no competition from his major-studio rivals, Millett says Warners' market share of the day-and-date PPV business has shot up by 40%. (...)
In Woodward's analysis, the rental and sale of the physical DVD will continue to easily be the most profitable window for the average theatrical movie. But the vidtailer is still trying to become a major player in electronic sell-through and rental; it recently bought Movielink, a digital platform once backed by the majors, and integrated it with Blockbuster.com. "Our goal is to follow what the consumer wants to do, no matter what the platform," she says. (...)
Adams says the studios can pocket as much as $17 dollars from the sale of one DVD. And the six majors and a few other movie companies, he adds, will harvest $15.50 from each movie download sold through Apple's iTunes Store the same day that the DVDs go on sale. (...)
The stores argue that the manufacturing and shipping cost of physical discs is modest considering that "DVDs have generated the greatest windfall of profits in Hollywood history," says John Marmaduke, chairman and CEO of Hastings Entertainment, a chain of retail stores spread throughout 21 states. "To jeopardize those profits with the unfulfilled promise of VOD would be extremely reckless."
Millett doesn't think DVD profits are in danger, citing the millions that Warners is spending in marketing a movie to run simultaneously on VOD and in DVD. "All of these promotional dollars," he says, "make a larger number of people more aware of a movie's availability."
That awareness "will also drive the sale of the DVD," he argues. Warners does not make major tentpoles such as "Harry Potter," and "I Am Legend" available day and date "because these pictures already have tremendous awareness." (...)
Millet's goal is to keep the money rolling on all fronts.
