News

DirecTV Moves Concern Studios

9/03/2000 8:00 PM Eastern

Many studio executives regard DirecTV Inc. as the best thing that ever happened to the pay-per-view business.

With its 50-channel near-video-on-demand service and unparalleled $2.99-per-movie-pricing structure, the company's PPV sales have surpassed cable's despite having a fraction of cable's addressable subscriber base.

That's why several recent DirecTV moves regarding its PPV business trouble studio executives.

Beginning this month, the company will charge $3.99 for movies, matching the price point of most cable operators.

While the move will generate more PPV-movie revenue for DirecTV-the service was only keeping about $1 from each $2.99 purchase-studio executives are concerned the extra $1 will keep some subscribers from buying that extra movie or two per month that studios had become accustomed to.

DirecTV officials believe the convenience and choice its PPV service offers to subscribers will continue to be a selling point. But that rationale hasn't convinced some studio executives, who feel that a buy-rate falloff is inevitable.

Then two weeks ago, DirecTV and Blockbuster unveiled plans for their ambitious multiyear marketing alliance.

On paper, the deal looks terrific for DirecTV: Satellite dishes will be sold directly out of 3,000 Blockbuster stores. Through Blockbuster, DirecTV will receive unprecedented exposure for its programming services-70 percent of U.S. households live within a 10-minute drive of one of its stores.

PPV executives are concerned by the value-added offer that Blockbuster has developed to sell the dishes. Consumers purchasing a DirecTV dish from the video-store chain will receive one year of free Blockbuster rentals, including videos, DVDs and video games.

While the deal will most likely spur DirecTV purchases, the carrot used to push the purchase competes directly with PPV, one of DirecTV's biggest selling points.

Some studio execs fear that the enticement of a year's worth of free rentals-even if it's only one movie per week-will sabotage DirecTV PPV-movie sales. For some consumers, the convenience of ordering a movie at home may take a backseat to a drive to the local video store to get a free movie rental.

While DirecTV won't suffer a catastrophic loss in PPV revenue because of the offer, it also may not be able to build the same affinity for its PPV service among new subscribers that it did so successfully with its early users.

The inability to develop PPV as a habit early in a subscriber's viewing experience is what has doomed the analog-cable PPV business. Some studio executives are afraid DirecTV is setting itself up to repeat cable's mistakes.

As cable monthly PPV buy-rates from digital NVOD approach DirecTV's highly touted triple-digit levels, studios are finally beginning to see the performances necessary to make the argument against the home-video industry for shorter windows for top titles.

The hope in Hollywood is that DirecTV remains as committed to driving PPV as the cable industry finally seems to be.

March