Bleier: Move Quickly on Hit-Movie VOD

1/26/2003 7:00 PM Eastern

Ed Bleier spent more than 30 years in the television business, a good portion of which covered the evolution of pay TV, home video, pay-per-view and nascent experiments in video-on-demand. As Multichannel News launches its monthly on-demand section, we thought it wise to check in with Bleier and former Cox Communications Inc. executive Dalvi (see page 10A), to get their take on an on-demand world that now includes SVOD and free on-demand.

Bleier, who ran the Warner Bros. Pay TV division through the 1980s and 1990s, is now a senior advisor to AOL Time Warner Inc. He greets the introduction of SVOD and FOD warmly, and opines on missed opportunities, as well as what it will take for cable to advance the hit-movie category. He recently talked with Broadband Week editor Matt Stump. An edited transcript follows.

MCN: You stepped back from day-to-day operations at Warner Bros. Pay TV just as cable began exploring VOD. The idea, at the time, was that Hollywood movies would drive the category. Now there is subscription video-on-demand and free on-demand, which creates a more complex on-demand structure. What do you think of these developments?

From the beginnings of PPV in QUBE — Columbus, Ohio — in 1977, cable never really embraced PPV and when they did, they embraced it half-heartedly. In 1977, there was no home video, tape or digital.

The significant thing about digital and VOD is that it's at least 10 years from digital's introduction to the implementation of digital. In those 10 years, cable has lost 10 million marginal subscribers to satellite. And the DVD industry, which came from nowhere, will be a $10 billion industry by the end of this year.

In terms of delivering first-run movies, cable had other priorities or delays when it had a first opportunity, and it didn't capitalize. Now, in fairness, every cable operator built their plant on debt. They had to have predictable cash flows. By definition, the mentality of the successful cable operator was a cost-cutter and banker, and not a marketer.

So when PPV came along, the channel capacity necessary to do PPV well was devoted first to deregulation, to charge more money but to give people more channels on a monthly basis. With reregulation, it was the same thing. The only way they could charge more money was to give people more channels.

The cable operator understood the subscription business, because [Home Box Office] and the other pay services were his second source of revenue. The movie companies understood the consumer-marketing business on a product-by-product basis, because every movie is a brand-new business.

What I considered the disappointment is that the cable industry and the movie industry never came together with their self-interests. And the movie industry found a huge home-video business to supplant the failed PPV business. And now it has a huge DVD business that is necessary for the economics of movies, because movies cost more and marketing costs more, which at the moment more than compensates for digital cable not delivering first-run movie VOD.

I'm very confident that VOD is going to succeed because of the other forms you mentioned. SVOD is attractive to the cable operator and the consumer. The operator can sell another pay service. He can get a few bucks more for the VOD aspect depending on how they price it. It helps his investment in digital.

Secondly, free VOD will succeed in sorts. I don't know how much viewing there will be, but it will succeed because it's going to be a currency on table between the cable networks and the operators, which is an everyday dynamic. First-run, hit-movie VOD isn't an everyday dynamic. Cable operators are no different than other busy executives. They tend to do what's on their desks and what they do most easily.

Dealing with the Discoverys and the ESPNs, as well as the HBOs and Starzs, is going to create a free on-demand category that will have its own value in terms of license fees and will have consumer value in terms of making digital attractive so that the digital investment isn't churned out.

First-run movie VOD is handicapped by the window issue.

Do you think we're moving to a world where since DVD sell-through is so prominent, the hit movies will get 'bought,' leaving VOD the home for the popular-but-second-tier movies that don't get bought at retail?

I'd like to rephrase that. The kids and teen movies that will have multiple plays are big candidates for sale. As long as Circuit City and Wal-Mart are selling DVDs at cost, the $12 a DVD costs isn't much more than one or two rentals, including late charges.

The second aspect is DVDs have all that additional material on them that a lot of people find attractive.

I think you're right that there is another level of movie that people haven't seen in the theater, that they may not necessarily want to collect, and that's the movie that should be attractive to the DVD rental market and, yes, to the VOD market. But a lot less attractive if it's 50 days later.

Comcast Corp. CEO Brian Roberts has been making a big pitch to Hollywood about licensing to cable, blunting digital video recorder provider TiVo Inc.'s inroads, protecting copyright, etc. A few weeks ago at a Salomon Smith Barney conference, Roberts raised the possibility of cable getting day-and-date release of hit movies alongside DVD, with copy protection and attractive economics for studios, and making a DVD/VOD release date just as big an event as a theatrical release.

Theoretically, he's absolutely right. If cable offers security, that's very important and the protection against the TiVos. It's also very important because you're committing suicide if you go for an early window and the TiVos can replicate and redistribute it.

Cable has three trump cards. One is security. The second is to prove itself as a real market. The third is, Brian runs a marketing medium. If he puts his marketing resources behind a day-and-date premiere it could, on its opening night, generate a lot of money.

What does a big movie do in DVD sales? It seems that DVD sell-through is so well developed, cable couldn't replicate that number through day-and-date VOD.

The question is, if VOD is day-and-date, is it still incremental? Brian is the guy who has got to take the initiative because he's so big. But that won't happen until Brian comes in and says: 'I want to be a movie marketing force. I have the potential to be a more potent movie marketer than Blockbuster. And I will produce so much incremental revenue, I won't hurt your DVD sales through Wal-Mart or Circuit City.'

Do you ever worry that operators care more about SVOD and HBO On Demand and free on-demand, and hit movies will get lost one more time?

The MSOs have the opportunity to prove their commitment. They certainly never proved it in the past for their own reasons. It's not only to keep the digital in place and unchurned, it is to have product that satellite can't deliver. Cable operators had a pretty good life and a pretty good business, notwithstanding the stock price.

But if you look at the things that got away from them — like the whole home-video business and what is now a 20-million-home satellite business, and an interactive home shopping business where they collect a little bit, but not a lot of revenue — you'd realize they really haven't used connectivity to its maximum.

I think you find that reflected in management. Just using Time Warner Cable, having Glenn Britt and John Billock there, Billock is essentially a consumer-marketing person, having come out of HBO. And in Brian's case being backed up by Steve Burke, who was a consumer-marketing person, rather than by pole-climbers, you can see the culture changing.

Do you worry if it's too much for cable to market or for consumers to handle? Or is it a matter of having the will rather than intelligence?

It is a complex package and it is a challenge to their marketing skills, but they can do it. They have a lot of communication with their customers. They've got on-air screens. They've got commercial inserts. They've got barker channels. They can buy advertising. They can make friendly opening screens and menus.

Now, the steps are simple. You've just got to get to the right channel and find the movie you want.

The cable operators also have got to be worried if there is so much on much on-demand that the first-run, valuable movie will get ground up with the free on-demand and the subscription and it might all look like mashed potatoes, instead of looking like a plate of filet mignon plus the mashed potatoes.

What do you like and dislike about Time Warner Cable's VOD rollout in New York City?

I like the simplicity of accessing and ordering. On the first run-movie channel, the windows are a problem. And on the first-run channel there are new movies with old movies at a cheaper price, and it's hard to make a distinction between cheaper old movies and the cheaper movies that are offered on the subscription on-demand. There are just so many movies being offered.

If an operator sells one HBO On Demand package and one movie a month, he's up to $10 incremental revenue and he may be happy. He doesn't need to make three or four movie purchases happen to generate $10.

Don't make those my words. Those are yours.

If you were a cable operator, what would you be doing?

If I were a cable operator, I would surely be experimenting with FOD and surely putting on SVOD. Then I would incent the studios to give me day-and-date windows with guarantees and guarantee of promotion and try to hit a home run on the first-run movies. And try to demonstrate it is incremental on top of DVD, and not cannibalistic.

Have you seen any stats on VOD movie buy-rates? I see people crowing about how buy rates are two and three times better than PPV, and PPV buy-rates aren't that much. Bell Atlantic and some of the sneakernet PPV was generating two and three buys per month.

The take is the same as yours. Again, because of the window — because any system that has VOD also has PPV — you don't know what to ascribe it to. If you have both, it's a waste of bandwidth.

And furthermore, if I were a cable operator, I would break my back to get the VOD first run movie business on the cable spectrum and not on the Internet spectrum.

But everyone is complaining that Movielink [the Hollywood-studio backed Web site from which downloadable theatricals are sold] is not yet a great experience and is still years and years away, because of bandwidth.

That would be my argument. I would get people habituated to cable VOD, before the bandwidth and Internet-security issues are solved. Don't let another competitor overtake you.

Home video has overtaken PPV. DVD has overtaken digital VOD. And if they don't stake out their turf sooner rather than later, the Internet will overtake them.

Of course that fox gets into the henhouse because operators offer cable modems to make broadband content delivery easier.

But not exclusively — there is DSL [digital subscriber line] and satellite. That was exactly their thinking about PPV all those years.

The cable operator today understands he's in a competitive market. I think it's a different mindset. It's very hard to be outside the envelope and run the business day to day. It takes a very special breed. And that's the challenge today, of having digital in there and having all these opportunities.

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