VOD Gets Big Boost

9/19/2004 8:00 PM Eastern

Comcast Corp.’s proposed video-on-demand joint venture with Sony Pictures Entertainment could put cable a step closer to the goal of showing top Hollywood titles on VOD at the same time they appear at Blockbuster and Wal-Mart.

The top U.S. MSO’s announcement last week of an agreement involving VOD rights to Sony and Metro-Goldwyn-Mayer Inc. titles — and the possibility of Sony and Comcast collaborating on new cable channels — was an important adjunct to Sony’s $4.8 billion deal to buy the MGM studios.

The merger partners wouldn’t spell out specifics on such issues as whether or not VOD windows might be shortened, or how much content from the Sony library could make its way to Comcast’s on-demand customers.

But in a research note, Citigroup Smith Barney analyst Niraj Gupta said the Philadelphia-based MSO could gain VOD access to thousands of movies and TV episodes from Sony, and 4,000 more films and an additional 10,000 TV installments from MGM.

He estimated about 400 movies would be added to Comcast’s VOD servers, adding: “The VOD deal, while limited to library titles, should substantially improve the depth and breadth of VOD content available to Comcast subs.”

Comcast’s move had cable executives and analysts hoping to see a shrinkage or even elimination of the current delay (or window) between a movie’s home-video release and its subsequent release on-demand.

Cable marketing executives have long blamed that window for stifling pay-per-view movie and, now, VOD movie sales.

Currently, cable operators must wait an average of 45 to 60 days after movies hit video-rental stores and DVD-retail outlets — often with a big burst of consumer marketing from the studios — before they’re available to pay-per-view or VOD platforms.


Creating day-and-date windows for VOD has been a long-term goal for Comcast executives. Chairman and CEO Brian Roberts and cable president Steve Burke talked openly about the possibility when making a run at The Walt Disney Co. earlier this year. Comcast dropped that $56 billion overture last April.

In Demand — the VOD-content purveyor owned by Comcast, Time Warner Inc. and Cox Communications Inc. — figures shortening a movie’s on-demand window to 30 days would generate 40% more revenue for cable. (In 2003, the home-video and DVD business generated $22.2 billion, according to Video Business magazine, compared with more than $1 billion in cable VOD and pay-per-view sales.)

Industry observers figure the incremental bump would be twice as big should titles be offered on VOD the same day they’re released for retail sale. And the Comcast connection could certainly prompt Sony to at least experiment with simultaneous releases.

Jessica Reif Cohen, a Merrill Lynch & Co. media analyst, said in a research report, “we believe day and date tests for first-run films on VOD could precipitate an improvement in availability (at least the Sony/MGM theatrical product), thus opening a more meaningful revenue stream.”

Comcast currently carries first-run movies (with conventional windows) from Sony and MGM on VOD, via In Demand. It was unclear what effect a new Sony-Comcast arrangement would have on In Demand’s Sony licensing as far as Comcast was concerned.

In Demand executives would not comment on the potential impact of Comcast’s proposed venture with Sony and MGM.


Home-video industry executives downplayed the chances of studios offering movies day-and-date with home video.

Video Software Dealers Association vice president of public affairs Sean Bersell would not speculate specifically on the Comcast-Sony deal, but said it would be a revenue mistake for any studio to alter the current windows.

He cited a 2002 Merrill Lynch & Co. report that pegged studios’ gross profit from DVD sales and rentals at $10.55 per unit, compared with Sanford Bernstein & Co.’s estimate that studios get $2.40 for each VOD movie buy.

“You have the goose that lays the golden egg in home video, which has changed the economics of the motion-picture industry,” he said. “Why would you replace DVD-unit sales with VOD sales?”

Even if Sony and MGM moved to a day-and-date scenario, one VOD executive said it might not spur other companies to follow suit. MGM and Sony combined only offer about 20 of the more than 200 VOD movies each year, so a move to day-and-date titles might not have much effect on the rest of the studios.

“It’s really not enough to move a mountain,” said the source.

Comcast could use the vast movie and TV library assets to enhance its free on-demand program offering and its digital-cable platform overall.

The movies — particularly the Rocky series, James Bond titles, Pink Panther comedies and two Spider-Man flicks —could be a major VOD attraction for Comcast.

The VSDA’s Bersell countered that offering such library titles on VOD — whether on a purchase basis or for free, to help spur digital-cable penetration — would significantly devalue the Sony-MGM asset because of lost home-video and DVD potential.

“One of the most valuable assets MGM has is its library of movies,” he said. “It seems logical that one of the attractions for Sony is to sell those movies in the video market. To the extent that VOD would cannibalize those sales, that would appear to undermine the economics of the transaction.”

Few primetime TV shows have made their way to the VOD platform, largely because of business-model issues.

No real ratings exist for VOD, making it a tough sell for advertisers. And programmers are loath to try new technologies that might impinge on existing revenue streams.

Comcast, though, is trying out a VOD-ratings solution from Rentrak Corp.


Should Sony — which produces the primetime shows King of Queens and Joan of Arcadia — be persuaded that VOD could produce ratings that could generate ad revenue, it’s possible Sony-produced shows could make their way to on-demand servers soon after they air.

Sony also owns Seinfeld, Dawson’s Creek, Mad About You, Just Shoot Me, The Nanny, Married… With Children, and The Larry Sanders Show, plus vintage ’70s shows like All in the Family, Charlie’s Angels and The Jeffersons.

All told, there are 35,000 TV episodes in Sony’s library.

Popular programs like Seinfeld continue to make money for Sony in TV and cable syndication. The issue Sony faces is what opportunity it would have to make money from Comcast on a VOD platform for its library series, compared with returns from its continued syndication take.

While Seinfeld might remain in syndication, there is certainly plenty of other content for the two sides to talk about.

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