MSO Wants Home-Video Windows for VOD

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In a potentially precedent-setting move for the cable industry, Time Warner Cable is negotiating with studios to have feature movies debut on its video-on-demand prototype systems at the same time as their home-video releases.

Sources close to the situation said Time Warner Cable's sister company, the Warner Bros. studio, is seriously considering offering some of its titles at the same time as home-video releases-which would mark the first time the PPV industry would be on equal footing with the juggernaut home-video business.

Time Warner is currently either testing or actually deploying VOD services in its Honolulu; Austin, Texas; and Tampa, Fla., systems.

At least three studio executives confirmed that the MSO is trying to negotiate a distribution deal to have those systems debut top blockbuster movies at the same time they hit video-store shelves.

"Time Warner has approached us with the idea of offering movies day-and-date with home video," one studio executive said, although he would not say whether the studio is considering the proposal.

The MSO has already reached a distribution agreement with New Frontier Media's Pleasure adult pay-per-view service to provide up to 30 movie titles per month for the VOD systems. But it was unclear whether the MSO has reached deals with all of the major studios for movie releases in the traditional PPV window.

Time Warner officials would not comment on the matter.

But sources said Warner Bros. was close to finalizing a deal that would allow some or all of its titles to be released in the same window as home video. Warner Bros. has been a proponent of the PPV and VOD businesses for years, and it was the first studio to offer a reduced PPV window to operators-often as much as 30 days earlier than the movie's scheduled analog-PPV debut-in return for an upfront buy-rate guarantee payment.

It was unclear whether the studio was proposing a guarantee for a VOD window day-and-date with home video.

Warner Bros. representatives could not be reached for comment at press time.

But just recently, Warner Bros. Domestic Pay-TV, Cable and Network Features president Ed Bleier said the industry would have to reduce PPV windows in order for operators to maximize VOD revenue.

"Unless the industry gets to a guarantee and revenue-sharing model, [operators] will never get day-and-date [titles] with home video, and they will waste the potential of VOD and NVOD [near-VOD]," he said. "With VOD's VCR functionality, the operators will be able to [make up] that guarantee easily."

Currently, movies appear in home-video stores 45 days to 60 days before debuting on PPV-a gap many PPV executives and some studio executives said hurts movies' PPV performances.

The industry has made strides over the past year to reduce PPV windows to about 50 days on average, which has drawn the ire of the home-video industry's lobbying group, the Video Software Dealers Association.

Just recently, the VSDA called for an increase of PPV windows after reporting that windows for video releases grossing $50 million or more at the box office shrunk from an average of about 56 days in 1998 to around 50 in 1999.

The average window had shrunk to as short as 38 days in 1997 before lengthening to 56 days in 1998, due in part to the VSDA's lobbying efforts with the studios.

The main reason why home video holds an advantage in the debate is because it generates significantly more revenue than the PPV industry. In 1999, the home-video business generated more than $17 billion in revenue from rental and retail sales, according to Veronis, Suhler & Associates Inc., easily besting PPV-movie revenue, which generated about $547 million.

Some movie executives, fearing backlash from the powerful VSDA, have been reluctant to shorten PPV windows, even though most believe shorter windows would increase PPV-movie performance.

Also, studio executives have been concerned about signal-theft issues and consumers' ability to tape movies, potentially cannibalizing lucrative home sales.

But the deployment of NVOD and VOD services through a much more secure digital-cable signal has renewed the debate over windows.

Most industry observers believe that VOD, in particular-which offers subscribers the ability to view movies at any time with functionality such as rewind and pause-has the potential to generate revenue equal to or surpassing that of home video.

Paul Kagan Associates Inc. estimated that combined PPV, NVOD and VOD movie revenue will surpass the $1 billion mark this year and reach $7 billion by 2009.

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