Revenues on the Rise as Movie Windows Shrink

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Cable's long campaign to shrink the window between DVD sales/home video rental release and PPV/VOD is beginning to pay dividends.

Increasingly, more and more studios are releasing titles with 30- to 38-day windows, which is boosting VOD buy rates without any effect on DVD sales, says In Demand President Steve Brenner.

Given the momentum, Brenner believes there is a good chance 30-day windows could become the norm in 2005.

Here's the recent evidence. In December, Santa Clause 2 (Walt Disney Corp., with cumulative U.S. box office take of $139 million) and X2 (Twentieth Century Fox Film Corp., $215 million) were 30-day titles. Sony Pictures's Whale Rider ($21 million) was 34 days.

In January, Fox's League of Extraordinary Gentleman ($61 million) was 38 days. Last month, Universal Pictures's American Wedding ($104 million) and Sony's Underworld ($51 million) were both 30-day titles.

Secondhand Lions from New Line Cinema debuted last week on VOD/PPV, 30 days after the home-video release. It generated a domestic box-office gross of $42 million. In April, New Line will release Texas Chainsaw Massacre ($80 million) with a 30-day window. In May, Fox will release Cheaper by the Dozen
($135 million) at 38 days and Stuck on You ($33 million) at 30 days.

The number of 30-day titles rose from four in 2002 to 15 in 2003, and will reach 24 titles in 2004, according to In Demand estimates. In 2002, the overall average window length was 49 days. That's dropped to 45 days in early 2004.

"It's happened over time," Brenner says. "We've been pushing hard to try to get the windows earlier. As Hollywood has dipped its toe in the water; it's found there is a significant difference in the money we are generating for them on films that come in with a 30-day window."

Brenner estimates that a 30-day window movie will generate 40% more revenue than a 45-day title. He allows there may be a few less trips to the video store with the change to 30 days, but he argues that the vast majority of rentals occur in the first few weeks after a movie is released.

What's more, "there has been no adverse impact at all in DVD," he says. And that may be the most crucial piece of evidence of all for Hollywood.

No Effect on DVDs

DVDs cost anywhere from $15 to $20. And although studios have costs associated with DVD, they keep five and six times the revenue from a DVD sale, versus a rental in home video. What In Demand, and the cable industry, by extension, are saying to Hollywood is that shorter windows have no effect on DVD revenue, which is a significant revenue stream for the studios.

All Brenner wants is for Hollywood to allow VOD to compete against the rental business on a day-and-date basis, and take advantage of the marketing push that happens when movies are released on sell-through and rental.

Now, the rental business remains a $10 billion a year business. DVD sales are rapidly approaching that figure, while VOD/PPV remains less than $1 billion. But the fact that Hollywood hasn't suffered any DVD sell-through revenue loss from shorter windows gives Brenner confidence that he can isolate the home-video rental business to attack.

"We represent a good margin business for them," he says, comparing VOD/PPV and home-video rentals. "And we don't have to argue against DVD sales. There is money to be had there."

Brenner says there are specific discussions about conducting a few day-and-date tests this year. "We're hopeful some will bear fruit," he says.

In fact, there is even a new window number, 17, that occurred last summer. Warner Bros. released Cradle to the Grave 2
as a 17-day window. In Demand says that it had a 97% higher buy-rate than it would have at 45 days. "It outperformed our expectation by double," Brenner says. "And it had no effect on DVD sales."

Of all the films that premiered in 2003, In Demand projects that Anger Management and 2 Fast 2 Furious, both with 45-day windows, will generate the most buys. Those movies generated $133.7 million and $127 million, respectively, at the U.S. box office. But Just Married, from Fox, which only made $56 million domestically at the box office, will be third best title in 2003, In Demand projects, because it was a 30-day title.

"The results are terrific," Brenner says, pointing to Just Married
as a comedic title that works well at 30 days. "The comedies just repeat well," says Jo Holz, vice president of research at In Demand.

"There is a market for rental and a market for buying," Brenner explained. "The genre of movie has a significant effect where it's going to end up in the rental business. Comedies like Just Married
and Shallow Hal
are going to do relatively well anyway."

VOD: A breakout year

Brenner like what he sees with VOD. "This past year was a breakout year in terms of everything," Brenner says. "VOD distribution doubled and buy rates were up significantly." In Demand says its 8.9 million VOD subscriber count will grow to 14 million in 2004. VOD buy rates grew 75% in 2003 over 2002.

Those two factors combined with the slimmer windows are lifting the business overall, he adds. In comparison, "PPV was a very difficult product to sell."

It's no surprise Brenner predicts VOD movie revenue will surpass PPV revenue in 2004. Kagan pegged 1993 PPV movie revenue at $162 million, versus $141 million for VOD.

Brenner also believes cable operators will make greater efforts to market movies that have better windows. "You'll see more and more effort as you start to see the windows coming down. We've broken the ice a lot. Many operators are marketing it harder and we are generating better revenue."

And that means the pie is growing for everyone, Brenner says, Hollywood included. "We're going to push as hard as we can to get as early a window as we can," Brenner says. And those titles with the better windows will receive more marketing attention, he added. "At some point, I have to protect my store too. I'm going to spend more time against the titles that come in early."

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