Take a Bite Out of Apple

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Apple recently took another step toward its goal of total consumer-entertainment dominance when it struck deals to offer major Hollywood studio movies via its online iTunes Store at the same time those movies hit the video shelves at Blockbuster.

So now, millions of consumers with those now-famous white earplugs affixed to their heads, listening to the latest Jordin Sparks tune, will also be able to download American Gangster to their iPods at the same time the movie hits their mailboxes via Netflix.

Apparently, the studios no longer believe distribution via the Web or other alternative platforms at the same time those titles come out on DVD will hurt the multibillion-dollar DVD-rental business.

Of course, the Apple deal in itself is a lucrative one for the studios — they will reportedly get $16 per title from Apple, which will charge customers $14.99 for an iTunes movie purchase.

But if the studios are allowing Steve Jobs to offer movies day-and-date with the home-video industry via broadband, then it should be only a matter of time before they offer the same service to Steve Burke, James Dolan and other cable operators for their respective on-demand services.

The fact that it hasn't happened yet is somewhat perplexing. The industry has been lobbying for a level playing field with home-video retailers for more than a decade. What better way to deliver the studios' best and most popular titles to consumer homes than via a set-top box and remote control?

There's no trekking down to the video store to return your Juno rental; no need to get up off your couch to drop the Cloverfield rental CD in the mailbox. Just push a button and the digitally enhanced — and, more commonly, high-definition — movie appears on your television set. And you don't have to wait 30 minutes to an hour — the reported lag time for some consumers downloading a two-hour movie from iTunes— to download a movie.

Yet too many studios still believe that rolling out blockbuster movie titles to Comcast On Demand and Best Buy simultaneously will be the death knell for its lucrative $24.2 billion DVD business.

Indeed, VOD revenue is expected to reach $5 billion by 2012, nearly double the $2.6 billion generated in 2007, according to research group Informa Telecoms & Media. And positive day-and-date tests currently running in Comcast and Time Warner Cable markets may both encourage and frighten studios from moving more aggressively in the VOD market. Warner Bros. executives say many of its titles performed more than 40% above expectations in such tests.

But Time Warner CEO Jeffrey Bewkes says the release of VOD day-and-date with home video is a very good thing for the studios. During the company's first-quarter earnings call last month, Bewkes said the Time Warner-owned Warner Bros. studio generates higher margins with day-and-date VOD movie distribution — in the neighborhood of 60% to 70% — compared to margins for 20% to 30% for physical DVD rentals. “Very good for the film company,” he said.

Up to now, Warner Bros. is the only studio that has embraced VOD's potential for delivering significant revenue by offering movies at the same time as home video. The studio and its smaller sibling New Line Cinema will now offer all of its movie releases to VOD at the same time as it appears on DVD, according to Bewkes. This month, two Warner Bros. titles — One Missed Call ($26.9 million generated at the box office) and P.S. I Love You ($40 million), are running day-and-date on cable VOD systems.

With VOD now fully entrenched in the lexicon of most cable subscribers — Comcast said it has surpassed 7 billion on-demand views and 1 billion VOD hours watched since 2003 — it's a matter of time before Paramount Pictures, Lionsgate, 20th Century Fox, Walt Disney Studios, Universal Studios Home Entertainment, Sony Pictures Entertainment, Image Entertainment and First Look Studios follow Warner Bros.' lead and offer movies to VOD, simultaneously with home video.

And maybe slow down Apple's roll toward home-entertainment hegemony.

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