VSDA Will Target DBS On Window Issue

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Cable operators are no longer the target of the Video
Software Dealers Association. Instead, direct-broadcast satellite systems -- and in
particular DirecTv Inc.-- will now face the wrath of the home video organization, which
said that the technology has a negative impact on the sluggish video business.

But whether it's cable or DBS, the video industry
argues that windows are still a major selling point to consumers, and the VSDA vows to
create a million-dollar promotional campaign to tout its windows advantage.

According to a VSDA/Yankelovich Partners study released
Jan. 30, DBS subscribers purchase more movies than pay-per-view owners, thereby greatly
affecting home video rental revenues, which VSDA said were down 4.2 percent from last
year. Despite the loss, home video still generated over $7.4 billion last year, well above
PPV's $600 million-plus.

Confirming what cable operators have maintained for years,
the VDSA report now states that cable PPV does not adversely affect home video rental
behavior, mainly because of low PPV usage numbers. Only 27 percent of cable PPV purchasers
ordered PPV movies once a month or more, with 57 percent of cable PPV purchasers saying
they bought fewer PPV movies this year than in the past few years.

Meanwhile, 30 percent of cable PPV purchasers are
high-frequency video renters, slightly above the 29 percent rate of all VCR owners who are
high-frequency renters, the report said.

The VSDA has consistently blamed PPV for declining rental
revenues, mainly because of short PPV windows. The cable industry has countered by saying
the maturing of the home video industry, a soft movie marketplace and the influx of
sell-through -- movies priced to sell, not rent -- had more to do with the drop-off than
home video windows.

'All forms of PPV are of concern to retailers, but we
realize that cable PPV is still kind of struggling to get people to purchase movies and
still has some work to do,' said Robert Liuag, director of research for the VSDA.
'But DBS presents a different set of problems because of the fact that they offer a
variety of channels and our data shows that it has changed the pattern of home video usage
among DBS subscribers.'

Indeed, 61 percent of DBS PPV purchasers order PPV movies
once a month or more, while half of all DBS purchasers report purchasing more PPV movies
this year. Overall, 65 percent of DBS subscribers have purchased a movie at least once,
compared to only 34 percent of cable subscribers.

That falls in line with overall DBS PPV buy-rates results,
which, at 100 to 200 percent, dwarf PPV's 25 to 30 percent per-month buy-rates.
Several studios assert that DirecTv Inc.'s revenues already surpass revenue from
Request Television and Viewer's Choice.

While the PPV purchases are up among DBS subscribers, video
rentals for the same group are down. More than half of DBS subscribers reported renting
videos less frequently this year -- compared to only 29 percent of non-subscribers --
mainly because they prefer to watch movies on television via PPV or premium services like
Home Box Office.

How can VSDA thwart the rise of DBS? By emphasizing longer
windows, according to the report. Despite the typical 30-to-45 day period between a
movie's home video release and its PPV release, only 42 percent of DBS subscribers
realize home video gets a movie first -- in fact, 29 percent of DBS subscribers actually
believe the movie hits PPV directly after leaving the theaters.

As a result, sources said the video industry is even more
adamant in pushing for longer windows -- and it seems to be working. Beginning this month,
the average window for the top PPV movie releases is slated to average 52 days in home
video stores before reaching addressable homes.

'Over the past four quarters, including the first of
1998, the windows have grown pretty consistently, and we've taken several ads in the
trades promoting the longer windows,' said VSDA's Liuag.

DirecTv executives could not be reached for comment by
press time.

One studio executive admitted that it has increased PPV
windows on several titles due to studio pressure. Much like past increases, however, the
windows will eventually return to normal after a few months.

'It's cyclical; we get pressure from the home
video side, then after a while, the windows fall back to PPV levels,' said the
executive. 'We have more leverage now because we're seeing increases in PPV
revenue because of DBS.'

The VSDA will use the report as the foundation for a $1
million dollar advertising campaign touting home video's early windows, Liuag said.

'This is a substantial investment for the VSDA, but
its also a good time to increase the spending and advertising to let people know that the
movies are available in home video as early as a month to as much as 90 days before
PPV,' he said.

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