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DVD warrior makes the case for VOD

WASHINGTON — Warner Home Video prexy Warren Lieberfarb is trying to do for video-on-demand what he did for DVD.

As Hollywood’s most outspoken supporter of the by now widely accepted digital disc format, Lieberfarb played a key role in heading off a format war back in 1996 by helping broker a compromise among consumer electronics companies that produced a single standard. Then he publicly browbeat holdout studios into supporting DVD, ruffling quite a few feathers along the way.

Since then, of course, DVD has exploded, pumping new life into the flagging vid biz and providing a critical source of studio earnings growth over the last two years.

Keynoting the Cable Television Assn. for Marketing conference in New Orleans last week, Lieberfarb said studios “vitally need this new service (VOD),” and he urged cable operators to deploy the technology for digital VOD as quickly as possible.

He also urged cablers to look beyond current disputes over release windows and VOD licensing fees. “Hollywood always resists changes in its business models out of fear,” he said, but “if you build it, they will come.”

Seemingly addressing his Hollywood counterparts as much as cable ops, Lieberfarb said, “The combination of sale-priced DVD and rental-priced VOD represents the best model for growth in the ancillary distribution business, a model currently lacking with the existing distribution channels.”

Conspicuously missing from Lieberfarb’s formulation for the future was any mention of the existing VHS rental and sell-through biz. Speaking to reporters after the speech, Lieberfarb called those businesses “mature” and said the recent adoption of revenue-sharing for video rental “has not restored growth to the studios’ business” because of the slim margins Hollywood sees.

He also blamed revenue sharing for leading to “a concentration on the retail side of the business that is not healthy for (the studios),” a clear swipe at Blockbuster Video.

Since adopting revenue sharing in 1997, Blockbuster’s share of the vid rental biz has grown from roughly 25% to more than 35% today. Recently, the vidtailer has been trying to use that added leverage to muscle its way into the pay-per-view and video-on-demand biz.

Warner, however, has been openly skeptical of opening the door for the giant vidtailer to potentially dominate another key studio revenue stream.

In playing down vid rental’s importance to Hollywood’s future, Lieberfarb seemed to be trying to minimize the hold Blockbuster currently has over studio coin.

Lieberfarb’s comments were unusual for an exec most closely associated with the vid biz. But in December, his portfolio was increased to include Time Warner’s PPV and VOD businesses as well. That arrangement is still uncommon in Hollywood, where homevid and PPV are usually separate divisions that often battle each other internally over windows and other issues.

The Warner exec acknowledged that promoting VOD could result in some “diminution of the studios’ video rental business,” but that the net result would be increased business for Hollywood.

While traditional PPV reps only 2% of total studio coin today, Lieberfarb said digital technology will allow VOD to overcome many of PPV’s “historical limitations,” by letting users stop and start a movie at will and watch at their convenience.

Citing Warner research, Lieberfarb said 71% of consumers say VCR functionality is key to increased home movie buys, compared with only 25% who say day-and-date availability with homevid is a critical issue.

Still, selling VOD to cable ops won’t be easy. Lieberfarb’s pitch for the service faces, arguably, even more serious obstacles than those he overcame in helping to launch DVD.

For instance, while cable operators are rapidly rolling out digital, deploying VOD over those systems represents a substantial additional expense. The cable industry is also clearly going to have to share the VOD biz with other types of service providers, including Internet operators and the studios themselves.

Sony is skedded to launch its Moviefly Internet download service this spring, and even Lieberfarb acknowledges that studio-direct services will be part of the mix.

Moreover, many in Hollywood remain skittish over digital-rights management for VOD, making them reluctant to begin licensing product, even where the technology is in place.

“It’s going to take determination, persuasive skills and an appetite for commencing with a less-than optimal lineup of movies,” Lieberfarb told cable ops. “You have to believe that VOD is truly a compelling consumer proposition, then go bang the door down.”

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