Fox's early digital sales strategy paying off

Twentieth Century Fox believes “Prometheus” has discovered a flicker of hope for homevideo, as the studio’s vigorous promotion of a lower-cost, purchase-only early window sparked a notable number of first-time digital buyers and previous renters to own the sci-fi thriller for $14.99.

What’s more, with a whopping 71% of subsequent “Prometheus” discs selling in Blu-ray in its first days to market, the three-week online pre-sale did not alienate buyers of the premium physical format.

“Results in those first weeks were really solid,” said Mike Dunn, president of home entertainment at Fox, which does not disclose digital sales totals but shared some details of returns with Variety. ” ‘Prometheus’ (downloads) actually outsold ‘Avatar’ by 11%, and while digital sell-through product is usually about 3% of total revenue in the first year of release, this will be more like 12%.”

But the statistic Fox finds most encouraging — as should all studios amid the evaporating disc market — is the uptick in digital purchases by first-time downloaders and habitual renters, who would normally watch for roughly $5.99 per title. Data from Fox’s three largest providers shows that some 30% of “Prometheus” download customers were either newbies (about 17%) or previous renters.

While each major has recently dabbled in offering pre-disc digital downloads, Fox tweaked its recipe for the sci-fi thriller in a few significant ways, bringing the $20 average sale price down to $14.99 and launching an aggressive, all-digital marketing push specific to the early rollout. The studio is applying that model to hundreds of catalog titles and all of its fourth-quarter new releases, with plans to announce the same pattern for releases in the first quarter and beyond.

An obvious advantage of the digital-first window is that it creates a purchase-only period during which renting isn’t yet an option. Under the traditional model, in which the physical disc hits the street first, “fair use” laws allow online retailers, kiosks and videostores to offer the title immediately.

In addition to that critical moment of exclusivity, Dunn said the most important factors converting would-be renters into buyers were the lower price point — digital sales have traditionally been priced around $19.99 — and a premium format that’s available across all broadband-connected devices.

“We found in our early research that it was critical to get our rental and sell-through price within a three-times multiple,” Dunn said. “There are 83 million digital consumers — that includes streaming, buying, downloading or renting on VOD — and of those, 39 million don’t buy at all. But if we got the price point under $15 and had it in HD, and they were aware of it, we knew we could move some of those customers into a purchase habit.”

“Prometheus” was sold across an array of online retailers, including iTunes, YouTube, Amazon, Google Play and gaming consoles, and it’s the first Fox title to be made available on UltraViolet. Dunn said that unlike with studios’ past digital-sales efforts, Fox worked closely with physical disc retailers on its rollout plan, allowing the studio to aggressively promote the format without damaging key distribution relationships.

“This wasn’t an under-the-radar kind of release,” Dunn said.

Fox doubled down on website-takeover ads, social media and other digital marketing avenues to tubthump its “Prometheus” offer, eschewing traditional broadcast and print in order to target digitally savvy consumers. Looking to rebrand the experience of a digital purchase, Fox is calling its initiative Digital HD, and it hopes competitors will align behind the high-def moniker it believes is already well understood by consumers.

Studios also gain a marginal advantage in a digital sale vs. physical, as shipping and inventory costs are virtually nonexistent; however, the refined economics of discs have minimized those costs. More important is that to online distribs who do downloads, discs and rentals — like Amazon — the margin is equal, encouraging equal promotion.

But as long as customers are buying in some form, the studio is happy: The margin on a sale is always higher than for any single rental, and Dunn believes that as long as there’s disparity in digital adoption among households, disc sales will remain an integral part of the biz.

Though the three-week early availability for “Prometheus” will shrink to two for upcoming Fox titles, Dunn said expanding that window is something the studio will explore as the market matures. Until then, the mantra is simple: Just buy, baby.

“We’re more concerned that the purchase model remains intact,” said Dunn, “and we’re neutral as to whether the consumer buys a digital or physical product.”

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