WB seizes the moment for VOD

Execs detail strategy for road test of early-window for pics

Warner Bros. has little doubt there’s an opportunity to turn premium VOD into a lucrative new revenue stream. But the studio is treading cautiously and deliberately to make it happen.

“We know that consumers are accessing movies earlier, but the only content they have access to today in the earlier window before DVD is pirated,” Warner Bros. Home Entertainment Group prexy Kevin Tsujihara told Variety. “This is about creating a legitimate offering and gathering and evaluating data.”

In a lengthy interview Monday, Tsujihara and Warner Bros. Pictures Group prexy Jeff Robinov detailed the studio’s strategic rationale for launching the premium VOD experiment with DirecTV this week — making them the first studio execs to publicly address the specifics of the window-shifting plan.

WB is one of four majors, along with Fox, Sony and Universal, backing the rollout of a $30 VOD offering for selected titles 60 days after a pic’s theatrical release.

Tsujihara and Robinov emphasized that a large amount of research and planning preceded the decision to experiment with premium VOD via DirecTV; key factors were antipiracy concerns, pricing and timing the VOD window to appeal to consumers while still protecting the B.O. potential of the theatrical release window.

The duo noted that part of the appeal of a $30 premium window lies in enhancing the value of new release theatricals in the public’s eye — in the face of increasingly widespread distribution of pics via cheaper subscription service Netflix and discount kiosk operator Redbox. Having some consumers balk at a steep $30 fee for some individuals was the point; Tsujihara asserted that the higher pricetag for pics would only help enhance the value of the product in theaters for some moviegoers.

“We view exhibitors as our partners. We view them as a very important part of establishing the value of the movies, which is really important,” Tsujihara said. “If you look at the things we think have devalued movies — and our company has been pretty upfront about this — we think that services like Netflix and dollar rentals like Redbox devalue from a consumer’s perspective the value of the movie. Re-establishing premium content at a premium price helps not only the prior window in theatrical but also ancillary markets afterwards. That’s a key part of the thought process Warner Bros. had in establishing the wholesale price that drives the ultimate retail price of this product.”

The execs settled on the 60-day window after studying B.O. trends that clearly indicate that pics make the bulk of their money in the first month and a half or so at the plexes, Robinov said.

“Generally, movies play four to six weeks — that’s when you get the majority of the collections,” Robinov said. “The exceptions are movies like ‘The Dark Knight,’ ‘The Hangover’ and ‘Inception,’ ” Robinov said. “But those are in the minority of the films we release. For the majority of films we release, the collections are made in the first six weeks.”

Robinov noted that the studio insisted on being able to adjust the premium VOD window for those movies that do have legs in theaters.

“We gave ourselves the flexibility on the occasions when they do play out longer to not include them in the service,” Tsujihara said. “But we also did some market research on what consumers were willing to pay at what periods of time. And consumers came out very bullish on willing to pay a premium at 60 days.”

DirecTV’s ability to market the availability of titles is restricted to a week before the movie becomes available on VOD so as not to conflict with the theatrical marketing campaign.

As a result, studios aren’t expected to reveal which films they’ll offer via premium VOD until well after they unspool in theaters. Warner Bros.’ rollout launches this week with the Farrelly brothers’ laffer “Hall Pass.” Robinov said the studio still had a decision to make on what the second title will be.

The marketing restrictions should help put the top three exhib chains — Regal Entertainment, AMC Entertainment and Cinemark Holdings — a little more at ease following threats to pull trailers for films earmarked for DirecTV’s Home Premiere service.

Tsujihara and Robinov compared the majors’ desire to carve out a new VOD window to the exhibitors’ push nearly a decade ago to add in-theater advertising to their screens. WB and others were initially very concerned about the impact of blurbs running in theaters but ultimately they recognized exhibs’ need to pursue new revenue streams.

The ability to experiment with windows has been important to Home Premiere’s studio backers, who have led the charge in holding off rental companies like Netflix and Redbox from offering films until 28 days after they hit DVD, Blu-ray and standard VOD.

In addition to “Hall Pass,” Home Premiere will bow with Sony’s “Just Go With It,” Fox Searchlight’s “Cedar Rapids” and Universal’s “The Adjustment Bureau,” with those films available to rent for viewing over a 48-hour period.

Depending on the results of tests in certain markets, the pricing and other specifics of Home Premiere product may well evolve.

Although studios have been vocal for years about wanting to experiment with premium VOD, it took longer than expected to make sure films could be protected from being copied and illegally distributed online.

Without that kind of safeguard, studios risked hurting a weakened but still very lucrative homevideo biz that earns $19 billion each year. VOD generated $1.8 billion last year, according to the Digital Entertainment Group. That’s expected to grow, with nearly 21% of consumers surveyed in a new report from NPD Group saying they have used paid VOD through their TVs to watch a movie over the last three months.

Home Premiere will essentially use a version of the forensic watermarking technology studios currently rely on during the Oscar season to link screeners to voters who get the discs mailed to them. If a pirated copy of a pic winds up online, the watermarking should allow the majors to track it to the individual who first received it.

The willingness to embed that kind of copyright protection is what ultimately convinced WB and others to partner with DirecTV first on Home Premiere.

The studios felt safer with DirecTV given that the satcaster has been more aggressive in replacing its set-top boxes in homes with more updated hardware that can employ the digital watermark technology.

And by choosing a single nationwide provider, studios will have 8 million-10 million homes (the number of DirecTV subscribers able to receive high-end VOD) to focus on as they monitor how consumers react to the service.

For WB, the test phase is expected to run through at least the end of the year. But the long-term goal is to roll out similar services on major cable operators that agree to implement watermarking and other antipiracy features.

“It’s going to take as long as we need to get comfortable with our hypothesis of what the impact to the upstream and downstream markets will be, and for us to see whether consumers accept this as an offering and whether the (digital rights management) works,” Tsujihara said.

For now, DirecTV will oversee management of the Home Premiere brand given that the service is being rolled out exclusively on the satcaster and that only four studios are currently backing it. Oversight could shift over to an industry org like the Digital Entertainment Group once more studios and distributors, as well as cablers, come aboard.

Because of a smaller audience, much of the heavy marketing support is also expected to come from DirecTV and not the studios.

Still, WB’s executives, in particular, are approaching Home Premiere in a manner similar to how the studio first considered releasing films on DVD, Blu-ray and VOD at the same time — as a test case.

Because retailers worried that day-and-date VOD offerings would impact disc purchases, the studio spent more than a year testing such releases in two cities. Service was launched across the country after results showed that VOD had little impact on sales of physical discs.

Tsujihara acknowledged that some DVD retailers are worried about premium VOD. But the execs emphasized that none of the plans are set in stone and that premium VOD is still very much in the experimental phase.

“Our goal, just to be clear, is that this is a test,” Robinov said. “It’s designed to gather information for us.”