Theater owners' true concern about Premium VOD

Fox, Warner Bros., Universal and Sony found themselves at the center of a firestorm last week when word got out that they had agreed to make some motion pictures available to DirectTV, Comcast and VUDU (an over-the-top Internet video service owned by Walmart) for premium VOD play 60 days after they premiere in theaters. Subscribers to those services would pay $30 per movie and would have 48 hours to watch them from when they purchase.

The National Association of Theater Owners protested the studios' decisions, saying that making movies available at home so soon after they open in theaters will "...fundamentally alter the economic relationship between exhibitors, filmmakers and producers, and the studios." On Sunday, the Chairman of Fox Filmed Entertainment replied, saying that only a small number of titles, primarily those that "don't realize their full potential in theaters", will be made available for early VOD.

Here's the underlying issue that theater owners are really concerned about: Their share of ticket sales from films increases the longer that a movie stays in theaters. The first week that a movie opens in a theater, the studio gets 80% to 90% of the boxoffice. In six weeks or so, the theater and studio are splitting the boxoffice receipts 50/50. If a movie stays in a theater for several months, the theater can take 80% of the boxoffice for itself.

Neither movie studios nor theater owners are concerned about true "bombs" going to premium VOD. What theater owners are truly concerned about is that movie studios will make titles that could last for months in theaters available through premium VOD, thus decreasing theater owners' opportunity for profit. If premium VOD becomes very popular, theater owners are concerned that they'll lose their exclusives on all profitable films after 60 days.

My personal opinion is that the premium VOD option may be a mirage. The premium VOD offering appeals to people who really don't want to go to a theater but are willing to pay a fairly huge premium in order to see a movie at home, perhaps two months before they can buy it on DVD or Blu-Ray for the same or less money, and 90 days before they can get it for $1.00 at Redbox or from Netflix. So, the theater owners and studios may end up fighting over nothing, but don't be surprised to hear and see a lot about this over the next few months.