Comcast proposes DVD/VOD service

FROM VARIETY: Hopes to offer films on VOD in DVD window then sell disc

By John Dempsey -- Video Business, 10/10/2005

OCT. 10 | Comcast is quietly trying to wolf down Blockbuster's lunch.

Like other operators, the cable giant is hell-bent on tapping into the billions of dollars that people spend to buy and rent DVDs -- and one scheme would put movies on Comcast systems the same day they touch down in the video store.

The move comes as the key players concoct new ways to unite content with potential customers. The truisms about strict windowing of product may end up being tossed out the window.

Sensing that the financially troubled Blockbuster is ripe for plucking, Comcast is sounding out the Hollywood studios on the following proposition: A Comcast customer with a digital box will see a menu listing for, say, The 40-Year-Old Virgin as much as six weeks in advance of its scheduled appearance on pay-per-view.

For a fee of about $17, the subscriber could call up the movie for one immediate video-on-demand showing. Two days later, the DVD of Virgin shows up in the mailbox for the subscriber's permanent collection.

Universal Studios Home Entertainment hasn't announced an exact DVD release date for Virgin, but it'll probably hit Blockbuster within four months of its Aug. 19 theatrical premiere.

If the Virgin DVD gets to the stores in mid-December, Comcast's PPV run would most likely begin in late-January/early February. Russ Crupnick, media analyst with the NPD Group, a marketing/research company, dubs this strategy "instant rental with ownership."

Comcast and other cable operators that are exploring plans of this type are betting that for the first time the movie companies might be willing to collapse the exclusive window (anywhere from 30 to 60 days) that the video store has always enjoyed, lording it over the cable systems. Cable's second-class citizenship during the last two decades prevented operators from turning PPV into anything more than a lazily meandering revenue stream -- just a trickle as compared to the multi-billion-dollar bonanza that changed the economic face of the movie business when videocassettes and then DVDs created a whole new category of retailers. But cablers are convinced that times have changed. They plan to motivate the studios by awarding them the same generous split (as high as 80%) of each $17 DVD purchase as studios get from Blockbuster or Costco.

Offering fresh movies in VOD, Comcast, for example, could turn its PPV movie operation, which grosses half a billion dollars or so a year, into what all operators seek: the killer application.

Mike Egan, cable consultant and partner in Renaissance Media, says Comcast's idea is the boldest strategy yet devised to counter "the poor treatment Hollywood has always given cable PPV in the windowing of its movies."

"For individual subscribers who want to see movies early and are willing to pay for the DVD," Egan adds, "it's a good deal."

Major studios like Disney and Sony might spark to the proposition, he says, because "they could use Comcast as leverage against the big retailers," such as Wal-Mart and Costco.

As a bargaining chip to get Wal-Mart and other discounters to pay a 10% hike for each copy of a new DVD, the studio might be prepared to keep it away from cable until the normal PPV window kicked in.

The studios' pitting buyers against one another would certainly be an unintended consequence of Comcast's blueprint to drive the growth of movies on demand.

One of the most vexing problems faced by Brian Roberts, chairman and CEO of Comcast, is that only 40% of the company's 21 million customers subscribe to the digital box.

That depressing statistic means that the other 60% have no access to Comcast's digital services, from VOD to personal video recorders to high-speed Internet access.

Aggressively seeking to drag customers into the digital world, Comcast has created an on-demand service that offers more than 300 movies and 600 TV shows a month, 90% of them at no extra charge.

Comcast has hired experts to negotiate with the major studios to buy as many as 50 library titles a year, at a total cost of $10 million, for use on an exclusive free-on-demand service called MoviePass.

The service kicked off in January with titles from Columbia Pictures. It will soon add dozens of movies each month from the MGM library, a legacy of Comcast's partnership with Sony to buy out the Lion last year.

Meanwhile, going after the DVD business is just another weapon in Comcast's arsenal to make the digital universe so enticing that all of its subscribers will be compelled to install the souped-up boxes.

But there are some skeptics.

Tom Eagan, media analyst with Oppenheimer & Co., said the major studios might think twice about obliterating the video business' exclusive-window advantage over cable.

Blockbuster might be struggling, Eagan says, but it still generates tons of rental income from DVDs, half of which gets funneled back to the studios in revenue sharing.

If the buying of DVDs on cable poses a threat to the dollar volume from video store rentals, the studios might take a pass.

And NPD's Crupnick said that cable TV's brainchild could sink of its own weight because most cable subscribers are unlikely to be interested in ponying up $17 to own the DVD of the typical theatrical movie.

Instead, they'll wait for six weeks until it becomes available for $3.95 on PPV. Or, if they insist on seeing it right away, they'll get to the corner store and rent it for $4.