Warner touts video-on-demand/DVD simultaneous release
By Susanne Ault -- Video Business, 6/4/2007
JUNE 4 | Video-on-demand content delivery should triple studio profit margins currently being earned in the traditional rental business, explained Warner Home Entertainment Group president Kevin Tsujihara during a Monday presentation at the Deutsche Bank Securities, Media and Telecommunications Conference. (Click for the webcast.)
Studios generally can expect 15% to 20% return on each consumer dollar spent in the rental business but should anticipate 60% to 70% when films are more efficiently delivered over cable systems, he explained.
Tsujihara was defending the results of a Warner-led study about VOD’s impact on the DVD sell-through and rental businesses, as first detailed by VB. When consumers could access VOD films at the same time as the movies’ DVD street, sell-through revenue climbed but rental transactions slipped.
“We did have marginal impact on rental activity,” said Tsujihara. “But it’s a highly inefficient means of distribution for us. We ship product into stores, they have to pay rent, labor. And then they turnaround and compete against me by selling previously viewed.”
In contrast, Tsujihara continued, with VOD, “I don’t have to fight through all these inefficiencies for consumers to get 24-hour access to my movies.”
Following the U.S. tests, Warner is next looking at experimenting with VOD offerings day-and-date with DVD in Belgium and Scandinavia. First, the studio will make 300 available in this fashion for these two markets.
“If you look at what the impact will be on our margins in the next 12 to 24 months, VOD on a global basis is going to be one of the most significant pieces of our business,” Tsujihara said.
Apart from VOD, Tsujihara also was upbeat about the industry’s fourth-quarter DVD performance. He acknowledged some current sales softness, but the summer blockbusters should ultimately prove winners for DVD.
“Year-to-date, we are down about 5% to 6%, but we will be looking at the biggest fourth quarter in history for DVD because of the titles coming to market,” he said. “Pirates 3, Shrek 3, Spider-Man 3, Ocean’s 13 and Harry Potter. I think that in the U.S., we will come out flat plus 1 [% over 2006].”
Additionally, Warner lauded its inroads into videogame distribution. Unlike rival Walt Disney Co., Warner is not seeking to become a heavy publisher of titles. But Warner is looking to make money in this arena by striking licensing deals for others’ products in the U.S. Currently, Warner oversees all U.S. sales, marketing and distribution for videogames made by U.K.-based publisher Codemasters.
“There’s a huge overlap in games and DVD,” said Tsujihara. “Our customers want our help in bringing some of our merchandising techniques in video over to the game space. We have more scale than [other companies] might have in this marketplace, and they can tag along with us. We think it’s a very big opportunity.”
