Will Premium VOD Be A Premium Flop?

Movie studios are looking for even more ways to gouge audiences, and now are keying in on creating a new window that would enable viewers to watch recently released films without going to the movie theater — but for a higher price. With a new proposed “premium” VOD service, studios like Sony Pictures, (s SNE) Warner Bros. (s TWX) and Disney (s DIS) hope that they can capture the at-home viewing audience while still maintaining the high cost of watching a movie on the big screen.

The studios are currently in talks with VOD firm In Demand to make movies available to cable customers some 30 to 60 days after they open in theaters. Premium VOD offerings would cost anywhere from $20 to $30 a showing, compared to the $5 a piece for traditional VOD titles, and average ticket price of around $8 for watching the movie in a theater.

In Demand is a partnership of cable heavyweights Comcast, (s CMCSA) Time Warner Cable (s TWC) and Cox Communications and serves multiple cable providers with VOD services. By partnering with the company, the studios could get at-home distribution to tens of millions of households. According to a report by Bloomberg, Disney is also in discussions with consumer electronics manufacturers to make its titles available in the same window on over-the-top video services.

But the premium VOD offering faces several challenges: for one thing, the plan alienates theater owners, which are already unhappy with the way that the studios have handled the DVD release window. Earlier this year, theater owners threatened to revolt against Disney for planning to release the film Alice on DVD three months after its theatrical release, as opposed to waiting the usual four months. Creating a new window that threatens to take away more potential theater revenue would only cause more friction with exhibitors.

Creating another premium-priced window could also alienate consumers, who are already dealing with rapidly increasing viewing costs. The average movie ticket price increased 8 percent over the last year, and consumers are showing their dissatisfaction by voting with their feet. Despite a higher take at the box office over the summer, fewer people actually went to the movies, as U.S. summer movie attendance in 2010 was at its lowest point since 2005. Much of that increase is due to the growth of 3-D movie watching, but the higher prices are already starting to cause some backlash.

More importantly, the at-home audience already has a wealth of choices at its disposal without having to resort to what amounts to a $30 rental of a film, even in a “recently released” film window. While theoretically the cost of a $30 VOD purchase is lower than the cost of a family of four going to the movies together — especially when one considers the cost of concessions, etc. — that $30 VOD rental will be compared to a $5 VOD rental through the same service. As a result, the amount of potential consumer demand is bound to be limited.

Offering a new, higher-priced VOD service may seem like a good idea to the studios — after all, they’re creating a new product with higher margins and trying to appeal to an audience that is more inclined to stay at home and view content on demand than go to the theater. But by selling it at such a premium, they’re not appealing to the budget-conscious folks that they’re trying to appeal to at all. And meanwhile, they’re annoying their usual distributors in the process – all of which sounds like a recipe for disaster.

Photo courtesy of (CC-BY-SA) Flickr user tnarik.

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