For Some Movies, ‚ÄėSecond Pay Window‚Äô Can Come Years After Theatrical Release. Implications for Streaming Business?
by Terence Keegan
Time was subscribers to Netflix‚Äôs discs-by-mail service faced a ‚Äúvery long wait‚ÄĚ for popular titles. Now, in the age of streaming subscription services, that wait is measured in months, if not years ‚ÄĒ despite the instant-access convenience of the technology.
Following Wednesday‚Äôs announcement by Amazon‚Äôs Lovefilm that it had secured ‚Äúsecond pay window‚ÄĚ rights to Universal movies in the UK, we asked analysts about the evolving nature of pay-TV windows, both in the U.S. and abroad.
Windows for video-on-demand and pay-TV services ‚Äúcan absolutely vary‚ÄĚ with the advent of subscription streaming, according to Michael Pachter, managing director of equity research for Wedbush Securities. But Pachter tells M&E Daily that while all services ‚Äúwant content as soon as they can,‚ÄĚ it‚Äôs hard to say how critical first-run rights to content are to the market success of Netflix, Lovefilm, or other streaming services.
Netflix, for one, maintains that its subscribers value breadth-and-depth over first-run access ‚ÄĒ at least when it comes to DVDs by mail in the U.S. Speaking at a Nomura investor conference in New York on Wednesday, Ted Sarandos, Netflix‚Äôs chief content officer,¬†said that ‚Äústay[ing] out of the path of the first 28 days of VOD transactions or DVD sales….supports the overall creation of content‚ÄĚ (via Home Media Magazine). (The more content that‚Äôs created, the broader catalog Netflix will have to license/offer.)
In Netflix’s disc rental business, the 28-day window remains relatively settled, apart from the company’s 56-day window for Warner titles. But among movies available via streaming services from Netflix and other companies, windows run considerably longer.
Richard Broughton, senior principal analyst and head of broadband at IHS Screen Digest in London, illustrates how UK pay-TV windows typically are structured with the example of Universal film ‚ÄúGreen Zone.‚ÄĚ The movie ‚ÄĒ among those that Lovefilm offers its streaming subscribers as of May 2012 ‚ÄĒ was released in UK cinemas more than two years ago, in March 2010, according to Screen Digest. It then saw a pay-per-view release via the Sky Box Office in July 2010, followed by availability to subscribers of the Sky Movies service beginning in late January, 2011.
‚ÄúSo Lovefilm customers,‚ÄĚ Broughton tells M&E Daily, ‚Äúare likely to have to wait a reasonable amount of time from a film‚Äôs debut on Sky Movies before gaining access. With blackout periods taken into account, Sky looks to have the films for roughly 14 months.‚ÄĚ Screen Digest‚Äôs estimated length of the Sky window is in line with the recent findings of the UK‚Äôs Competition Commission on movie windowing structures in the country, Broughton adds.
To be sure, windowing strategies are in flux in every segment of movie and video distribution, from theatrical to streaming. For content owners, the value of ‚Äúnew release‚ÄĚ content in any window is one issue. But the instant-access nature of streaming services ‚ÄĒ not to mention the obvious technological feasibility of day-and-date theatrical and digital movie debuts ‚ÄĒ gives rise to a more complicated question: when does a ‚Äúnew release‚ÄĚ program cease to be ‚Äúnew‚ÄĚ in today‚Äôs marketplace?
As far as Lovefilm and Universal‚Äôs movie deal goes, ‚ÄúLovefilm is getting hold of the films potentially over a year later than Sky, which will diminish the appeal of the catalogue,‚ÄĚ Broughton says. ‚ÄúIt‚Äôs hard to quantify in monetary terms, but the effect is present.‚ÄĚ
Cord-cutting may not have reached worst-nightmare proportions for pay-TV providers in 2011. But one in five Americans has either already cut their pay-TV service, or is exploring cutting their service in the months ahead, according to findings of a new Deloitte survey.
Deloitte found that 9 percent of consumers have already cut the cord, while 11 percent are considering doing so ‚Äúbecause they can watch almost all of their favorite shows online.‚ÄĚ An additional 15 percent of respondents say that they will most likely watch movies, television programs, and videos from online digital sources (via download or streamed over the Internet) in the near future.
Consumer perceptions notwithstanding, the online offering of TV shows (at least from legitimate sources) has not yet reached parity with pay TV services. Some pay-TV networks, such as TNT and TBS, require viewers to log in with account details in order to access new episodes of top shows.
Meanwhile, Leichtman Research Group, which tracks takeup of cable, satellite, and broadband Internet services in the U.S., deems cord-cutting to be ‚Äúthe phenomenon that still isn‚Äôt.‚ÄĚ In fact, Leichtman says, the top 14 multi-channel video providers (cable, satellite, and telco services combined) did not cumulatively lose any subscribers in 2011; instead, the industry gained some 240,000 customers.
Still, the research firm notes, the growth has slowed dramatically over the prior year, when the industry added 780,000 video subscribers.
Speaking at a Bloomberg-sponsored event at the Tribeca Film Festival, Time Warner chief executive Jeff Bewkes said that the Warner-backed premium video-on-demand push was in response to the ‚Äúthree-week life‚ÄĚ that most films have in theaters. That said, Bewkes noted that studios ‚Äúhave to‚ÄĚ keep theater owners‚Äô interests in mind if they are to persevere (via The Hollywood Reporter).
Perseverance will be an issue as well for pay-TV distributors over the next 10 years, Bewkes mused: the marketplace, he said, could consolidate to three to five big companies.
Fox joins ABC, CBS, NBC, and broadcaster-backed Hulu in blocking Google TV devices from accessing programs streamed on its websites, according to paidContent. Google continues to count among its partners cable networks such as HBO and Turner‚Äôs TBS and TNT, along with electronics makers Logitech and Sony Electronics, and online video sites such as Sony-owned Crackle (which announced an optimized site for Google TV this week, via GtvHub).
Speaking at yesterday‚Äôs NewTeeVee Live conference in San Francisco, Google TV executive Rishi Chandra tried to characterize broadcasters‚Äô ambivalence as a matter of course. ‚ÄúIt‚Äôs not unheard of when there‚Äôs a new technology,‚ÄĚ he said, ‚Äúthat a lot of incumbents in the space are trying to find out what that technology means for them.‚ÄĚ
But Chandra also tried to qualify Google TV as a complementary service, as opposed to a disruptor, to the traditional pay-TV business. ‚ÄúCord-cutting is not happening anytime soon,‚ÄĚ he said (via TechCrunch). ‚ÄúWe‚Äôre not trying to replace cable.‚ÄĚ
Discussing the cable operator‚Äôs third-quarter results on an analyst call today, Comcast Cable president Neil Smit said the vast majority of consumers dropping the company‚Äôs pay-TV packages are not migrating to web video services, but rather relying on free over-the-air broadcasts for entertainment (via The Wall Street Journal). Regardless, Comcast said, cord-cutting has less to do with customer cancellations than the economy. More than 40% of Comcast‚Äôs video subscriber losses this year, added CFO Michael Angelakis, have come from lower-end TV service offerings that have little impact on the company‚Äôs profitability.
Streaming premium TV series on the likes of Hulu has no place in the ecosystem of television distribution, argues media analyst Michael Nathanson in a new report for Nomura Securities (via Variety).
Pay-TV operators‚Äô fundamental business model of collecting subscription fees from consumers ‚ÄĒ while paying content companies retransmission fees ‚ÄĒ is sound, Nathanson asserts. But it’s also threatened: ‚ÄúMisguided attempts by owners to allow ‚Äėfree‚Äô distribution of premium content on the Internet,‚ÄĚ he says, ‚Äúonly damages this vital structure.‚ÄĚ
An increasingly crucial revenue stream to the seven largest media companies, Nathanson points out, is selling content to one another via retransmission, affiliate, and licensing fees. For the seven-biggest companies, which include Walt Disney and Scripps Networks, such revenues are projected to exceed $40 billion this year.
Variety has other excerpts from Nathanson‚Äôs report, titled ‚ÄúThe Only Thing to Fear Is…Stupidity Itself,‚ÄĚ on DVR usage and consumer spending on media, including film.
Nomura hired Nathanson in April to lead its new U.S. Media and Telecom equity research team. The publication of Nathanson‚Äôs report coincides with Nomura‚Äôs opening of an equities trading floor in New York yesterday (via the Wall Street Journal).
Economic factors such as high unemployment and a weak housing market led to a net loss of some 216,000 pay-TV subscribers in the second quarter, according to SNL Kagan. The aggregate pay-TV subscriber drop compares to a gain of 378,000 subscribers in the second quarter of 2009.
If there is a silver lining for pay-TV providers, at least the losses don‚Äôt represent cord-cutting for Internet video sources.
‚ÄúAlthough it is tempting to point to over-the-top video as a potential culprit, we believe economic factors such as low housing formation and a high unemployment rate contributed to subscriber declines in the second quarter,‚ÄĚ says SNL Kagan Analyst Mariam Rondeli. ‚ÄúWe are also seeing churn resulting from the broadcast digital transition, which boosted video uptake early last year, as many have abandoned their paid subscriptions once initial promotional contracts expired.‚ÄĚ
Cable operators are responsible for the industry‚Äôs net subscriber loss. Some 711,000 cable subscribers ended their service during Q2, and six of the country‚Äôs top eight operators reported their steepest quarterly video losses, Kagan says. Providers of satellite and telco video services, meanwhile, managed to add 81,000 and 414,000 subscribers, respectively, during the quarter.
Accordingly, cable‚Äôs share of combined video subscribers dropped to 61%, versus 63.6% in the second quarter of 2009. Telcos continue to take market share in the video business, growing from 4.3% in second-quarter 2009 to 6.0% in second-quarter 2010. Although the satellite industry expanded market share over the past year, the gains have been modest at less than 1%.
Full subscriber counts for cable, satellite and telco video services stand at 100.1 million.
Despite the growing amount of video available online, less than 8 percent of U.S. broadband households are considering canceling their pay-TV services in favor of online video, according to research firm Parks Associates.
The firm‚Äôs ‚ÄúAll Eyes on Video‚ÄĚ report is in line with previous Parks Associates studies, which do not show an appreciable likelihood of subscriber churn in favor of online video services. A 2008 study reported 11 percent of U.S. broadband households were considering canceling pay-TV services, and in an earlier 2009 survey, the number was 10 percent.
Approximately 5.5 million homes would be open to canceling pay TV due in part to the availability of online video, according to the new report. At the same time, one-half of these households are also considering a switch to a new pay-TV provider, indicating the primary threats to companies such as Verizon, Comcast, DirecTV, and Cablevision are still their traditional competitors.
The households likely to switch or cancel their services watch a 10 hours of online video each week, much higher than typical video consumers. They express strong interest in having online access to pay-TV channels (e.g., TV Everywhere), which highlights an opportunity for traditional pay-TV providers to solidify their base through the deployment of such features. Offline video consumption is also higher. Their median number of DVD rentals from the last six months is 18, compared to two rentals among other households.
‚ÄúThe threat of cannibalization is real but misunderstood,‚ÄĚ says John Barrett, Director of Research, Parks Associates. ‚ÄúNobody is going to rely on online video alone ‚ÄĒ households likely to cancel their TV services are going to use a mixture of online video, free-to-air broadcasts, and DVDs, including rental services such as Netflix and redbox.‚ÄĚ By Parks Associates
Epix has struggled to secure distribution with major cable and satellite TV operators, which were hesitant to add another pricey movie channel during a recession. When the service launched in October, it was carried only on Verizon’s Fios service. It has since signed deals with Mediacom and Cox Communications, which will begin to offer the movie service this spring. By the Los Angeles Times