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DirecTV poised to launch premium video-on-demand as theater executives voice outrage [Updated]

March 2, 2011 |  2:43 pm

DirecTV is in advanced talks to be Hollywood's first partner for early video-on-demand, a plan that is putting it in the cross hairs of the nation's top theater chains.

People familiar with the matter said the satellite TV company would likely be the first distributor to launch so-called premium VOD, through which consumers would pay about $30 to rent a movie via the Internet or cable 60 days after it opened in theaters and at least a month before it would become available on DVD.

The plan represents a significant step in Hollywood's strategy to make movies available in the home earlier and in new ways to generate fresh revenue as DVD sales continue to fall and domestic box office has been stagnant. It has previously taken a minimum of three months for films to shift from theaters into the living room.

DirecTV is looking to introduce its product by the end of June with movies from 20th Century Fox, Sony Pictures and Warner Bros. Walt Disney Pictures is also in talks to join the initiative, the people said, while Paramount Pictures and Universal Pictures are not expected to participate initially.

In a conference call with Wall Street analysts Feb. 23, DirecTV Chief Executive Michael White said his company was talking to studios about launching a "trial" by the middle of the year in which "perhaps we'll try something that's four to six weeks from theatrical release."

A spokesman for DirecTV, the nation's second-largest pay television provider with 19.2 million subscribers, declined to discuss the VOD plans. White’s statement set off alarm bells in the exhibition community, however, where top executive believe such a shortening of the wait to see a movie at home would discourage consumers from going to theaters.

"If a film has a four-to-six week window to a home, we're not going to give it screen time," said Amy Miles, chief executive of the nation's largest theater chain, Regal Entertainment. "That's outside the realm of any conversation we have had with the studios."

Gerry Lopez, chief executive of second-largest theater chain, AMC Entertainment, was equally adamant. "We do not intend to screen movies released under such circumstances," he said. "We understand the problem that studios are facing when DVD sales are nosediving, but we don’t see premium VOD as any kind of solution."

People close to the six biggest Hollywood studios have said they aren't considering VOD earlier than eight weeks. But while theater owners aren't threatening to boycott releases under such a scenario, they have said that even that amount of time would be destructive to the box office business.

The issue has strained the symbiotic relationship between studios and theater owners, who complain that they have not been included in the plans. In response, theater owners have become more vocal about preserving the traditional 90-plus-day wait before movies are released into the home market.

"What I'm concerned about is that we could end up hurting the business and trading a quarter for a dime," said Ellis Jacob, chief executive of Cineplex Entertainment, the largest theater chain in Canada.

However, some in Hollywood including Time Warner Inc. Chief Executive Jeff Bewkes and Walt Disney Co. CEO Bob Iger have argued that there is untapped revenue to be found with premium VOD, contending that it would provide an alternative to piracy and have little or no effect on ticket sales.

Still, studio executives are wrestling over just how much to accelerate home-viewing releases without threatening the still-vital movie theater business, which generated $10.6 billion in the U.S. and Canada last year. The worst scenario for theater operators would be if the studios decided to release a movie directly into the home on the same day it opened in theaters, though there appear to be no plans to do that at this time.

Movies that will be part of DirecTV's premium VOD launch have yet to be identified, in part because key details still need to be resolved. One is whether to bundle a DVD with the premium VOD. Under that scenario, consumers would pay $30 to watch the movie at home and then receive a copy of the DVD when it came out, possibly for an additional fee.

Cable providers including Comcast are also talking to studios about offering premium VOD rentals, but DirecTV is furthest along in negotiations.

DirecTV and other providers want to launch premium VOD with as many studios on board as possible. Negotiations are tricky, however, as movie companies are not allowed to discuss their plans with one another due to antitrust restrictions.

It remains to be seen, however, how many consumers will be willing to pay $30 –- about the cost of four average-priced movie tickets –- to see a film at home when it will be available to buy or rent on DVD in as little as a month.

At an investors conference on Feb. 17, Disney president of distribution Bob Chapek said that premium VOD could be particularly appealing for "families with very young kids, who can't make it to the theaters."

A studio trade organization, the Digital Entertainment Group, is working with its members to put together a brand name and industrywide marketing campaign to promote the general concept of premium VOD, a person familiar with the situation said. The studios have previously worked together in a similar manner to advertise other home entertainment offerings such as high definition Blu-ray discs.

-- Ben Fritz and Richard Verrier

Staff writers Dawn C. Chmielewski and Joe Flint contributed to this report.

[For the record, 4:41 p.m.: An earlier version of this post incorrectly stated that total box office in the U.S. and Canada in 2010 was $9.6 billion.]

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