High-def VOD could add $5 billion to home entertainment pie

In a survey of 2,000 U.S. consumers for the report “At the Digital Crossroads: The Future of Home Video,” the firm found that consumers would be willing to pay $7 to $9 for an high-def movie on demand or a high-def rental download released in the DVD window. That’s roughly double the $4 they pay today for mostly standard-definition films that debut a month or more after their DVD release.

The higher price would not only optimize VOD revenue, but could also mean a 40% reduction in any cannibalization of DVD sales that come from offering VOD movies in the same window, researchers say.

Oliver Wyman predicts the increased VOD price paired with day-and-date offerings could entice consumers to watch three more movies a year on average, generating an additional $5 billion to $10 billion in consumer spending by 2010.

At the same time, researchers predict Blu-ray sales will increase, leading to a 6% rise in spending on packaged media. DVD retailers also could raise the price by $2 on releases that include an e-copy for transfer to a computer or portable device without consumer repercussions.

It’s worth noting that the company is more optimistic about DVD and packaged media spending than others, estimating 2007 spending of $28.7 billion. Video Business research pegged consumer spending at $22.9 billion.

“This research reveals a clear opportunity for the industry to introduce new offerings that tap unmet consumer demand, while fitting well with existing movie distribution channels,” said Mark Teitell, a partner in Oliver Wyman’s Media & Entertainment practice. “Ultimately, the consumer will benefit the most—and be willing to pay for those benefits—from the additional choice and consumption options.”

The report comes as studios test day-and-date releases with leading cable companies Comcast and Time Warner. Last summer, Warner Bros. said that early results showed a 50% increase in VOD purchases in test markets where movies debuted simultaneously. DVD sales also saw a 10% uptick, according to Warner, but DVD rentals were off 2%.

Warner has begun releasing more films day and date nationally following those tests, with six movies in the first quarter getting a simultaneous release. Other studios have been more reluctant to shut the window.

The movie-download business also would benefit from a closed window and higher pricing for high-definition rentals, researchers say. The study predicts that spending for Internet-downloaded rentals and sales will grow to $2.5 billion by 2009.

Consumers surveyed prefer renting a movie online to buying a digital download because they don’t believe owning a digital copy is the same as owning a DVD. However, if digital downloads worked on more devices and consumers could burn a copy to DVD and have a backup copy kept in an online storage locker, consumers said they’d be willing to pay $5 more to buy a digital download.

Currently, digital downloads are severely limited in playback by digital rights management technology. Film downloads bought through iTunes can be played on any computer with iTunes software, on iPods and the Apple TV. Film downloads bought through other Internet download companies that use Microsoft DRM can only be viewed on a PC or a Windows-compatible portable player.