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Comcast and the race to be third - May 15, 2007

Comcast president Steve Burke dropped a little grenade into a gaggle of reporters at the National Cable Show last week when he suggested that Comcast was working on deals to offer new release movies on pay-per-view the same day they debut in theaters for a price of $30 to $50.

The story quickly blew up large and drew sharp return fire from theater owners, pushing the story out of the trades and into the mainstream press.

But there was really no cause to get excited.

Comcast has been working on such deals for at least two years that I know of and probably longer. The news will be when a major studio actually pulls the trigger.

That could still take a while.

The deal being discussed, at least as I understand it, is a little different than what was initially reported.

The plan was not to create an open-ended video-on-demand window concurrent with the theatrical window. Rather, it would be a one-time—or at most one-weekend—high-def offering for $30 or $40, after which theaters would have the movie exclusively for another three to four months, until regular VOD and DVD kicked in.

The theory, among those in favor of the arrangement, is that some people with more money than time, who would not otherwise go to a theater onthe opening weekend, would be willing to pay a premium for a high-quality experience at home.

The net effect would be to expand the opening weekend audience without significantly cannibalizing theatrical traffic. If the revenue from the in-home option were counted toward the movie’s initial “gross,” it could even enhance its value in the ancillary markets, where sales and licensing fees are closely correlated with box office gross.

Interesting theory, probably worth testing. But as always with the major studios, no one wants to be the first into a new distribution strategy.

Whoever goes first is going to catch the brunt of the heat from the incumbent platform providers, be it theater owners, DVD retailers or pay-TV services. None of them want to get usurped and they can inflict significant short-term pain on any distributor who tries it.

With $100 million or more riding on the average film these days, it’s a rare studio exec willing to take the risk.

Even going second is a risk, because the incumbents will want to stop the practice from becoming a trend and will strike back hard.

But you don’t want to be last, either. Last makes you look like a follower, and followers are easily replaced.

The safest spot—the prize for which all such negotiations strive in Hollywood—is to be third.

Third is good. The first two studios have taken most of the heat. You’ve had a chance to learn from their mistakes. Best of all, once you stake out third place, the others will quickly fill in behind you as they scramble to avoid being last.

With any luck, people will quickly forget who went third, the trend will be established, and you can get on with business.

The trick for Comcast will be to figure out a way to let every studio claim third place.

 

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