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Viacom, MGM, Lionsgate kick it old school - April 20, 2008

Old habits die hard in Hollywood. One of the hardest to shake, apparently, is the habit of exclusivity. At a time when many content creators and distributors are searching for ways to capitalize on the ubiquitous distribution of movie and TV programming made possible by new digital platforms and devices, Viacom, MGM and Lionsgate are trying to kick it old school with a new, digitally powered pay-TV channel premised on exclusive windows and exclusive access to content from the partner studios.

The three companies announced the new service Sunday, and are looking to launch in September, 2009, when all of the partners' current pay-TV commitments will have expired and their movies can be included in the new, exclusive offering. Details of the online and VOD components of the venture will be spelled out over the next few weeks but unlike NBC's and News Corps.' Hulu likely will not be ad-supported Daily Variety reported late Sunday.

The studios did not disclose financial details of the partnership, but Viacom will take the lead in providing operational support, including marketing and affiliate services, through its MTV Networks unit. Given MTV's pull with cable and satellite operators, that should help the new service gain initial distribution on crowded cable pipes.

Reports surfaced Sunday that plans for the new venture came together only in the last few weeks, after talks between the partner studios and Showtime over renewing their current deals broke down over price.

"They were asking for outrageous license fees," Showtime spokesman Stu Zakim told Multichannel News. "The landscape has changed dramatically since the last time these deals were negotiated. Movies, which go from the theater, to the airplane, to download on the computer, to DVD, are not as important to our business model as they once were."

That comment contains more than a little spin, but so too does Dauman's claim that Viacom et. al. have found the Fountain of Youth that will preserve the old business model.

"We wanted to control our destiny,” Dauman told the NYTimes. "We wanted to create a flexible service. There are a lot of restrictions in pay-TV deals as they stand now."

He's right that pay-TV deals have a lot of restrictions. But simply substituting one exclusive pay-TV distributor for another--even one you control directly--isn't likely to solve the problem Viacom is trying to solve.

The problem (if you want to look at it that way) is that exclusive distribution windows aren't so exclusive anymore, (at a minimum because of piracy but ultimately because of changing consumer expectations) so it's harder to command an exclusivity premium for your content. Simply rearranging the exclusive deck chairs on the Titanic isn't going to bring that premium back.

In the near term, Viacom and the others may indeed figure out a way to squeeze a few more bucks out of the pay-TV window than re-upping with Showtime would have brought them. But they won't be able to sustain that for very long.

Consumers increasingly expect anytime-anywhere access to the content being marketing to them by the likes of Viacom, MGM and Lionsgate. If someone doesn't sell it, rent it or license it to them on those terms, they can and will find other ways to get it on their preferred terms.

In the long run, the only real way out for content owners is to forget about the exclusivity premium and to figure out how to leverage ubiquitous post-theatrical distribution for maximum profit dollars.
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