CFO: Time Warner mulling premium video on demand; $20 or $30 could get you new movies sooner

CFO: Time Warner may test premium VOD next year

LOS ANGELES — Time Warner Inc.’s chief financial officer John Martin said Thursday that early next year the company will likely test letting people pay $20 or $30 to watch new-release movies at home within a month or two of their debut in theaters.

Martin made the comments on Thursday at an investor conference in New York hosted by Goldman Sachs.

Media companies have begun exploring so-called “premium video on demand” services after the Federal Communications Commission ruled in May that cable and satellite TV providers could turn off output connections on the backs of newer sets to prevent illegal copying.

The ruling opened the path for studios such as Time Warner’s Warner Bros. to allow new movies to be watched in homes in a way that wouldn’t cut into sales of DVDs and Blu-ray discs, but instead open a new high-profit-margin revenue stream.

The plan has irked theater companies, which are concerned that letting people watch movies at home too early will hurt ticket sales. Currently, movies are in theaters for a month or more, followed by a delay of several months before they are available in the home video market, which includes disc sales, rentals and video-on-demand, or VOD.

“The idea would be 30 or 60 days after a movie is released into the theaters, allowing an event VOD type of service offering for, I don’t know, $20, $30 for those people that maybe like me, have kids,” Martin said. “You don’t always have the flexibility to get out to the movie theaters.”

“It’s an idea that we’ve been talking about and we’re likely going to experiment with, perhaps as early as sometime the beginning of next year,” he said.

Morgan Stanley analyst Benjamin Swinburne estimated in a research note late Wednesday that the offering will be tested in trial markets as early as this year with prices ranging from $25 to $50.

He said such a service “is likely to be positive for the studios” as they try to make up for double-digit percentage declines in DVD sales. As well, about 70 percent of the transaction price of video-on-demand is funneled to studio owners, compared to about 55 percent for theater tickets, he wrote.

Studio profits could increase by low single-digit percentages even if three-quarters of premium video-on-demand purchases result in fewer tickets being sold at movie theaters, he wrote.

Martin said the higher profit margins on digitally delivered movies are part of what’s behind the push to provide video on demand. A person renting a video from a set-top box is more profitable to the studio than a person renting it from Netflix or a video store.

“We are trying to drive home entertainment behavior in such a way that it’s the highest-margin opportunity for us as the studio,” he said. “It’s one of the reasons why we are trying to drive growth in VOD.”