Comcast Sees More Videos On-Demand In NBC Universal
By Nat Worden, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Part of Comcast Corp.'s (CMCSA) desire to take control
of NBC Universal comes from its appetite for film content from Universal Studios
to bolster its video on-demand offerings.
By gaining control of the film library of a major Hollywood studio, the
nation's largest cable services provider hopes to build VOD into a real growth
engine for the entertainment business that could ultimately replace the DVD.
Still, it's far from clear that the acquisition of Universal Studios would
immediately help Comcast boost its VOD business.
Just as the music business has suffered from the decline of CD sales and the
publishing business has suffered from the decline of newspaper and magazine
sales, the movie business is being squeezed in the digital age by a slowdown in
its most profitable business: DVD retailing.
Hollywood views VOD--movie rentals that cable subscribers can select on their
TV without leaving their couch--as one potential savior. But studios have been
slow to embrace the business for fear of adding to the decline in DVD sales and
running afoul of key retailers, like Wal-Mart Stores Inc. (WMT), which makes up
nearly a third of all DVD retail sales in the U.S. and is known to be a
demanding partner.
As the cable industry's leader in VOD, Comcast sees an opportunity developing
now to push studios into its corner. That's part of its motivation in
negotiating with General Electric Corp. (GE) about taking a majority stake in
NBC Universal, according to people familiar with the matter. A deal is expected
in the coming days or weeks.
"The margins that movie studios make on a rental from VOD are much better than
the margins they make through" Blockbuster Inc. (BBI) or Netflix Inc. (NFLX), "
so it has always been a riddle as to why the studios haven't been quicker to
embrace it," said Craig Moffett, analyst with Sanford C. Bernstein & Co. "The
prospects for making progress on this issue now are much better than they used
to be."
By controlling Universal, Comcast could use access to its blockbuster film
slate to experiment with VOD delivery and inspire other studios to follow suit.
Options include moving up the VOD release date on some films ahead of their DVD
release, and charging a higher price point to boost profits.
Representatives for major film studios, including Universal, declined to
comment for this story. However, several industry participants are skeptical
that Comcast would make much headway on VOD as a result of the acquisition,
pointing to other false starts.
The combination of Time Warner Inc. (TWX), owner of Warner Bros.
Entertainment, and Time Warner Cable Inc. (TWC) had little impact on the VOD
business and was recently abandoned. Likewise, News Corp. (NWS, NWSA), owner of
this newswire as well as 20th Century Fox films, owned a majority of satellite
TV provider DirecTV (DTV), but wound up divesting the stake.
In 2005, Comcast and a group of other firms paid $5 billion to acquire Metro-
Goldwyn-Mayer Inc., the film studio that owns the James Bond film franchise.
Comcast has since written off its 20% stake in that venture.
"The question now becomes why, if building up the VOD business is in
everyone's mutual interest, does it take a $30 billion deal from Comcast to make
it happen?" asks Moffett.
Still, there are signs that studios are embracing the shift away from DVDs.
The film industry is increasingly willing to release films on VOD at the same
time they release them as a DVD in stores. Historically, studios have held back
films on VOD to avoid hurting DVD sales, but that appears to be changing.
In 2007, Comcast offered nine films on VOD at the same time they were released
on DVD. In 2008, that number climbed to 35. It totaled 68 through the first nine
months of this year, and the company expects it to go over 100 by year-end.
Meanwhile, Comcast is averaging over 350 million VOD views a month this year, up
from 300 million last year and 250 million in 2007.
"As they see the DVD business change and decline, the studios are looking to
VOD and electronic sell-through and other non-physical ways to distribute movies
with a completely different mindset," said Comcast Chief Executive Brian Roberts
on a recent conference call.
Meanwhile, studios are still wary of sharing revenue with pay-TV providers at
a time when online distribution has enabled anyone to reach consumers directly,
but the movie download business has so far been dominated by Apple Inc.'s (AAPL)
iTunes service.
-By Nat Worden, Dow Jones Newswires; 212-416-2472; nat.worden@dowjones.com
(END) Dow Jones Newswires
11-24-091531ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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