Video-On-Demand Seen As A Studio Asset

In a new report issued by Merrill Lynch it is argued that Hollywoodís studios should support all means of video-on-demand or VOD. Dollar for dollar VOD is more profitable for Hollywood than video rentals, since the studios take about 45 percent of VOD revenue, while they see only about 25 percent of the dollars that consumers spend on video rentals. With revenue sharing the studios have been able to increase their take on video rentals of new releases to about 40 percent to 50 percent.AT&Tís plans to purchase MediaOne, the nationís largest cable service provider, for $56.4 billion is just the sort of involvement Hollywood needs to support VOD. To win federal regulators approval for its MediaOne purchase, AT&T has promoted that it would use its new cable assets to offer consumers local phone service and high-speed, digital access to the Internet. To do that, AT&T will have to invest in expensive infrastructure and rollout cable converters need for those services. In the process AT&T will have laid the foundation on which to deliver video-on-demand services to more than a third of the nationís cable households. The Merrill Lynch report forecasts that the digital VOD medium will produce between $3 billion and $6 billion per year in ancillary revenue to Hollywood. As VOD represents clearly big potential for Hollywood, the studios are now faced with how to encourage development of video-on-demand in the long term without cannibalizing video rental in the short run. Adding to the potential is satellite delivery of video-on-demand. Both mediums are sure to play a role in future VOD delivery.Whether video-on-demand will realize its full potential will largely be determined on the basis of positioning VOD as the first post-theatrical play window Should the studios decide to favor VOD as the first window rather than video rental, then the video rental market would no doubt decline.