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Resurgence of Premium VoDs Will Gain Market Momentum in Early 2018

The concept of Premium Video-On-Demand (PVoD) will enable consumers to rent digital movies in the comfort of their own homes, while the title is concurrently screened in traditional bricks-and-mortar theatres.

Most major Movie Studios advocate PVoDs, as a means to monetize an additional content license window in light of stagnant box office revenue and declining physical media, (DVD), sales.

Theatre owners who oppose PVoDs cite potential cannibalization of theatre ticket and concession sales. In 2011, 2013 and obstinately again in 2015, Studios attempted to experiment with PVoD market trials, toiling with an elusive combination of the ideal price, title, license window and target audience.

After almost half-a-decade of experimentation, the PVoD concept withered as a result of disappointing market performance, lack of industry consensus on the business model and the sheer weight of opposition from theatre owners. Fast forward to 2017 and the muted discussions on the merits of PVoDs are once again being resurrected. However, the renewed interest in PVoD this time around will gain traction due to a number of emerging market factors.

Stagnant Box Office Revenue and Declining DVD Sales


Traditionally, Studios monetize their titles through different distribution channels, granting access across various content license windows. Since the value of the titles deteriorate over time, the earliest windows generally generate the most revenue. Today, the coveted first 12-weeks are exclusively allocated to theatrical screening. However, due to stagnant box office revenue and declining physical media sales, Studios are, again, considering offering digital home video licenses during this period.

Content Windows

The PVoD Sweet Spot

For most titles, the bulk of the box office revenue is generated in the first 6-week period of a 3-month theatrical run. However, revenues decline dramatically during the subsequent 8-week and 12-week periods. Of the historical top-20 highest grossing titles, (unadjusted domestic box office revenue), there was an average of 86.6%, 92.7% and 96.2% revenue decline relative across the 6th, 8th and 12th week period, (relative to the 1st week, with outliers discounted).

It is within these periods that an opportunity exists to recoup the loss with PVoDs without significant risk of cannibalization. Studios will assess the theatrical performance and determine when to open the PVoD windows, (e.g. after specific number of screenings). The industry is already experimenting with an “Early Release” window, (typically 10-12 weeks at a 30% markup from New Release). To push the envelope even further, Studios are contemplating windows as early as 15 to 60-days with retail prices ranging from $30-$60.


Replication of Premium Theatrical Experience

Since the last PVoD market trials in 2015, advancements in video quality, audio quality and broadband access have enabled consumers to replicate the theatrical screening experience in their homes, enhancing the PVoD value proposition. Video quality in 4K, UHD and HDR, sound quality in Dolby Atmos and 7.1, high-end consumer electronics and Gigabit broadband speeds, all contribute to close parity with a theatrical screening experience. Given the premium, in-home experience, zero restrictions on number of viewers, and avoidance of inflated concession prices, the PVoD price point may be much more palatable for consumers.

Competitive Advantages to Combat Netflix and Industry Heavyweight Participation

Traditional Distributors of digital home movies, (e.g. Cable, Satellite and Telco PayTV Providers) are incentivized to participate in the PVoD commercialization, as they would not only share in the resulting revenue but more importantly would gain a competitive advantage over Subscription VoD (SVOD) providers such as Netflix. Additionally, recent interest from industry heavyweights, Apple and Amazon, will accelerate PVoD market traction. Both Apple and Amazon are reported to offer PVoDs by early 2018.

Final Prerequisites for PVoD Commercialization

The lessons learned from past market trials have uncovered a number of considerations that still need to be addressed prior to commercialization.

  • One size does not fit all:  The take rates of any PVoD title is attributable to several factors: the target market, the title, the price, and the offer window. Prospective purchasers are likely to be in markets with higher disposable incomes, higher video service ARPU and low piracy. Additionally, performance of title in specific genres, (e.g. Action, Family-Animation), will likely perform better as a PVoD offering. In summary, Studios will select titles from their slate based on screening performance and their predictability models, anchored by market intelligence.
  • Consumer value-based pricing: Value-based pricing will help justify the premium price points of PVoDs, (e.g. higher quality video, earlier availability). Upsell/cross-sell offers like rent-to-own will incentivize and convert rental to EST purchasers. Costs to promote titles could be optimized and leveraged across both the theatrical and PVoD releases.
  • Zero-sum proposition: While the Studios and distributors benefit from PVoD revenue-share, there are other members of the ecosystem that need to be appeased, namely the theatre owners. Since the box office revenues dramatically decline during the last few weeks of the screening, theatre owners may be incentivized to reduce overall screening time to eliminate costs. Additionally, opposition from theatre owners may reduce if they are able to participate in the PVoD revenue-share.
  • Extra Security Precautions: Given the high levels of piracy in emerging markets, (e.g. Southeast Asia, Africa), PVoDs are exceptionally vulnerable and extra precautions in protecting the content are necessary. Non-perceptible watermarking that can be traced down to the specifics of the consumer account and device, revocation of access upon violation detection and output disablement are all critical content security.

While the PVoD monetization opportunity existed in the past, it is the current, favorable market factors and development of technology enablers that will drive PVoD market traction in early 2018.

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