Time Warner's "Premium Video-on-Demand" Experiment is a Blind Alley

Talk about an initiative that flies in the face of all prevailing sentiment: Time Warner is moving forward on testing a new window for early-release movies on VOD priced at $20-30 apiece in 2011, according to comments its CFO John Martin made yesterday at the Goldman Sachs conference. Never mind the wrath the idea will stir up among movie theater owners whose traditional windows get cannibalized as a consequence (Disney learned about that with its "Alice in Wonderland" early DVD release experiment last February), the real issue is that pay-TV operators should deem the idea a non-starter.

Typical VOD rental rates of $4-5 already look expensive to consumers compared to Netflix's $9 all-you-can-eat monthly plans and Redbox's $1 DVD rentals. And while there are scenarios where getting a group or family together to watch a movie makes sense, it's getting harder than ever to do so. The reality is that families are atomizing to their individual activities; perusing or playing on Facebook, watching YouTube/Hulu/Netflix/etc., playing with the Wii or Farmville, chatting on Skype, shopping on Amazon, etc. Corralling this crowd and getting them to agree on any one movie is already a challenge; the prospect of paying $20-30 for the pleasure just sets the bar that much higher.

More important, any pay-TV operator who touches the premium VOD idea is immediately pursuing a public relations dead end. Consumers today are looking for value, plain and simple. This is why Netflix is signing up millions of subscribers and Redbox is thriving. Pay-TV operators are under enormous pressure from free over-the-top alternatives. Pay-TV subscribers declined for the first time ever in Q2 and are likely to do so again in Q3. Time Warner Cable (no longer any relation to Time Warner) is sensibly talking about introducing lower-cost tiers to help people who are increasingly blanching at $100-200/mo cable bills.

The last thing any pay-TV operator should be doing right now is getting involved with an initiative that creates the appearance of being indifferent to their subscriber's wallets. I'm all for trying out new higher-margin services, but there's no good way in this environment to spin premium VOD. Consumers are savvy and it will only end up looking greedy.

Ironically, Time Warner's Warner Bros. studio has been among the most enlightened studios by offering day-and-date VOD availability of their movies alongside DVD release. A far better plan would be to build more value into today's VOD (longer windows to view maybe, or access on multiple devices?) to enable pay-TV operators to better compete.

We'll see if sanity prevails here for pay-TV operators.

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Categories: Cable TV Operators, FIlms, Satellite, Studios, Telcos

Topics: Disney, Netflix, Redbox, Time Warner, Time Warner Cable