In an increasingly on-demand world, video-on-demand (VoD) represents a growing opportunity for film distributors and producers. But grasping that opportunity will mean forging relationships with a new generation of rights buyers and structuring deals that produce significant new revenue without eroding income from established ancillary outlets, especially the vital DVD market.
With their huge libraries and blockbuster release slates, the Hollywood studios are already busy trying to make the most of VoD growth around the world.
'We know VoD works,' asserts Tom Toumazis, executive vice-president and managing director, Disney-ABC International Television Emea and Canada.
'We know that when the service is marketed well and the technology works, it's a good experience. It has proved to be that domestically and now you're seeing it internationally.'
Outside the US, where it has been around for almost a decade but has gained fresh momentum recently (see page 17), studio executives say VoD is taking off wherever a territory's digital infrastructure allows addressability and is secure enough to allay piracy fears - that is, in most of Western Europe and much of Asia.
Development has been slower in Latin America and Eastern and Central Europe though there are hopes that in a territory such as Russia broadband might leapfrog cable and satellite technology to create new VoD possibilities.
Because VoD deals are non-exclusive, the studios are frequently in business with multiple operators in each major territory.
In any given market, the same product might be fed - either on a time-limited download rental basis or on a download-to-own, electronic sell-through (EST) basis - to an established TV company such as Canal Plus or ProSiebenSat.1; to a telecoms offshoot such as multi-territory player Orange (owned by France Telecom) or the UK's BT Vision; to a broadband operator such as Tiscali (Italy and the UK); and to an aggregator such as Hong Kong's ViDeOnline.
And a studio might, additionally, have a direct interest in a local operator. In the UK, for example, Disney and Sony recently took full control of FilmFlex, the VoD movie service running on the Virgin Media cable network, though other studios also supply product to the outlet.
'You want to be in as many digital storefronts as you can,' explains Keith LeGoy, executive vice-president at Sony Pictures Television International. 'We want to be doing business with all of them, provided it's a robust company with secure copy protection and a sensible business model.'
While library titles sometimes perform surprisingly well on VoD, according to studio sellers, recent releases are usually the big lure for consumers. And these days they are getting more recent than ever.
In the US and some international markets, several studios have experimented with moving the start of the VoD window up from 90 days after a title's local DVD release to 60 or 45 days.
Sony has done day-and-date (ie, simultaneous with DVD launch) VoD deals in Korea and Singapore and Warner Bros has reportedly held day-and-date trials with internet protocol television (Iptv) operators as well.
Experimenting with windows is one of the ways in which studios are striving to maximise revenues from this new arena. VoD deals can be lucrative because a studio typically gets an up-front guarantee (or the assurance of a minimum number of buys), plus a majority share - 60% or even 70% - of the fee charged to the consumer, with no shipping or packaging costs to offset the income.
Though executives will give no specific numbers, VoD revenue became significant 'early on last year', says Gary Marenzi, co-president of MGM Worldwide Television, 'and it's starting to accelerate quickly now.
'We view it as an incremental revenue stream,' he continues. 'It's a beautiful set-up because it's non-exclusive everywhere and as long as you keep a little distance (between a film's DVD and VoD availability dates) it doesn't really cannibalise DVD. It certainly doesn't cannibalise premium pay TV.'
The challenge for independents
Distributors and sellers of independent films have had to look harder for their VoD opportunities. In the US, studio films have tended to hog server capacity at cable company head-ends. So to get into the marketplace, independent films need to be grouped under a recognised brand.
One such brand is IFC, the US theatrical distributor and producer and cable movie channel. Under its IFC First Take/In Theaters banner - recently supplemented by the Festival Direct platform - the company (owned by multiple system operator Cablevision) makes films available on VoD in more than 50 million digital cable and satellite households at the same time as they open in cinemas.
Over two years, the 40 titles released by IFC - including, recently, The Wind That Shakes The Barley, This Is England and 4 Months, 3 Weeks & 2 Days - have notched up a total of 1.5 million to 2 million VoD buys, according to IFC Entertainment president Jonathan Sehring. With VoD customers paying $7 a film, that would average out at around $300,000 of revenue per film to add to theatrical takings.
And Sehring contends that the VoD release does not cannibalise theatrical because many VoD customers are in parts of the US where indie films get little or no cinema exposure. In fact, he says, The Wind That Shakes The Barley grossed more theatrically in the US than any previous film from director Ken Loach.
IFC In Theaters was a response to the increasing domination of US arthouse cinemas by films from the studios' specialty divisions, Sehring explains. The simultaneous VoD release, he says, makes maximum use of the publicity generated by a limited theatrical release in a major city. This way, 'when people are reading the reviews in The New York Times you can roll a movie out not just to one or two other cities but to the entire US'.
In one form of VoD distribution, a couple of independents have moved faster than some of their studio counterparts.
IFC and Lionsgate were selling titles through Apple's iTunes online store long before the computer company made its recent announcement of download rental agreements with all the major studios. Lionsgate has been selling only older titles, but IFC offers all its titles day-and-date with DVD release and has been doing, says Sehring, 'tremendous business'.
Apple's entry into the film VoD space in the US - which should be aided by improvements to the Apple TV set-top box allowing consumers to view rented titles on their TV sets rather than on a computer or handheld device - is expected to be followed later this year by an expansion into international markets.
It remains to be seen, however, whether the studios will go for similar film-rental deals with Apple for international markets or experiment with electronic sell-through. The studios' international sales chiefs are giving little away about their talks with Apple or the kind of deals that might result.
'What happens in the US may work for the UK,' says Sony's Keith LeGoy, 'but there may be something different that both iTunes and we feel should be done in that market.'
Either way, iTunes will become yet another new player in the multifarious global VoD marketplace. As well as new players, the marketplace is also likely to see the evolution of VoD business models, with subscription and advertising-supported VoD offering alternatives to the standard payment-per-film model.
The challenge for film distributors, studio and independent, will be to find ways to turn the models to their own benefit.
'True independents have got to look to new distribution models,' says IFC's Sehring. 'The cable VoD platform has helped us create a national electronic arthouse, and I think broadband is going to expand that.'