[Satellite News 04-22-11] Earlier in April, DirecTV announced it was finally launching its long-awaited Home Premiere video-on-demand service providing subscribers with movies released just weeks after they premier in theaters. The service will charge consumers $29.99 to rent first-run titles for 48 hours.
    The plan had been in the works for the past year and was delayed after theater chain owners told Hollywood studios they would not play trailers for movies that are offered on the premium VOD platform and would consider taking legal action to recover economic losses. But after U.S. DVD sales dropped 40 percent and box office profits dipped 20 percent in 2010 compared to 2009, the studios and theatre owners reached a deal, and the movie industry is now set to receive between $21 and $24 of the $30 rental price. With the launch of the service in place, DirecTV hopes to keep its subscription revenues strong.
    DirecTV now hopes the same can be accomplished for its NFL Sunday Ticket package, which took in between $600 million and $750 million in subscription revenues in 2010. The U.S. pay-TV operator stands to suffer significant losses on its NFL contract if the 2011 season is cancelled, which will force DirecTV to refund NFL Sunday Ticket package sales while still paying NFL licensing fees.
    DirecTV also stands to lose an estimated $100 million in ad sales without NFL games, Standard & Poor‘s Credit Analyst Robert Hoban told Satellite News. “In a worst case scenario, the ad revenue decline during replacement programming and the drop in ad revenue for programs immediately following games would overwhelm the net savings of having cheaper replacement programming instead of the NFL production costs. Thus, even with the production cost savings, we believe there is a risk that the networks could still be subject to profitability declines for the season.”
    Hoban sees the impact of an NFL lockout as a major setback to the entire U.S. broadcast market, which would impact satellite business as its cable network partners would be forced to adjust spending to account for the lost income. CBS, News Corp, Fox, NBC and ESPN all use satellite architecture to broadcast NFL games. In March, Bloomberg reported that ESPN is seeking a quick settlement to its $2 billion renewal deal for the rights to Monday Night Football beyond 2020.
    “While DirecTV’s market share has risen almost 18 percent in 2010, I agree with analysts’ predictions that there isn’t much upside to DirecTV in 2011 — about a half-percentage point growth,” said Hoban.
    In an e-mail statement to Satellite News, DirecTV Spokesman said that the company is launching services like Home Premiere to calm fears and minimize the impact of the lockout, especially due to the expedited timing of its launch. “We certainly understand our customers and know what their viewing habits are and buying habits are. The studios have done a considerable amount of research and we believe there is a lot of value in getting this premium service early,” he said.
    But some analysts are not so sure that early-release movie entertainment VOD services will appease subscribers willing to pay high subscription fees for TV services. Merriman Capital Director of Research Eric Wold released a report April 19 that was skeptical of the service’s offsetting potential.
   “Premium VOD represents a myopic view of distribution, in that its merits have not been thought through. The risk associated with premium VOD will be limited to media headlines and not theater operators’ bottom lines. Of the top 20 movies released in 2010, all generated 97 percent of their box office in the first two months of release. The consumer demand for this offering will be extremely limited and have minimal, if any, impact on subscription revenues,” Mold said in the report.
    Mercer defended the viability of company’s offering by highlighting its potential to show DirecTV subscribers that the broadcaster is willing to try something new. “In terms of how all of us consume TV, video and film products, the world continues to change and we constantly have to ask ourselves how we as a company are going to innovate to find new ways to engage our customers. Home Premiere is one way we are capturing that engagement. This is [for] the type of customer who is willing to pay more to see a new movie in an earlier window. It certainly builds value for the title in the eyes of the consumer and there’s an additional promotion for that feature via this service, and that’s a good thing for all parties.”