A Premium Push: Is PVOD the Shot in the Arm the Transactional Business Needs?

Cathy Valenzuela loves movies.

Before relocating to Pueblo, Colo., where she runs a promotional products company, she worked in Hollywood as a production assistant and then associate producer at Norman Lear’s Tandem Productions.

She grew accustomed to watching new movies at the DGA screening room, and after moving to Colorado continued to regularly frequent movie theaters, as often as three times a week, generally with her husband. “The experience has gotten so much better, with the addition of reclining chairs, cocktails, even food services,” she says.

Since the pandemic, however, she’s begun renting movies digitally through Amazon Prime and other digital retailers. “I’ve gotten used to watching movies at home,” she says. “Lately, I’ve been using lists like ‘Best Journalism Films of All Time’ to rewatch many classics. We watch a movie almost every night, but we never go out of the house to get them.”

She and her husband enjoy streaming services, as well, but their yen for movies — classics as well as new releases not available on a subscription basis — has put a pretty significant dent in her pocketbook.

“Last night we watched The Little Things on HBO Max, but the night before we watched Broadcast News and, the night before that, Network, both of them rented on Amazon Prime,” Valenzuela says. “We rent everything from new releases to older films not available on streaming.”

Yes, the cost adds up, but “anything less than 10 bucks is still way cheaper than going to the theater,” Valenzuela says.

That said, for new movies Valenzuela is willing to up the ante. She’s happy to spend the money she would have spent on movie tickets on premium video-on-demand (PVOD) releases such as the action-thriller The Silencing, about a hunter and police sheriff who track down a murderer who may have kidnapped the hunter’s daughter years ago, which STX Films released on Aug. 14 to movie theaters and, simultaneously, on VOD at $20.

Next up: News of the World, in which Tom Hanks portrays an aging Civil War veteran who is paid to bring a young girl kidnapped by Native Americans back home to her family — and which Universal Pictures released theatrically on Dec. 25, followed by a PVOD release on Jan. 15.

“It does seem to be worth it these days,” she says.

Valenzuela is not alone — not by a long shot.

Pushed by a once-in-a-century pandemic that kept consumers homebound, consumer spending on transactional video-on-demand, or TVOD, appears to be back in growth mode for the first time in more than 10 years.

Observers say the closure of movie theaters left homebound viewers with plenty of time on their hands. And while subscriptions to streaming video services surged, consumers also began renting and buying more films to watch at home, particularly through digital retailers.

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Last April, just one month into the pandemic, Warner Bros. Home Entertainment president Jim Wuthrich reported a 38% uptick in home entertainment transactional spending. He called this “one of the few bright spots” in the early days of COVID-19.

Since then, studios began releasing films digitally, at a premium rental or sales price, at the same time as their scheduled theatrical opening. And that, observers say, triggered an even bigger spike in transactional spending.

Bob Buchi

“From our estimates, if you include PVOD … 2020 was the first year that we’ve seen growth in the transactional home entertainment business in well over a decade, and that’s despite the significant lack of new releases due to theatrical closures,” Bob Buchi, president of worldwide home entertainment for Paramount Pictures, said in January during an online presentation for DEG: The Digital Entertainment Group.

In addition to PVOD, which features higher-priced digital rentals and sales of new releases, transactional includes physical disc and digital sales and rentals. With disc sales and rentals declining year after year, the industry had long looked to digital transactions to take it into the future and make up for lost revenue — but with limited success.

Then came the pandemic-fueled PVOD takeoff. With the mid-March 2020 closure of movie theaters due to stay-at-home orders and a ban on public gatherings, studio executives no longer had an avenue for first-run movies. So they turned to a distribution model they had long championed, but were never able to implement due to stiff opposition from theatrical exhibitors. PVOD, in which a movie becomes available for home viewing at the same time as it begins showing in theaters, or shortly thereafter, was the only way for Hollywood to recoup production expenses.

Reviving the Dead

Nearly a decade ago, in 2011, Universal Pictures had tried to jumpstart PVOD by offering actioner Tower Heist early in the home for $59.99. The strategy was quickly shelved when theaters threatened to boycott the movie.

Following the Walt Disney Co.’s acquisition of 20th Century Fox Film and other 21st Century Fox assets, PVOD lost a big proponent in Fox Film CEO Stacey Snider. Another PVOD backer, Warner Bros. CEO Kevin Tsujihara, left the studio in 2019 following alleged sexual improprieties.

Notably, two years ago, Los Angeles Wedbush Securities analyst Michael Pachter called PVOD “a dead issue.”

It took COVID-19 to resurrect the seemingly moribund concept. With the pandemic making the distribution model for the most part the only game in town for releasing first-run films, Universal made a less-expensive move to PVOD at the lower price of $19.99. On March 16, as governors across the country imposed strict stay-at-home orders, the studio announced it would release its current theatrical slate into home entertainment distribution channels via PVOD. Movies included The Invisible Man, The Hunt and Emma., among others. At the same time, Universal announced plans to release the much-anticipated DreamWorks Animation sequel Trolls World Tour through PVOD on the same day as its scheduled theatrical release, April 10.

Scoob!

Other studios followed. Warner Bros. Pictures debuted Scoob! on May 15, at $19.99 for a 48-hour PVOD rental or $24.99 for a digital purchase. Disney launched the theatrically groomed live-action adaptation Mulan into homes (as well as international theaters) on Labor Day weekend, initially as a $29.99 purchase-only option to Disney+ subscribers. And as the pandemic showed no signs of subsiding, the floodgates opened and PVOD release became standard practice. At first exhibitors balked and even threatened boycotts, but realizing there was really no viable option they grudgingly accepted, particularly after studios sweetened the proposition by allowing them to share in the spoils.

Warner took it a step further with their plan to release their theatrical slate through 2021 concurrently in theaters and on the HBO Max streaming service. Movies would be available to HBO Max subscribers for a month. The first film under the strategy, Wonder Woman 1984, was released on Christmas Day and earned $40.3 million domestically. Warner then released WW84 via PVOD Feb. 12, for the first time creating a PVOD window after a streaming release, which will last for about a month until WW84 becomes available for digital sellthrough and on disc in March.

The Results Are In?

While PVOD releases proliferated last year, scant information exists about actual sales to consumers. Anecdotal evidence, however, suggests a home run.

In addition to the declaration from Paramount’s Bob Buchi, retailer reports certainly seem to point to PVOD’s overwhelming popularity. Charts at transactional digital retailers — such as FandangoNow, Vudu, Google Play, Apple, Microsoft and Redbox On Demand — regularly showed and continue to show PVOD titles among the top 10 rentals and sellers.

Jeff Shell

Throughout the year, studios and pundits crowed about results on individual releases. Universal Pictures reported it had generated $100 million in revenue from 5 million transactions in 28 days offering Trolls World Tour via PVOD. “The results for Trolls World Tour have exceeded our expectations and demonstrated the viability of PVOD. As soon as theaters reopen, we expect to release movies on both formats,” said NBCUniversal CEO Jeff Shell.

With TVOD, the results were more tangible. Various reports indicated a revival in the TVOD business, perhaps goosed by PVOD. “The fact that new movies could be bought or rented at home, on day one, made consumers overall more comfortable with a la carte digital transactions,” said one veteran industry observer.

In its annual year-end report, DEG: The Digital Entertainment Group estimated that consumers spent $2.3 billion renting movies and other filmed content through digital retailers in 2020 — up a whopping 18.3% from less than $2 billion in 2019. Digital sales, or electronic sellthrough, grew 16% to nearly $3 billion, up from $2.6 billion the prior year. Significantly, neither of these figures included PVOD revenues.

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Earlier this year, in January, Universal Pictures reported that with the 18 movies the studio released on PVOD in the past 10 months, it generated four times what it expected to earn in the traditional digital home entertainment window. In total, the combined in-home consumer represented more than $500 million, according to Michael Bonner, president of Universal Pictures Home Entertainment.

Comcast Chairman/CEO Brian Roberts, speaking on the fiscal call, said the strategy has proved to be “profitable and the right move for us.”

“A year like no other, 2020 proved to be a truly transformative time for the entire industry, including the home entertainment business,” Bonner says. “Consumer demand and engagement in the home across the entire category demonstrated exceptional strength and successfully opened the door to early adoption of PVOD which, in all, drove to unprecedented transactional growth as we saw spending for the year peak to an all-time high.

“Despite its unprecedented challenges, 2020 marked a record-setting year for UPHE, as we identified new ways to serve consumers in a virtual climate and worked with our retail partners to advance our industry and amplify access to our content through PVOD.”

Digital Retail ‘Sleepy’ No More

Further evidence that PVOD has accelerated the surge in the TVOD business came from Roku, which as a digital delivery facilitator has a driver’s seat view of not only the subscription streaming video market, but also of TVOD. Speaking last September at the KeyBanc Future of Technology Conference, Roku CFO Steve Louden said the company had a “banner quarter” for the fiscal period ended June 30, with strong SVOD, premium VOD and transactional VOD revenue shares.

“That basically was precipitated by the theaters being closed [due to the coronavirus pandemic] and studios coming out with direct-to-consumer offerings,” Louden said. “It kind of woke up an otherwise sleepy TVOD segment.”

Cameron Douglas

During a November virtual panel for the American Film Market, Fandango’s Cameron Douglas noted, “All the press is about SVOD and AVOD services, ad-supported or subscription, but transactional sort of quietly had a moment in 2020.”

Fandango, which owns TVOD services Vudu and FandangoNow, experienced a surge in digital rentals and sales in 2020.

“As more and more families hunkered down at home, our transactional video-on-demand business experienced substantial growth year over year,” Douglas says.

“We think that PVOD is here to stay, and it really is a big part of our business,” said Fandango SVP Mark Young during a January DEG online panel.

At the same panel, Microsoft’s Pedro Gutierrez noted that PVOD, debuting in the same window or close to theatrical release, allows for more-effective studio marketing. Whereas traditionally a film’s home entertainment marketing would come months after its theatrical push, PVOD has allowed studios to move it up so the title is “fresh in consumers’ minds,” he said.
“You’re able to see the studios able to support the home entertainment releases stronger than previously,” he said, adding “you have that nice consistent message for the title availability.”

Having first-run titles has also helped TVOD services market its catalog titles.

“We work hard to provide curation around new release titles,” Douglas says. “For instance, a consumer renting Tom Hanks’ News of the World might be interested in renting previous Westerns or other Tom Hanks movies. A comedy fan might watch Kristen Wiig and Annie Mumalo in Barb and Star Go to Vista Del Mar and want to check out their movie Bridesmaids on Vudu or FandangoNow again. A family excited to see the new SpongeBob: Sponge on the Run on March 4 might want to view other ‘SpongeBob’ or classic Nickelodeon titles to help prep them for the experience. The goal is to keep fans engaged with endless amounts of entertaining, deep content.”
With the pandemic, consumers focused renewed attention on TVOD.

“We believe that consumers welcomed having flexible options and the opportunity to pay as you go, and that’s a big benefit to TVOD over subscription services,” Douglas says.

Galen Smith

Galen Smith, CEO of Redbox, agrees. “As stay at home orders came into play and with theaters closed, we saw exponential growth from our Redbox customers for both physical and digital entertainment on the back of a strong home entertainment slate,” he told Media Play News in early February. “In fact, we saw a 125% increase in our transactional video on demand.

“While the release slate has been more tepid since the summer, the momentum for Redbox On Demand has continued as more and more customers have grown accustomed to the ease of watching digital movies at home.”

Indeed, the avid collectors that used to amass shelves of discs are now doing the same thing digitally, retailers say.

“As fans are spending more time at home, Vudu’s and FandangoNow’s catalog business continues to grow, and we’re seeing consumers amassing sizable libraries,” Douglas said. “Moms and dads are introducing their kids to classics they watched when they were kids. Fans are looking for bundles to binge at home, whether they’re enjoying the nostalgia of beloved movie series like the ‘Indiana Jones’ franchise or TV series like ‘The Office’ or ‘The Twilight Zone.’ To make it even more interesting, there are some classic titles just aren’t available yet for streaming and we are constantly on the hunt for their streaming rights, as we’re completists at Fandango.”

During the DEG panel, Microsoft’s Gutierrez agreed collectors are alive and well in the digital realm, just as with discs.

“We’ve all seen the people who have their wall of DVDs,” he said. “With the digital stuff, people want to show you their library’s bigger than Netflix. They want to buy. [The digital collector] does not want to have to worry about do I need to go to HBO Max, do I need to go to Disney+. Where is my content? My content is right here in my collection.”

PVOD’s Promise

While consumer interest and anecdotal evidence indicate PVOD is showing promise as a permanent addition to the transactional business, observers differ on what part it will play in the “new normal” after the pandemic subsides and theaters open more widely.

Theatrical distributor Imax believes PVOD remains a fluke driven by roller coaster consumer behavior during a pandemic.

“To be unequivocal, PVOD is a failed experiment,” CEO Rich Gelfond told a virtual investor confab last September. “The numbers haven’t worked in a pandemic, so how would they work in a non-pandemic? Of the movies that were postponed, very few went into PVOD or streaming, and I should be clear I’m talking about the blockbuster movies — the movies that Imax does.”

Wedbush’s Pachter contends studios largely agree that theatrical releases are key, continuing to postpone major releases into 2021 and later to get them into movie houses.

“The silver lining to 2020 from a theatrical perspective is that studios have had the opportunity to test the feared PVOD window, with the results not as compelling as many had expected, and not as damaging to the exhibitors as feared,” Pachter wrote in a note.

But PVOD seems to be alive and well for now, with many saying it’s here to stay.

“While we look forward to when we can [again] enjoy the theatrical release of many franchise films … we will lean into what has become a successful hybrid distribution model,” Comcast Chairman/CEO Brian Roberts said in January.

“Event films will still be big theatrically, but there will be a push to accelerate consumers’ abilities to watch at home through PVOD and shorter overall windows — both digitally and on disc,” said Redbox’s Galen Smith. “We don’t believe the theatrical model will return exactly as it existed prior to COVID. The evolution over the last year benefited consumers and content creators through the introduction of new products — and a number of them, like PVOD, are here to stay. PVOD has been a model the studios have wanted to add for many years, and I expect to see more PVOD releases in 2021. It’s another way to provide customers choice, which is good for them as well as for the industry.”

Dametra Johnson-Marletti, corporate VP of Microsoft Digital Stores Category Management, agrees. “I think many consumers will be excited to return to the theaters when the COVID risk is nearer to zero,” she told Media Play News in January. “That said, I also think that PVOD is here to stay, particularly for titles that are not forecasted to be box office blockbusters, and for a certain segment of viewers.”

Additional reporting by Thomas K. Arnold and Erik Gruenwedel

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