Saturday, September 25, 2010

How much would you pay to watch a new movie sooner?

Time Warner will begin testing a new video-on-demand service that will allow consumers to watch movies at home 30 to 60 days after the initial theater release.

Pricing this service will be a challenge. The CFO estimates that customers would be willing to pay $20-$30 to watch a newly released movie at home.

How should Time Warner price this new service to capture as much consumer surplus as possible?


  1. This is a really interesting initiative. To convert as much consumer surplus as possible into profit, Time Warner needs to adopt a combination of pricing discrimination strategy, I think, with the awareness of cannibalization from this video-on-demand model to its tranditional business. I believe they set this 30-60 day according to audience statistics.

    Given it's hard to proactively segment customers, and the fact that marginal cost is above zero due to cannibalization, while distribution cost is negible, I would say bundling versioning + two-part tariff + disaggregation for certain movies may be a good way.

  2. I think more than that this strategy gives the producer a preview of how the movie is gonna perform in different markets. I mean, depending on how this on demand channel is, they can run research with a much larger sample than in regular pre-screening and actually segment them accordingly. This could, in the long term, terminate the traditional screening sections.

    So it has mainly two sides, one on the reserve price of the consumers and another one on intel about the consumers.

  3. My initial reaction is that the estimated $20-$30 price range is too high. Maybe it seems reasonable when comparing this price to theater ticket prices, but only if one assumes that the viewer is watching the video with a couple other people, spreading the costs. For me, knowing that I will only have to wait another few weeks to have much cheaper alternatives, I would definitely wait. I think it all comes down to timing, and those who were “in a hurry” to see the film probably already spent the money to see it in the theater. In addition, those who really love the film can easily calculate that in a few months they will be able to “buy” the DVD (and own it) for less.

  4. In Korea, this service has already been provided through IP TV from last year and some movies in 2 weeks later after played in the movie theater recently is being distributed as the downloadable type on the internet. But the price is much cheaper than it in United States. One movie ticket price is around 7 dollars in Korea and we can watch one new movie if we pay only 3 dollars to 5 dollars for each movie depending on the popularity, quality, and watchable duration. The movie file is usually deleted automatically after 1 week.
    I believe the price in U.S. is too expensive but the effort which contents providers try to diversify pricing model for their contents make the digital contents market glow

  5. I definitely agree with Michelle: I would not pay $20-30 to watch the movie with little advance.
    The premium to pay is just too high.

    I believe distribution in theaters will eventually become one of the 2 alternative channels, the other being online distribution. Not 2 months after the release, but immediately.
    Clearly this will have disruptive consequences on the current business model, but I find it almost inevitable (especially considering how many films are already illegally distributed online as soon as they come out in the theaters).

    Cut in distribution costs means that the customers will expect lower prices. But this would probably increase consumption.
    A compromise that could allow production companies to charge more would be to bundle products together (for example a new release and an older one).

    The positive aspect of online distribution is that hopefully producers will stop focusing on “hits” and will also give the “long tail” a chance.

    Finally, I think that the alternative that could keep the current model running (at least until 3D TVs become widely available) is the “3-D” experience, which is attracting very large audiences to the theaters.

  6. I think the value will vary according to the movie - think about some cult series, like Star Wars. I would release it with a minimum value (just to set a expectation), that could be US$10,00. And then do a bid system, where the customers give limits that they would pay and the highest payers receive it earlier (e.g. first 2-4 days). After this period, others start to receive it in a first in, first out version; and can accelerate it by paying more.

  7. The price seems pretty steep for something that would probably be released on blu-ray in 2 more months. Then again, I may not be the target market for this service. I can see how price discrimination coupled with effective market segmentation may make this profitable. For example, a family of 4 may choose to pay $20 for this service to save on the price of buying 4 tickets, concessions, etc. Time Warner may want to tread carefully to make sure it picks the right customer segment first, and then gradually build demand to move consumers up the adoption curve.

  8. I think what's more interesting is how exactly Time Warner is going to make this work. Does this mean Time Warner is going to set up a separate consumer facing website where people can access these movies sooner? Is Time Warner getting into the distribution business and competing with Blockbuster and Netflix. The article does not explicitly say how this would work, but it seems unwise for Time Warner to build a new website and user base on its own, and a partnership might be more cost effective. This, of course, could push the price up even higher.

  9. This is another interesting trial of Time Warner, that's been tried by various companies in various media. But is it really for Time Warner to take advantage of technologies that became available online or is it just just for them to survive in this harsh business environment? If you want to argue the first is the case, think again. The technologies has been there for a while and has been evolved pretty fast. But what about the second scenario? It is going to be a firece fight against invisible enemies, the online piracy. It is really hard to keep up with and fight against all these file sharing services that come in everyday. If you or the court kills some today, there must be some more come in to the market tomorrow. I don't think it's really something controllable by the rule or policy rather than self-purification by crowd of users because it would be extremely hard to fight if you are not sure who to fight agian.
    So, at the end of the day, it's not the matter of price but it's about the viability of this business model.
    My only guess is that it's gonna be another difficult fight of Time Warner.

  10. Pros:
    1: Compared to DVD, online distribution is the fastest way to distribute contents.
    2: It is always better to watch early than late
    1: There is almost zero distibution cost except initial installation cost of equipment.
    2: The viewers watch the movie after some people saw it in theater.
    3: The experience in theater is far better

    And, people tend to think everything over internet is cheaper. Then, 20$ is too much.