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Comcast defends turf with free movies -- for now
By JOHN DEMPSEY variety.com
Competitive pressure from satellite and phone companies is driving cable operators into the arms of the theatrical-movie companies. Cable needs help as it navigates its way through a cutthroat economic landscape. Not only does Rupert Murdoch's DirecTV keeps hatching schemes to entice cable customers to buy satellite dishes, but the ink hasn't dried on the merger agreements that will unite Verizon with MCI and SBC with AT&T; both of these newly merged phone-company giants are gearing up to steal cable subscribers by offering a lower-cost alternative.
That's where movies come in, sparked by a painstakingly crafted blueprint drawn up by Comcast -- the biggest cable operator in the U.S. by far -- as it begins bulking up to fend off its steroid-fueled rivals.
Exhibit A: One of the big reasons Comcast joined in with Sony Pictures to buy MGM was to gain access to the vast movie libraries of both companies in order to set up a video-on-demand service called MoviePass.
Armed with a dozen or so Columbia library titles ("Groundhog Day" and "The Last Picture Show" among them), the service kicked off as a freebie six weeks ago to all Comcast subscribers who rent digital boxes.
Not only are the movies free, but they're uncut and uninterrupted by commercials, and offer full DVD capability (pause, rewind, fast forward). More than 6.8 million of Comcast's 21-million subscribers get VOD, and the company says in a short period of time MoviePass is chalking up more clicks, on average, than any other of its dozens of VOD offerings except HBO on Demand.
(Comcast's customers don't pay extra for HBO on Demand, but -- burdened with a monthly fee north of $15 -- they pony up more, on average, for HBO and its multiplex channels than the subscribers of most other cable operators.)
Comcast has declined to discuss its long-range plans for MoviePass, but the company has drawn up a blueprint that calls for sales visits to 20th Century Fox, Walt Disney/Touchstone, Paramount, Warner Bros. and Universal in the near future with offers of $10 million a year for short windows to an annual quota of 50 library titles from each major studio, for a five-year license term. The goal of Comcast is to keep all the VOD theatricals on MoviePass free and thus make it such a powerful attraction to digital customers that they won't be tempted by the siren calls of satellite TV or the phone companies. Because of technological limitations, such satellite distributors as DirecTV and EchoStar can't create VOD platforms like MoviePass.
"By offering lots of free content," says Larry Gerbrandt, senior analyst with AlixPartners, "Comcast is firing a shot across the bow of the satellite TV distributors."
However, Warner Bros. and Paramount are two studios that might hesitate to sell movies to Comcast for fear that subscribers would become so enamored of MoviePass they'd cancel their subscriptions to HBO (a sister company of Warner Bros.) and Showtime (a Paramount sibling). And a robust MoviePass could deliver a potent weapon to Comcast's arsenal when it negotiates contract renewals with movie-dependent basic-cable networks. Comcast has made it clear that it thinks many cable networks are overpriced and must be willing to take cuts in their license fees.
If these networks continue to demand big jumps in monthly payments, Comcast could say, in effect, "Take a hike: We don't need you and your movies. We have MoviePass, which our subscribers love."
Faced with the loss of Comcast's 21 million subscribers (more than a quarter of the entire domestic cable-TV universe), most cable networks would see the light and modify their demands. Comcast would save millions of dollars a year from these lowered prices, a cause for celebration because, like that of all cable operators, Comcast's biggest expense is the fees it pays to the networks. Those savings would more than make up for Comcast's continuing to offer MoviePass for free despite paying healthy fees to the major studios for the rights to their movies.
Dennis McAlpine, a veteran showbiz analyst and head of McAlpine Associates, says Comcast is going to have spend a lot of money on marketing "to get it across to the consumer that MoviePass is up and running and offering free movies."
Comcast may also not be pushing hard enough at getting more adult programming into the VOD service, McAlpine says, pointing out that one of the most requested shows by customers of HBO on Demand is the raunchy "Real Sex" series.
So far, Comcast is not even including Playboy on Demand (let alone the X-rated stuff) in more than a thousand hours of VOD offerings for February. That's quite an omission, McAlpine concludes, because, along with good theatrical movies and high-visibility sports, adult shows are what he calls VOD's "killer apps."