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Premium Video-on-Demand Services Overpriced

The Diffusion Group (TDG) announced that, according to its latest research, DirecTV, Comcast and others have overpriced their upcoming premium Video-On-Demand (pVoD) services.

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Unedited press release follows:

New Premium VoD Pricing Schemes Will Undermine Demand

New Research From TDG Shows Even Aggressive Rental Windows Are Unlikely to Attract Sufficient Consumer Response at Today’s Premium Levels

FRISCO, TX–(April 4, 2011) – According to new research from The Diffusion Group (TDG), premium video-on-demand (pVoD) services such as those soon to launch from DirecTV and Comcast are priced too high to support significant demand. TDG’s new report, “Premium Video-on-Demand Windows – The Consumer Speaks,” examines consumer receptivity to two aggressive rental windows — same-day and week-after theatrical release — as well as price sensitivity to these rentals at various premiums.

At the moment, Warner Bros., Sony, Universal, and 20th Century Fox have signed on to provide content for the new “Home Premiere” premium VoD service, the brand under which TV operators and Hollywood studios will collaborate to distribute rentals 60 days after their theatrical debut (compared to the current window of 90 days), assuming the title in question is no longer yielding significant theatrical revenue. The cost to the consumer will be around $30, approximately six times the cost of a $5 non-HD rental in existing release windows.

In examining the appeal of such windows, TDG chose the two most aggressive premium VoD scenarios — same-day and week-after theatrical release — for if consumers are unlikely to pay an extra $20 to rent a DVD or on-demand title the same day it appears in theaters, it is unrealistic to expect them to pay an extra $20 if released 60 days after theatrical premier. “By assuming the extreme case,” notes Michael Greeson, TDG founding partner and author of the new report, “we are able to test much more than the appeal of a particular price point or window; we are able to test the fundamental logic of the model itself.”

TDG examined likely pVoD demand at four premium points including $5, $10, $15, and $20 above standard rentals fees. When asked of their willingness to pay a $20 premium (meaning $25 in total cost) for a same-day rental, only 8% of consumers are highly likely to rent the title. On the other hand, 21% are highly likely to spend an extra $5 for a same-day rental, suggesting that, while they may see the general value of early rental releases, consumers are unlikely to pay the more sizable premiums currently under consideration.

“The tactical terrain between theatrical debut and the 90-day rental horizon is vast,” said Greeson, “so the industry has a variety of timing and pricing options available. And, yes, the 60-day model may have a future, but not at these price points.”

“Premium Video-on-Demand – The Consumer Speaks” examines the viability of aggressive rental windows, offering insight into perceived value, willingness to rent at specific premiums, and how these perceptions vary by specific video behaviors included theater attendance, disc rentals and purchases, and the use of on-demand services, both operator-driven and online. As well, the report discusses the likely impact of advanced rentals on theater attendance, disc rentals/purchases, and on-demand behavior.

About The Diffusion Group
TDG provides actionable intelligence on the quantum shifts impacting consumer technology and media behaviors. Since 2004, our market research and advisory services have helped hundreds of technology vendors, media companies, and service providers understand how consumers access, navigate, distribute, and consume broadband media — whenever and wherever they may be.