ON-DEMAND NOT SEEN AS BIG THREAT

DAN ALAIMO

WEST HOLLYWOOD, Calif. -- While the proposed in-home delivery of movies through video-on-demand systems will lure some customers away from video rentals in the future, video retailing will continue to thrive as a side-by-side business.

That was the consensus of several top-level entertainment industry executives speaking at Hollywood 2000, a conference held here last month by Advanstar Associates, Carmel Valley, Calif. The program addressed the future of video, video-on-demand and multimedia.

"Video-on-demand will no more signal the death of the video store than the advent of the video store signalled the death of the movie theater," said Tim Clott, executive vice president, video division, Paramount Pictures, Los Angeles.

"We subscribe to the notion that the more options you give to consumers, the more they will consume. Video-on-demand will hopefully increase overall consumption, not just erode an existing marketplace," said Clott.

"It is quite possible that the advertising and promotion associated with these new channels of delivery will serve to keep consumers alert to new programs and may, in fact, draw them into retail shops as well," he said.

"Video-on-demand will take hold, but a lot more slowly than a lot of people are saying," said Bill Mechanic, president, 20th Century Fox, Los Angeles. Until recently, Mechanic was in charge of Disney's home video division.

The proposed systems may penetrate 30% of households in 10 years, and most of them will be upper income consumers, he said. Assuming a 20% buy rate for those households, with $2 per movie revenue to the studios, home video will out-perform video-on-demand by two-to-one on hit titles, he said.

As a result, "the video business will continue to grow, although most of that growth will come from sell-through and not rental," said Mechanic.

But Mechanic predicted, two more studios in addition to Paramount will be sold to companies that control the new information pipeline. "This is Hollywood in its deal-driven phase. Everyone is trying to make deals and is not concerned about how the consumer behaves," he said.

"Never before has one pipeline obliterated another," noted Tom Adams, managing director, Advanstar Associates. Adams moderated the program.

"Studios have always been careful that one revenue stream enhances the others," he said. Adams pointed out that studios get more revenue from home video than any other channel of distribution, and that this proportion increases with movies that don't do well at the box office.

"Video is the only format that turns stiffs into hits," commented Don Rosenberg, executive vice president, Video Software Dealers Association, Los Angeles. Studios can sell 150,000 to 200,000 copies of a movie that bombs theatrically to the rental market with little marketing support, he said. They won't be able to do that with a hits-driven video-on-demand system and won't be likely to ruin such a lucrative revenue stream, he said.

But Hugh Panero, president and chief executive officer, Request Television, Englewood, Colo., a pay-per-view company, said the high-powered investors in the new pipeline will not allow it to fail. "A lot of people have bet their careers on making this happen," he said.

He likened video-on-demand to "Jurassic Park," the big-budget success of 1993.

But VSDA's Rosenberg countered by saying it will be more like "Ishtar," the big-budget flop of 1987. "We are going to see a lot more failures than successes," he said.

"Somewhere down the road" video-on-demand will arrive, Rosenberg said, but consumers will still prefer the retail environment. "Everybody has a Mr. Coffee in their house yet Starbucks [a specialty coffee shop] is popping up all over the country," he said.

"People still want to go out. People still want to do things," said Rosenberg.

"When it comes to new technology, consumers are basically pretty lazy. I don't think they want to sit there and navigate through hundreds of channels to find what they want. They will take the path of least resistance," he said.

People may see a trip to the store as an inconvenience, but they do not place a dollar value on it, he said. "When it starts showing up on their bill month to month, you are going to see a real hesitation to continue using some of those services," said Rosenberg.

"The problem video-on-demand is going to have is the cost is going to be prohibitive to the consumer and it is going to be very tough for them to get by," he said.

But executives at the conference from the pay-per-view cable business were considerably less optimistic about the future for video retailing.

"As soon as we get cable capacity and you make hit movies available in the home, [consumers] are not going to go to the video store," said Roger Flaherty, chairman, Graff Pay-Per-View, New York. "Video-on-demand is going to take big money away from video retailers," he said.

"If you can get it when you want it, and you don't have to go out to the video store, the only people who are going to rent movies are those who don't get out much," said Jeff Bernstein, vice president, marketing and programming, Request Television, Englewood, Colo.

The fact that video rentals are as strong as they are today is a testimony to the marketing acumen of the people in the business, he said. "Video [rental] is one of most inefficient ways to see a movie," said Bernstein.

When the expanded systems arrive, they will be 50 channels at first, not 500, noted Jim English, senior vice president of programming, Viewer's Choice, Los Angeles. "What will Americans do with their 50 channels? They will complain," he said.

"I don't think America is quite ready for all that these systems will have to offer," he said.