Sony's Plan for $40 Movies at Home

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"The fact that this $40 pay-per-view model has worked for major sporting events suggests that there may be an opportunity for a handful of films every year—event films and franchises with the same young male demo as sports would be good bets," says Tom Adams, whose firm Adams Media Research analyzes trends for the film industry. He says it's unclear how this might harm theater owners since they "move pictures off screens so quickly now." Adams also doesn't think the earlier viewing would harm DVD sales—it might even encourage folks who watch the flick to buy their own version.

The Sony proposal, which would establish what the industry is calling a "home-theatrical window," would be hugely controversial, which is one reason Sony is moving slowly and still calling its talks an effort to expand the Hancock experiment, according to those who have been involved in the discussions. Allowing folks to view a movie before it can be sold or rented as a DVD would alter Hollywood's carefully calibrated series of "windows" that allow the industry to separate the time between a movie's theatrical release and its release as a DVD or on pay-TV channels like HBO (TWX). Separating those windows has traditionally allowed studios to collect more money by showing the same film to customers multiple times.

theater owners and dvd sellers may howl

Theater owners would likely complain if the home-theatrical window were placed too close to when they show a movie, fearing that people may pass up a hefty tab to take the family to the cineplex in favor of seeing it at home instead. Similarly, companies such as Blockbuster (BBI) and Wal-Mart (WMT), which sell or rent DVDs, could complain that earlier TV viewing would harm their businesses. The higher price is meant to appeal to what might be a fairly small segment of the audience who aren't willing to wait for DVDs to hit Blockbuster but also won't dissuade consumers from plunking down $20 to buy the movie later.

The notion of a home-theatrical window has been talked about in Hollywood for years but has never progressed for many of those reasons. What's changed now is the increasingly difficult economics of the industry. The DVD business is cratering—the $14.5 billion market for purchased DVDs is expected to fall to $13.3 billion this year, says Adams—and Blu-ray technology has yet to pick up the slack. Folks can just as easily rent DVDs for $1 from video-vending machines such as the controversial Redbox, a unit of Coinstar (CSTR). Redbox recently sued three studios that refuse to distribute their DVDs to them as early as they are made available to retailers such as Blockbuster that rent them out at higher prices.

Still, the Sony concept, which has been communicated to the studios by executives including U.S. unit Chief Financial Officer Robert S. Wiesenthal, has a certain logic to it. With several electronics companies already selling Internet-enabled TV sets, including Panasonic (PC) and LG, there is an expanding base of potential customers. Other shoppers are buying Blu-ray players with Internet connections. Under one scenario Sony is said to be circulating, it would share as much as 70% of the rental price of $30 to $40 with the studio for a film that would be available 30 to 60 days after the film's theatrical release. A DVD usually is made available a month or two after that, as is a movie on streaming sites such as those offered by Netflix (NFLX). Movies are usually available as video-on-demand offerings through cable or satellite services a month or two after that.

Grover is Los Angeles bureau chief for BusinessWeek.

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