Original Programming, Price Pressures Devalue Movies as Consumer Lure to Pay-TV

The 10-year, $2-billion exclusive contract extension HBO inked with Universal Studios earlier this week underscores the trials and tribulations that TV channels and their distribution partners face when delivering an array of compelling and affordable content to consumers.

While once these channels – Home Box (News - Alert) Office (HBO), The Movie Channel, Showtime, Cinemax and Starz – relied on first-run movie-loaded lineups to attract consumers, original programming now reigns supreme with consumers, who instead covet series such as True Blood, Game of Thrones, Dexter, Spartacus, Boardwalk Empire and countless others.

Movies will continue to be a staple, but hardly the main draw. The HBO deal ensures a steady pipeline of flicks but from one source. Film fanatics would need to subscribe to multiple movie channels to get a wide variety of newish movies, or rent them on-demand from their service provider one-by-one.

A big part of the problem is the cost of making and marketing the average (not an average) movie. In 2007, six years ago, the Motion Picture Association of America (MPAA) pegged the cost at an average $100 million.

These costs, along with the post-theatre pay cycles movies go through – DVD purchase, VoD and rental – extends the time and kills most any “newness” in movies by the time they come to the movie channels you subscribe to as part of your pay-TV service.

Original Programming Trumps All

This phenomenon has been the driving force between the rapid ascendancy of original programming from the “movie channels.”

Add in cheaper outlets for movies such a Netflix, Redbox and Amazon and it’s not hard to understand why even later-to-the-game channels like FX with Justified and Sons of Anarchy quickly embraced the original programming approach.

Online-only destinations have already joined the fray with YouTube (News - Alert) announcing a year ago this month plans to spend $100 million to create original programming for its visitors. And movie-rental service Netflix sees original programming as a vital part of its evolution.

Sports content kingpin ESPN (News - Alert) has seen the original programming light and has expanded into the area with its 30 for 30 series and other signature content. The single-sport NFL Network dove in last year with its A Football Life series, designed to extend programming beyond gamecasts, wrap up shows, game replays and re-airings of teams’ Super Bowl championships.

Pay-TV providers continue to find ways to leverage original programming to strengthen their brands. That’s the common thread in streaming services rolled out by Comcast (News - Alert) (Streampix), etc. The multi-screen offering enables subscribers to view coveted original content (and movies too) on laptops, smartphones and tablets.

AT&T (News - Alert) Screen Pack - More Money from Movies

So where does that leave movies?

Pay-TV providers are under bone-crushing pressure to find more ways to make more money out of their current movie assets.

This is what happened:

The huge libraries of free movies on demand that achieved their goals of getting consumers familiar with on-demand TV can have more empty shelves than your local Blockbuster as free titles have been moved up to a $2 or $3 pay tier, regardless of what decade they were released in.

AT&T’s TV news from Vegas included the introduction of a $5-a-month, all-you-can-eat, multi-screen movie streaming services for its U-verse TV customers that features 1,500 titles from MGM, Sony and others. They can get it without buying any of the movie channels.

Screen Pack is a complement to the pay-per-title VoD library U-verse already has.

Another Revenue Model for Movies

Known as a subscription VoD service, it’s essentially another revenue model to squeeze more dollars out of movies.

Subscription streaming movie services from pay-TV providers are far from new. AT&T has joined the fray by giving people what they want when it comes to movies they don’t go to see in theaters and aren’t counting the days, or holding their collective breathes to see if it means paying a hefty premium.

Screen Pack is currently movies only. No original programming as mentioned above or available in Streampix or from AMC in Netflix. It’s for u-verse TV subscribers, not the general masses. And it’s not designed to take streaming movie services down.

The newest movies to u-verse will most likely still come through at least one pay-tier. No surprises or deceptions.

I asked AT&T if, when first-run movies first come to AT&T U-verse, are they the $2 to $7 rentals first via on-demand and later into Screen Pack. The answer covered plenty of ground.

It read: “Screen Pack will include some newer titles. Other new releases are available through U-verse On Demand. We’ll continue to add more titles and TV shows to Screen Pack on an ongoing basis, and that may include titles that were once only available via On Demand.”

Screen Pack is an extension and fortification of A&T’s U-Verse pay-TV services, just as Streampix is an extension of Comcast’s Xfinity pay-TV offering. That makes it a TV Everywhere offering – see: customer retention - as opposed to a Netflix competitor.

Shorter, episodic TV series are better suited for mobile device than longer-tail content such as first-run movies. Streampix includes both with original programming including Dexter, Game of Thrones, Shameless, Girls and True Blood leading the powerful lineup.

The future of TV is more about original content and finding more ways to monetize film libraries than it is about first-run flicks and big-screen TV technology.