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VSDA Is Missing The Target

The Video Software Dealers Association's most recent
campaign against pay-per-view apparently has a new wrinkle to it: DirecTv Inc. has
replaced cable operators as the organization's top target.

But whether the VSDA's wrath is aimed at
cableoperators or DBS, it's main excuse to explain away its eroding revenue base has
remained constant -- it's the windows, stupid.

In the mid-1990s, when burgeoning home video revenues first
began to level off, the VSDA began its crusade against short PPV windows, and was able to
use its billion-dollar revenue base as leverage to force studios to extend windows beyond
traditional 30- to 45-day time periods.

Studios, afraid to lose their most lucrative revenue source
-- and with PPV still generating minuscule buy-rates -- immediately began to extend
windows to the dismay of cable operators. Predictably, movie buy-rates declined.

Eventually, studios began to move windows forward up to 45
days as operators began to increase analog PPV channels. Again, video dealers -- fighting
an internal battle against a growing sell-through video business -- threw their weight
around and asked studios for a universal 60-day PPV window.

The studios, recognizing the PPV business was beginning to
show signs of life, were reluctant to guarantee 60 days, but did expand the window base to
an average of 50 days. At the same time, DirecTv's 50-channel PPV operation began to
finally prove that PPV can work if nurtured correctly.

Meanwhile, the video business slump continued. Last year,
revenues slipped 4.2 percent from 1996, initiating a new round of attacks against PPV. But
a recently released report said the evil empire is not the cable industry, but the Digital
Satellilte System.

This time around the VSDA is not only asking studios for
longer windows, it's also putting $1 million dollars behind an aggressive marketing
campaign touting its windows advantage.

The studios, however, are not jumping so fast. While
windows are expanding to about 50 days in the next three months, some studio executives
said they are encouraged with early PPV performances in 1998, and not just from DirecTv.
Early buy-rates from MSO digital tests with more than 10 PPV channels show significant
increases in buy-rates over traditional analog systems.

Now more than ever, studio executives should give PPV every
opportunity to fulfill its promise. Operators are finally beginning to do what the studios
have asked them to do for years -- dedicate more PPV channels to offer near
video-on-demand movies similar to DirecTv's model. DirecTv has proven it can work
with the current window structure; but extending the windows to 60 or more days could
further retard what has already been a slow developing and disappointing industry.

The studios have yet to show any significant increases in
revenues with longer video windows, and most Hollywood executives themselves label the
windows as a red herring issue. Nevertheless, they've always buckled under the
pressure of home video's powerful influence.

But now, maybe PPV can finally provide the studios with a
little revenue ammunition to withstand home video's latest charge.