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After four days without electricity in Seattle following a historic windstorm, I feel qualified to reveal the one power-required activity that is essential to modern life.
It's not light; candles do the trick. It's not heat; a wood fire and quilts worked fine. It's not phone service; cell phones with three-day battery life kept us in touch.
No, the one irreplaceable miracle of powered life we truly missed -- even while playing board games by firelight with the kids -- was our digital video recorder. Eighty-four hours without being able to time-shift a single show, are you kidding me? It was torture, I tell you. Thankfully, by sheer luck, "Lost," "24" and "Prison Break" were all on winter hiatus.
What this episode of "Powerless in Seattle" illustrates is how dependent many consumers have become on enjoying filmed entertainment in their homes with souped-up plasma TVs and speaker systems. Back on Sept. 1, I recommended that you start to buy the companies most highly leveraged to this trend -- broadcasters Viacom (VIA, news, msgs), CBS Corp. (CBS, news, msgs), Walt Disney (DIS, news, msgs) and cable giant Comcast (CMCSA, news, msgs) -- and they're up 14% as a group since.
In demand
Now I would like to take this one step further and contend that one of the most profitable entertainment trends of 2007 is likely to be the long-delayed and much-anticipated arrival of video on demand, or VOD, as a major source of income for major motion picture makers.Video on demand -- the viewing of new movies over a cable or broadband network at the whim of the consumer -- is one of those holy grails that entertainment experts have told us was on the verge of a breakout for years. Now, don't laugh, it really is. And the surprising beneficiary turns out not to be the telecom carriers or cable companies that will provide the shows to customers for a fee similar to what they're paying for DVD rentals. Instead, the winners are likely to be the long-abused content providers, as they will earn a much larger percentage of revenue from this distribution channel than they ever have from DVD rentals.
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Video on demand, in fact, may be the technological savior of Hollywood, keeping actors and producers in Prada and Bentleys for years to come. Theatrical releases will remain the most profitable channel for blockbuster moviemakers for some time, but video on demand -- which until now has been impaired by slow delivery speeds and lack of prime and timely content -- could add as much a four percentage points of profit margin to the likes of Lions Gate Entertainment (LGF, news, msgs), Marvel Entertainment (MVL, news, msgs), Viacom, Disney and even Sony (SNE, news, msgs). It should also give a boost to the world's largest maker of pay-television software, a smallish British firm called NDS Group (NNDS, news, msgs).
A bigger piece of the video pie
Distribution of video on demand through cable and broadband networks emerged as a $1.1 billion business this year, and industry experts estimate it will grow 35% annually into a $5 billion business by 2012, taking market share away from DVD retailers and intensifying carriers' ambition to bid for the best shows.Here's how VOD will help to pay Hollywood's elephantine budgets: At the moment, filmmakers earn only 30% of the proceeds of a DVD rented via Blockbuster (BBI, news, msgs) or Netflix (NFLX, news, msgs). But because so many parties are begging to be their partners in this new distribution channel, content producers turned the tables and negotiated to earn a whopping 70% of the revenues earned on every on-demand showing.
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