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NBCUniversal's April Acquisition of Vudu Looks Increasingly Brilliant (and Lucky)

By James Brumley – Jul 15, 2020 at 8:52AM

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Consumer preferences and the industry's norms changed in a matter of weeks due to COVID-19, and they may never change back.

A lot's happened since Comcast's (CMCSA -2.04%) NBCUniversal arm inked a deal in April to acquire pay-per-view movie streaming platform Vudu from Walmart. Inspired to learn more about alternatives to traditional streaming subscriptions -- and perhaps bored out of their minds while the coronavirus had them stuck at home -- consumers have widely embraced the so-called transactional video space where Vudu operates.

That's what the latest data from digital television app TV Time says anyway. The app, which tells its users what other content people are watching so they can watch popular programming as well, says people don't mind paying a premium price for the right sort of entertainment. NBCUniversal plugged into the fast-growing business at the best (and luckiest) possible time. It's not huge now, but it's suddenly getting bigger -- fast.

A remote pointed at a smart TV

Image source: Getty Images.

The premiumization of transactional

It's called transactional video on demand, or TVOD for short. It's actually been around for a while, but it's only a fraction of the size of the more conventional subscription-based video-on-demand market. Think Netflix (NFLX 0.13%). It's not even as big as the ad-supported video-on-demand market, or AVOD, led by the likes of Fox Corporation's (FOX -0.86%) (FOXA -0.55%)Tubi or Comcast's streaming venture called Peacock, slated for launch this week. TVOD just hasn't had much of a chance to gain a foothold.

The COVID-19 contagion provided a real boost to the movement, though. With movie theaters shut down since mid-March but the itch for new films never really going away, a handful of studios sold their newest movies as digital downloads.

Universal's animated Trolls 2 World Tour is arguably the highest-profile example of this experiment -- which worked, by the way. The film generated more revenue than the theatrically released first Trolls flick did, and that success prompted NBCUniversal CEO Jeff Shell to mention it publicly and then suggest that "the majority of our movies, whether we like it or not, are being consumed at home. It's not realistic to assume that we're not going to change." Other films have successfully bypassed currently closed theaters and gone straight to consumers' homes in the meantime, including films like Scoob!, Artemis Fowl, and The Hunt.

These new feature films represent a variation of the typical TVOD model to date, however.

By and large, transactional video has been limited to movies no longer in theaters. Many of them have also been available through other platforms like the aforementioned Netflix. The TVOD arena even sells/rents digital access to much older movies and entire seasons of television series.

With titles like Scoob! and Trolls 2 now available for rental or purchase, though, the so-called premium video-on-demand, or PVOD, sliver of the digital media market has started to gel. Trolls 2 World Tour cost an impressive $19.99 to buy and watch at home. Ditto for Scoob! Renting Trolls 2 now costs a more modest $5.99, although renting the more recently released Scoob! isn't an option yet. Whatever the case, enough consumers are paying for access to make the model viable.

TV Time says...

A survey performed by the organization beyond TV Time -- CVM Insights -- has quantified this willingness from consumers to pay a hefty price to watch new movies at home. All told, one-fifth of the people in the United States have purchased a PVOD title since coronavirus lockdowns began. The same survey of nearly 7,000 further said more than half of the country's TV watchers are now more willing to pay theater-like prices to watch a new flick despite the theater-like cost. On average, they say they'll spend a little more than $14 to see a new superhero film. A horror movie or film for kids is worth a little more than $11. Dramas, these consumers suggest, are reasonably priced around $12.

Those numbers jibe with similar data from a Hub Entertainment Research poll taken before TV Time's survey results were shared. While willingness to pay a premium price to watch a new film at home skewed decidedly toward the under-35 portion of those polled, those younger people aren't stingy about it. Two-thirds of that group indicates they'll pay as much as $25 to stream the right new title at home rather than be forced to step foot in a theater.

Older consumers weren't nearly as interest in PVOD. But as time marches on, younger consumers become older consumers. Their children are even more accustomed to paying for convenience.

NBCUniversal is the PVOD power play

While new releases were a rarity within the TVOD space before COVID-19, they've suddenly become common. In fact, any springtime movie release that's not been delayed because of the COVID-19 contagion has been sent straight to streaming. Consumers quickly embraced the idea. They seem to be getting used to it. The only major tweaking that needs to happen from here is figuring out the right price point. New films are premium priced around $20 per title, but paring that cost back to the $12 area could drive much more revenue by attracting a far bigger crowd.

As for NBCUniversal's purchase of Vudu in April, it's now shaping up as an unexpectedly brilliant play for one key reason -- it's one of only two well-established TVOD-turning-PVOD platforms with a major following. It reportedly served somewhere around 25 million regular users the last time a subscriber number was floated. The other big TVOD platform? That's Fandango Now, which (and here's the kicker) is also majority-owned by Comcast's NBCUniversal subsidiary. Other streaming names like Amazon and Alphabet's YouTube also sell Scoob! and Trolls 2, for the record. But, none are the go-to transactional and premium-transaction video-on-demand venues that Vudu and Fandango are. Both are playing to an opportunity that's becoming mainstream very quickly.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. James Brumley owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Netflix. The Motley Fool recommends Comcast and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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