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Straight Talk Media & Entertainment

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As if four-letter words haven't caused enough angst for moviemakers over the years, along comes a four-letter acronym threatening to eclipse all predecessors. Premium video on-demand (PVOD) has come to the fore yet again, as a result of 20th Century Fox CEO Stacey Snider discussing the topic at an industry confab during the past week.

Premium video on-demand explained

The PVOD business model involves inserting a release window between the theatrical and typical "home entertainment" release windows, for Blu-ray discs (BRDs), DVDs, electronic sell through (EST), and transactional video on-demand (TVOD). This would enable distributors to sell access to a movie sooner after the movie's theatrical run than is currently possible.

Distributors have experimented with the model by allowing limited-time access to (rather than sale of) the movie in a customer's home, somewhere between a month and four months after the movie has finished showing in movie theaters. In general, prices are significantly higher for PVOD because access is enabled before the home entertainment window, addressing the desire among some consumers to watch new-release movies as quickly as possible.

But US movie chains have resolutely refused to carry movies that do not follow legacy windowing standards.

Stacey Snider raised a pertinent question: "Whom is PVOD helping? And whom is it hurting?"

Attempting to answer Snider's queries is an interesting exercise. PVOD helps

  • moviemakers;

  • distributors, such as pay-TV operators or iTunes, which would presumably be in line to sell high-priced PVOD movies;

  • audiences, particularly high-spending enthusiasts who would welcome the chance to see movies sooner;

while PVOD hurts

  • movie theaters.

Given the balance of impacts, it is perhaps surprising that PVOD isn't already well established. But that would be to disregard three key factors:

  • the importance of theatrical performance to downstream home entertainment performance;

  • the positive effect of defending time-limited windows on content valuations for content owners;

  • and the cohesive and consistently executed effort by US cinema owners to hold to their promise not to carry any movie that doesn't respect their window.

Release windows are under pressure and have been for years: the gap between theatrical and home entertainment is around four months in the US, down from six months a few years ago. Introducing PVOD to the current windowing system would increase the pressure to further collapse or at least tweak window timings and further blur the distinction between them. This is already an issue for US broadcasters licensing to Netflix and other SVOD platforms: audiences becoming accustomed to catching their favored shows a few weeks later on Netflix rather than on pay TV is a less-than-optimal commercial outcome, to put it mildly.

For the time being, the status quo is likely to be preserved in the US; however, further afield, the legacy windowing system differs to varying degrees and the outcome is likely to be different. US pay-TV service providers appear to be well positioned for PVOD given their subscriber bases and the relatively secure distribution their TV set-top boxes (STBs) promise.

In foreign markets where pay-TV penetration is lower, the situation is far more complex. First, the PVOD model is unlikely to work in markets that lack an established windowing system and a thriving theatrical sector. Second, it won't work in markets where audiences are not accustomed to paying relatively high prices for pay per view, DVDs or BRDs, and EST in particular. Given PVOD will be a multiple of whatever is charged for a recent movie on iTunes, this is not an entertainment option for the budget conscious. Third, new-release movie licensing may be fragmented across a host of OTT platforms, broadcasters, and pay-TV operators (as opposed to being largely tied up by pay TV). This raises perhaps the most interesting question about how market dynamics around movie licensing will evolve (and one on which we at Ovum enjoy working with our clients and partners).

Seen through a more global lens, perhaps PVOD is an anachronism suitable only for one last EST-flecked hurrah in saturated entertainment markets with high-spending audiences. Certainly, when we look further afield, the conditions for such a countervailing trend do not look as tempting as in the home of Hollywood. But given the resurgence of cinema in China, perhaps vested interests and Beijing-based regulators will come under pressure to protect such a high-growth sector, which they could even do by imposing some kind of "windowing" system to maintain differentiation between theatrical and home entertainment.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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