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Amazon opens exclusive second pay TV window with Warner Bros in UK
11/21/2011

The creation of a second pay-TV window under an agreement between Warner Bros and Amazon’s UK DVD rental subsidiary LoveFilm highlights mounting competition both among online video distributors, and the big studios themselves, to exploit digital channels. Under the deal, which covers multiple platforms on an exclusive basis in the UK, all Warner Bros’ output will be available via LoveFilm distribution outlets after satellite broadcaster BSkyB has had a free run during the first pay-TV window. Then, during the second pay TV window, movies will be available from both Sky and LoveFilm, only going on general release on all free-to-air services after a further four to five years.

The move comes just as Netflix is finalizing its UK launch, which will take place early in 2012, having recently established exclusive online distribution agreements with Lionsgate and MGM, and a non exclusive one with Miramax, all classed as second-line movie studios after the big six. The agreements cover the UK and Ireland, with the Miramax one including a Facebook app that will allow users to buy films with Facebook credits.
Against this background, Lesley MacKenzie, group digital officer at LoveFilm, has stated that early exclusive windows were paramount to the company’s success, citing another deal struck earlier this year with E1, giving it exclusive first-run rights to its Twilight movies. This implied that LoveFilm would be seeking similar second-window deals with other major studios.

Indeed, there may even be scope for bidding for first pay-TV windows in future. Currently, BSkyB holds a stranglehold over first pay-TV windows through longstanding agreements with all six major studios: Warner Bros, Viacom’s Paramount, News Corp’s Fox Entertainment, Walt Disney, Sony Pictures and NBC Universal. But, Sky’s monopoly over the first pay TV window has been criticized by the UK Competition Commission after communications and media regulator Ofcom had conducted a three-year investigation. The commission found that subscribers to Sky Movies were paying more than they should for VOD (Video On Demand ) rental. Although Ofcom is not yet forcing Sky to make its first-window rights available on a wholesale basis, conceding that the importance of linear channels as exclusive outlets would diminish over time, the Commission’s ruling could still lead to action. Indeed, the Commission has indicated it may restrict the number of major studios from which Sky may license exclusive first pay-TV window rights, or most relevantly for LoveFilm make online distribution rights available in parallel.

The deal between Warner Bros and LoveFilm deal could also have implications for the development of the Electronic Sell Through (EST) model being promoted by the movie studios via the UltraViolet cloud-based digital locker initiative. The objective is to increase revenues earned by movies over their lifetimes by encouraging download-to-own electronically to make up for declining DVD sales. UltraViolet will, in principle, enable consumers to buy movies once from any outlet, either in digital or physical form, and then have the rights and ability to view them on any device platform.

LoveFilm says it could start selling movies via UltraViolet in 2012, after Warner Bros became the first studio to sign up to market UltraViolet-enabled discs via its Flixter service earlier this year. UltraViolet, promoted by the Digital Entertainment Content Ecosystem (DECE), is supported by all the major studios except Disney, and by the leading video ecosystem companies with the notable exceptions of Apple and Amazon itself. LoveFilm’s apparent endorsement of UltraViolet could therefore herald a change of strategy by Amazon as a whole.

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