Satellite TV Company Beaming Over Indie Films

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An effort from DirecTV to bolster its indie film offerings shows how the satellite television company is trying to keep up with Internet competitors as it loses subscribers.

The El Segundo pay TV provider is partnering with film distributor A24 of New York to acquire films for exclusive access on DirecTV’s video-on-demand platform for 30 days before going into theaters. DirecTV is committing $40 million to the venture.

Spencer Kurn, a telecom analyst at New Street Research in New York, said DirecTV competitors such as Netflix, which offers exclusive content including television series “House of Cards,” have spurred those in the pay TV business to look for programming of their own.

“These companies have to differentiate themselves if they want to maintain subscribers,” he said. “The rate of innovation that we’re seeing out of cable and telecom is accelerating.”

The first release under the deal will be “Enemy,” starring Jake Gyllenhaal, expected to be available on demand via DirecTV early next year. DirecTV is planning 12 such releases, about half of them from A24. The films will rent for seven days from $10.99 to $12.99.

The deal, reported recently, is another step in the company’s strategy to deliver exclusive content in hopes of keeping subscribers from leaving – and to get more money from them.

Earlier this year, DirecTV commissioned its first original TV series, “Rogue,” starring Thandie Newton, which ran for 10 episodes on its Audience Network channel. DirecTV has since commissioned other exclusive content such as a series of short films written and directed by Neil LaBute (“Nurse Betty”). DirecTV’s other exclusive offering is NFL Sunday Ticket, which provides access to all of the National Football League’s games, but the company’s deal with the league expires next year and Google Inc. has reportedly been shopping for the rights.

Meanwhile, keeping subscribers gets tougher. In its most recent earnings report, DirecTV disclosed it lost 84,000 U.S. customers in the second quarter – just the second such quarterly loss for the company.

The company reported second quarter net income of $660 million ($1.18 a share), 7 percent lower than the same period a year earlier. Revenue rose 7 percent to $7.70 billion.

“We need to keep giving (subscribers) reasons not to leave,” Chris Long, senior vice president of original content and production at DirecTV, told the Business Journal earlier this year.

Window opening

This isn’t DirecTV’s first time offering films to subscribers before they’re widely available for home viewing.

Two years ago, it rolled out its Home Premier initiative, which gave subscribers the chance to watch movies 60 days after they hit theaters for $30 per film.

That was a shorter wait than for DVD rentals, which have a waiting period of four months after release.

The program won support from studios including Warner Bros., Sony, Universal Pictures and 20th Century Fox, but was quickly dropped when consumers balked at the high price. Other similar efforts to release studio movies early have caused theater chains to protest over concerns that it would decrease box office sales.

But the independent film world has been more receptive to flexible release schedules, since an on-demand release can expose a wide audience to indie movies at low cost, and maybe even drive theater traffic if buzz is exceptional. Films that have opened on demand before they hit theaters include “Drinking Buddies,” starring Olivia Wilde, released by Magnolia Pictures this year.

Nolan Gallagher, chief executive at Gravitas Ventures in El Segundo, which acquires films for on-demand distribution on platforms including DirecTV, said the satellite company has made the right move.

“Increasingly, we have noticed consumers are more and more interested in being the first to see star-driven independent films fresh off their film festival debut and before they even reach theaters,” he said in an email. “DirecTV’s strategy is a powerful validation of that trend.”

Film distributor A24 is backed by New York financial services company Guggenheim Partners. This year it has released “Spring Breakers” and “Bling Ring.”

A good part of DirecTV’s $40 million budget will go toward marketing the movies, which will get top billing among its on-demand offerings.

Gallagher said that type of partnership can help DirecTV by splitting marketing costs with a distributor and maximizing revenue through release to other platforms, such as iTunes. In the A24 deal, DirecTV will have two to three months of exclusivity from the time the films open in theaters to when they are available on other home entertainment platforms.

DirecTV has already had success getting subscribers to increase spending. In its second quarter earnings, the company said its average monthly revenue per subscriber increased 4.5 percent to $98.73 compared with the same period a year earlier.

New Street’s Kurn said he sees the exclusive indie film effort as a relatively low-cost way to try to grow that number.

“It’s best viewed as an experiment,” he said. “They’re not going to do it if it’s not economical. It’s a bet their willing to risk.”

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