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. 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 as 4 percentage points of profit margin to the likes of Lions Gate Entertainment ( LGF), Marvel Entertainment ( MVL), Viacom, Disney and even Sony ( SNE). It should also give a boost to the world's largest maker of pay-television software, a smallish British firm called NDS Group ( NNDS).
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.