Here comes Warner Bros.

Warner Bros. plans to release selected movies to video-on-demand services at the same time they come out on DVD in a test that may probe whether Hollywood can expand one distribution method without hurting another. Today, Warner and other studios already release downloadable copies of movies onto online sales services such as CinemaNow and Movielink on the same day they come out on DVD.

The idea seems to be an attempt to influence consumers to rent movies from video-on- demand services rather than from retailers who rent out physical DVDs. Economically, it may make sense. Studios typically keep 15% to 20% of revenue from video-store rentals, compared to 60% to 70% of a VOD rental. So far, so good. But then it comes the tricky part. The studio wants to do that without cutting into the sale of DVDs to consumers, one of its most important revenue streams. In the past, we’ve seen never-ending stories of cannibalizing revenues at the expense of new products, so it’s hard to predict the outcome. However, based on data from several cities which already tested the service, Warner believes it won't cannibalize DVD sales, because the advertising it does for the VOD also boosts DVDs.

I think that Warner Bros.’s move into video-on-demand is just the beginning of something much bigger. And that is movie distribution using the Internet. The final result, again, is very difficult to foresee, but without question Warner is heading to the right direction.