UK entertainment retailer HMV has signed a deal with VoD aggregator Filmflex to create and develop a new VoD service, HMV On Demand.
Filmflex, a joint venture between Walt Disney and Sony Pictures Television, is actually one of the biggest VoD providers outside the USA. With cable distributor Virgin Media, Filmflex reaches approximately 3.7 million households in the UK, and has registered more than 65 million movie rentals since its launch in 2005.
Aside from HMV, Filmflex currently partners Virgin Media, Virgin Media Online Movies and Film4od and maintains relationships with the Hollywood studios and UK production companies.
Leveraging the existing relationships FilmFlex holds with film-makers, HMV On Demand service will provide movies from Sony Pictures, Twentieth Century Fox, Walt Disney, Warner Bros., Entertainment One and Momentum Pictures. Filmflex will manage the website, security aspects, digital rights, content management and customer services as well as on-site promotion.
HMV has begun with a soft launch of the service on Mac & PC, allowing users to watch films on a rental basis both on and offline, with users able to download films for later consumption. The main launch of the service is planned in January 2012. According to HMV and Filmflex availability on other devices will follow soon.
For HMV, the extension of its retail business into the online rental sector is not an unnatural move, and exploiting the high growth VoD sector would seem to be a way of compensating for low growth in the company's core store-based business. Fundamentally, the deal with well-established market player Filmflex and the application of existing, tried and tested technologies and content partnerships could help HMV compete on a reasonable basis with other VoD aggregators on the market, although with the sector primarily driven by device-based ecosystems such as Microsoft's Zune marketplace, it is still likely to find the going tough.
The move is also a relatively safe one for HMV - using Filmflex to aggregate content and power the service eliminates many of the investment risks of building up a VoD offer from scratch, although the move (undoubtedly including a revenue share model) will come at the cost of revenues for HMV, compared to if it had launched its own equivalent service.
However, anyone expecting an online rental offer to turn around the fortunes of HMV's business will be sorely disappointed. IHS Screen Digest estimates the UK online movie rental market to be worth £18.6m. Growth in the sector, while rapid, is still expected only to result in an additional £20.9m in consumer-level revenue over the next five years. By contrast, HMV was pulling in over £2bn in revenue in 2010. Consequently, even if the service does perform well, its contribution to HMV's top line will be marginal at best.