Tuesday, April 10, 2007

Oligopoly in your hotel room We never cease to wonder at the variety of industries being consolidated, industries that you might not even think of as such. So when we discovered a Wall Street Journal article entitled "Hotel-Room TV Tries to Freshen Itself Up" (4/5/07), we were intrigued. It turns out that the two leading providers of in-room movies and games for hotels have merged. They are LodgeNet Entertainment Corp. and Ascent Entertainment Group Inc., which owns On Command Corp. Both companies operate mostly in North America. The deal, for $380 million, was small by our usual standards, but the story is an interesting one, aside from being another acquisition of #2 by #1. LodgeNet's services are in 1 million hotel rooms, and On Command is in about 800,000 rooms. This is a service that chains like Hilton Hotels outsourced to third parties. One reason for the acquisition: better bargaining position. As the article notes, "The Sioux Falls, S.D., company hopes to use its larger presence to negotiate better deals with content providers." The ability to offer on-demand versions of current hit shows is a matter of getting the studios attention, something a bigger company can do better. Only the big can bargain with the big. The big problem is the industry is that more and more travelers bring their own entertainment into their rooms, whether with an iPod or a laptop or a game console. No longer are there are as many captive bored travelers paying serious money to watch films (or porn) or play low-resolution games. Furthermore, the re used to be a gap between when theatrical releases went to DVD (or tape), so that the in-room services could offer some movies you could see except in a theater. Now the window has closed, and DVDs get released soon after the theatrical run is over. One hope is the advent of high-definition TV screens in hotel rooms, something not everyone has in their home. LodgeNet is offering a wide selection of on-demand movies, and it is pushing digital technology in the rooms. Just recently, it acquired a company called StayOnline Inc., a provider of broadband access to hotels. More depressing, LodgeNet seeks to take advantage of its captive audience by adding advertisements and informercials to its movie features, just like the movie chains. 10:10:07 PM

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