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David Poland

By David Poland

The Day The Movies Died

Wow… that’s called burying the lead!
Dawn C. Chmielewski at the LA Times did a story today that is, perhaps, the most important story to the film industry in the last two years. Stop obsessing on frickin’ 3D and the overhyped box office boom and take a look at this.
Let me step backwards for a second to let you know why I see this as a huge landmark (which I am embarrassed to say I didn’t know about for 6 years and 12,900 kiosks that this company has been in operation).
The economics of a movie are;
Theatrical = the most dollars per pair of eyeballs
DVD sales = a stable price per sale, with unknown # of eyeballs per sale
DVD rental = a stable price per sale with maximized numbers of eyeballs per sale, but in some cases, revenues returned to studios on a formula that approximates a per-rental basis.
Pay-Per-View = a strong number for each sale, but very, very limited number of buyers
Internet Free Stream = no revenue except for savings from unions & ad sales
Internet Paid Stream/download = smaller than PPV revenue per unit and even more limited sales
Other Ancillaries = getting smaller every year
What percentage of the pie each area has made up has changed year to year. There was a period during which DVD sales were significantly higher than theatrical revenues… and then added more dollars from the rentals. But as DVD sales have dropped for theatrical movies – and please, keep in mind that this is not this year

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21 Responses to “The Day The Movies Died”

  1. jeffmcm says:

    Great. Another way to encourage people to watch the same twenty movies over and over again and to discourage browsing and checking out unusual/offbeat titles.

  2. Eric says:

    Putting aside the studios’ concerns for a moment– I smile when I think about how this affects Blockbuster. In Redbox we have a company that figured out how to drastically underprice the competition– all they had to do was eliminate sniveling teenager behind the counter. Instead of paying five people to staff a store all day, Redbox pays one person to service dozens of kiosks. That’s innovation, and that’s how a marketplace is supposed to work. Good for them.
    And I say this as somebody who has never rented from Redbox (I love my Netflix), and who once was one of those sniveling teenagers behind the counter at Hollywood Video.

  3. hcat says:

    While only about a third of the titles are theatrical releases, the red box thats across the street does carry new releases by Miramax and SPC, so it is not solely mouthbreathing titles (though I would love to see who was fooled into renting “The Day the Earth Stopped”).
    As the article said, Universal has blocked the release of their films through these sites so I would think it would be just as easy other companies to do the same. Though they do seem to stand to lose out on the sale of 75,000 discs per title (Figuring around 5 or six discs of a new title per kiosk) . I don’t think any fail safe line has been crossed yet.
    On a semi-related note, you brought up ancillaries such as pay and commercial cable which generally pay based on the theatrical take. Do you or does anyone know what this percentage is? And I would assume these mean unlimited showings across a window of time because non-premium cable channels now seem to repeat their movies more often than HBO or Showtime does.

  4. hcat says:

    I love my Netflix as well, but Redbox is a good supplement if you miss the one day window for new releases on Netflix.

  5. Maskatron says:

    Sort of related – Netflix just announced they will be raising the fee for Blu-Ray access next month. The pricing depends on what level of plan you have – I’m on an unlimited 2 at a time plan and my fee will be raised from to $3 extra each month (on top of $13.99). People with higher-level plans will pay even more.

  6. Maskatron says:

    Meant to say “raised from $1 extra to $3 extra”.

  7. Joe Leydon says:

    Geez, you guys are pretty slow to latch on to what happens here in flyover country. I literally can’t remember how long I’ve seen these kiosks at grocery stores, Wal-Marts and McDonald’s restaurants throughout Houston.

  8. jeffmcm says:

    There are very few Wal-Marts in Los Angeles county, and speaking for myself, the last time I saw the inside of a McDonald’s was while watching Super Size Me.

  9. Wait, who honestly didn’t know about these things? There’s one in a Ralph’s up the friggin’ street. GLENDALE. Forget “flyover country.”
    This is the only way one of my best friends sees movies now. Seriously, putting more than a buck into it is asking too much of some lately.

  10. jeffmcm says:

    Probably a different company. Redbox all seem to be in Jons and Albertsons.

  11. Wrecktum says:

    Until Coinstar releases information regarding the rental habits of its customers (what titles are being rented? How long does the customer keep titles? Is it really one dollar per rental or do people tend to keep discs longer?) I don’t think any conclusions can be drawn. As always, though, I think studios need to enbrace this new distribution technology instead of fighting it. Universal? Insead of gnashing your teeth and refusing to play, enter into a nice contractual agreement with Coinstar and start sharing revenue.

  12. Actually, I think it was Vons, not Ralph’s.

  13. SJRubinstein says:

    I saw these at a Houston Randall’s and a Houston McDonald’s and was like, “Ha! Cool novelty” – and thought of it like getting your DVDs from one of those claw-wielding arcade machines at Chuck E. Cheese.
    Obviously, I am the wrong canary to put in a coal mine.

  14. Triple Option says:

    Yeah, I was going to ask about pay cable, network and ad-supported cable numbers myself. Those are 3rd cycle sales, not necessarily chump change. They’re also packaged so it makes it easier for a studio to re-coup off a poor theatrical release.
    I’ve seen those machines for a few years. Never looked like there was ever anything I wanted to see. The few films I would’ve watched were sold out.
    What I really want to know is how sure they can track erosion to those. Isn’t it like the majority of grocery store convenience buys? Sure there’s gotta be a percentage of DVD’s not being purchased or rented full price because of those, but I’m sure there’s gotta be a significant amount of rentals from people who would’ve otherwise left the dollar in their pocket.
    What I kinda wonder is why a studio wouldn’t have their own kiosk and have more of an integrated sales approach. Get some mileage out of a big library that’s otherwise sitting unused.

  15. NV says:

    It’s interesting commentary, but keep these facts in mind:
    Yes, its a $1 a day, but their customers keep things about for, on average, 2.5 days, so most unit transactions come out to be $2.50, so its pretty much in line with what Blockbuster rents their product out at. But $1 a day is different mentality than $5 for 2 days.
    Studios HATE Redbox. They hate rental in general, but they HATE Redbox most of all. No one is revenue sharing with them, so they are paying $18 a pop (through distribution) which is three times higher than what Blockbuster, Hollywood, Movie Gallery, and Netflix all pay for their product.
    Look, the studios screwed themselves when they shifted to a sell through mentality with DVDs (they should have stuck with the rental windows) and have screwed themselves even more by making sell through even cheaper (Lets put all four Lethal Weapons on one disc and sell it for $9!), but they will not change their framework now. They’ll do everything they can do drive Redbox into the ground, and, considering the prices they have to pay for the product, I can see it happening.

  16. MaxwellPowers says:

    De-lurking for the first time to comment.
    I’m not sure how Universal, or any of the studios for that matter, can prevent Redbox from renting their movies at the Redbox kiosks. Under the first-sale doctrine, the owner of a legally purchased DVD has the right to rent it. It might dig into Redbox’s margins if it has to obtain its DVDs at Costco instead of through a wholesaler, but either way those new release DVDs will get into those machines and there is little the studio’s lawyers can do to prevent it. The only way I see to stop this would be for the MPAA to lobby Congress to amend the Copyright Act of 1976.

  17. christian says:

    I think David is turning into a calculator.

  18. Wrecktum says:

    “The only way I see to stop this would be for the MPAA to lobby Congress to amend the Copyright Act of 1976.”
    Precisely. Which is why they shouldn’t beat them. They should join them. Embrace the new distribution stream and jump on the chance to get some new revenue!

  19. SJRubinstein says:

    Don’t worry – once the studios figure out how to stop paying feature residuals, everything’ll be fine.
    In fact, there is at least one major television studio that figured out how to get around it – the fines they have to pay to stay signatories are actually lower than the amounts they’d have to pay in residuals, so they just keep paying the fines while the Guild lawyers tell their dues-paying members, “Don’t worry – we plan to log another call this week AND write a letter!”

  20. LYT says:

    “Now, some would argue that the end of the old studio system was good for movies. I would argue that the Vietnam War and the deaths of Kennedy/King/Kennedy were more responsible for the quality of the work in the early 70s than studios dying.”
    I would argue that the end of the Production Code had a lot to do with it as well. Think this recession will hurt the MPAA in the same way?

  21. hcat says:

    Maxwell – The article states that Coinstar sued Universal for restraint of trade but they have successfully argued that they should have control of how their product is marketed and distributed.

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