Delivelution 4711: Is It “The End Of The World?” (Part 2 of 2)
“All of the studio executives with whom I’ve discussed this issue indicate that their support is largely predicated on a belief that there is no good commercial reason for withholding a film from the home for a four-month period.”
Ken Ziffren, show biz lawyer, The Hollywood Reporter
No one can argue that in six weeks, with the exception of awards-driven movies and limited releases intended to widen, most movies that are in reasonably wide distribution – good or bad, big or little – are played out at the domestic box office.
Exhibitors know this too… as well as anyone. Exhibitors didn’t press studios to front-load box office so studios could get to Home Entertainment more quickly. But that’s what the studios did. Exhibitors were not invested in the idea of making it nearly impossible for slow-building product to play strong into second months, much less third months, but that’s what the studios wanted. It is in the exhibitors interest to maximize the number of people coming to any movie they are playing at any point in its theatrical run.
But the viability of those first six weeks is not a given either.
And that is why the sky may, indeed, be falling on exhibitors this time.
Before VHS, there were barely any windows. A movie was lucky to have a life post-theatrically. But as more and more windows have been created, each one returning revenue to the studios, consumers have had to adjust. First, to the idea of renting and having selected movies appear at home, uncut and unedited. Then, it was owning films. Now we have the Chinese Menu version of post-theatrical options… rent, buy, own, subscribe, stream, basic cable/satellite, pay-cable/satellite, PPV, VOD, steal, sample… not to mention all the delivery platforms.
When the studios launched VHS, six months was sacrosanct. And many of the biggest films either waited longer or didn’t at all (or for a very long time). When this was reduced to four months, there wasn’t a publicity campaign about the time frame shift.
Why?
So the content wouldn’t be competing with itself.
This is not brain surgery.
The problem with “Home Premiere” is not that there is a big audience waiting to go to the movie theater on Day 61 of a run and that they will have a choice between seeing it in a theater and seeing it at home. The problem is that a 60-day window starts to devalue the idea of going to see a movie in a theater on Day 1. The problem is that a 60-day window devalues second viewings of a movie in a theater.
Marketing movies is not easy, as you might expect, considering that the last $40m domestic opener was on December 17 and the one before that was on November 24.
So now, you’re going to sell an audience, “Come to the theater on April 1 for $10 a head, see on Home Premiere on June 1 for $30, see it on DirecTV PPV on July 1 for $6, buy it on DVD on August 1 for $15, see it on Netflix on September 1 for $8 a month, and watch it on pay-TV on Dec 1 for whatever you pay for that!”
Studios are talking like they are just planning on sneaking this one by… like people are going to wander onto this and spend $30, when they are still loathe to do PPV for aging content for $6 or $5 or $4. Two months to the first post-theatrical window is now pushing the notion that the audience isn’t listening… and bordering on suggesting that the audience is stupid.
They are going to have to sell Home Premiere and all the iterations of it that follow. And that is, by its very nature, competing for first-run dollars with theatrical.
I guess the good news is that this pricing in that slot is highly unlikely to be successful. The bad news is wrapped right in there, however, as there seems almost no chance that faced with a poor response to this offering, The Window Killers will just walk away from their idea. They will do what businesses do… experiment and try to find the right numbers in combination. That could mean $15 Home Premieres… that could mean 6 week Home Premieres… that could mean killing Home Premiere, but trying to force the DVD window up to 60 days… that could mean a $30 a month subscription that would give you all the Home Premieres each month, which is looking like 2 or 3, according to the program’s mouthy backers.
And the MPAA members tell the exhibitors, “Trust us,” as they negotiate deals for a 60-day cable/satellite window without consultation with the partners who have held an exclusive position for at least four months from opening day for decades. “We don’t know why these guys are so resistant!” Exhibitors start with, “You smiled in our faces while you were slowly sticking the knife in our backs.” It doesn’t matter whether the studios are right. (If they are right for anyone, it’s for themselves only… but even that is a dubious proposition.) They have shown a complete lack of respect for their longest held relationships.
“What about the fact that the major studios have essentially funded the theater chains’ digital-cinema installation?”
Ken Ziffren
What about the fact that the installation will save studios, at the very least, hundreds of millions of dollars every year, some estimate more than a billion? And do you remember how long and hard the studios, which are undeniably the prime financial beneficiaries of the change, fought not to help fund the conversion?
There’s nothing wrong with businesses being self-interested or even greedy. But when you have a product that has a long shelf life and there is only one singular premium opportunity and your idea for adding another layer onto the Home Entertainment opportunity requires that you close the exclusivity gap on that one singular situation, the thinking is a bit myopic.
Really, it comes down to math. Studios think there is a chance to net $24 for one view of their films on DirecTV, which makes it the equivalent of what they would net on almost 5 theatrical tickets sold.
Cut that price in half and it’s still a net of more than 2 theatrical tickets sold… and now the consumer price is closing in on the cost of one theatrical ticket.
So as far as these studios are concerned, if theaters lose 20% of the audience for a movie, they still have a good chance to make their money.
And the theaters start closing in earnest.
If the theaters start closing and now, you lose 80% of domestic theatrical because there are not enough screens to accommodate more than that, you “only” need some of the theatrical audience that was lost to buy $15 Home Premiere (which would morph into Home 6-Week-Run) to make up the lost revenue. But since some percentage of the lost 80% is made up of groups of 2 or more… so let’s say you need 46% of the number of tickets previously sold theatrically to be household buys of Home Premiere.
1 million ticket buyers x $10 tickets = $10 million x 55% distrib share = $5.5m net
366,667 households x $15 Home Premiere = $5.5m million x 80% distrib share = $3.5m PLUS 200,000 ticket buyers x $10 tickets = $2m x 55% distrib share = $1.1m
TOTALLING Theatrical $1.1m and HP $4.4m = $5.5m net
Of course, by the time you do, you have already sold a Home Entertainment experience to a large percentage of your audience. Are they going to buy a home experience, even at $4, again? Are they going to pay to take a DVD of their very own home? That’s a real cannibalization threat.
And will people, even current Frequent Moviegoers, come out to theaters to see more than a couple of “special” films a year?
But there is still the bigger threat… that those 800,000 people really wanted to go out and much of your $3.5m goes to bars or restaurants or nightclubs or gas and by the time those folks get home, they are just as willing to watch one of the 100 hours of stuff they have on their DVR or to pick from the thousands of films and TV shows on Netfix or Hulu or The WB Streaming Network or whatever.
Selling the theatrical experience in 2011 is not a cakewalk. Yet, people still want it. You’re asking people who pay, on average, over $80 a month just to have the TV running in their homes to pay $8 – $15 per person for two hours of entertainment in a big room with great sound and projection with a hundred or a few hundred strangers. They are hoping it will be worth the money… unlike a sporting event where you have a stake in the teams or a concert where you know the songs going in or whatever other form of entertainment. And they know that if they wait a little while, they can see that film for the price of a subscription they may already have that costs less per month than the cost of a movie theater ticket.
But if the industry and the media keep telling them that they really don’t have to go to those movie theaters… that it’s all junk… that there is no difference between your TV and a theater… that you don’t really have to be very patient (on an adult scale) and you can get anything you want… well…
People can be trained.
And if the margins for theaters are nipped by 10% or 15% while the studios are improving their revenues by 10% or 15% (or not), theaters will close… and they will not be unclosed.
So ring that bell, studios… even though you know it can’t be unrung. I guess it’s not enough to have to figure out the many new platforms for Home Entertainment and maximizing those before screwing with the one that has worked reliably for decades in the modern era.
And if you kill off 80% of screens with all this windowmania, I will look forward to see how you differentiate Feature Films from HBO Movies or, say, television episodes.
And then, I bet you’ll think the sky really is falling. Who will be left to blame?
Or maybe this is really the end game. A return to the old studio system, where the studios really control all of the content and production is cheap, like in the rest of the world. If so, I guess things are looking up! (Not that you could afford to make and release Up.)
If this were on Comcast. I would worry about it. It’s Directv, and that pretty much puts it on the last train to Georgia.
Nail hit on the head, Dave. Exclusive pricing will not differentiate content to the majority of non-theatrical movie watchers.
Have they talked of a special set-top box, yet? I keep waiting for the “HP Roku” or some widget that they can use as early-adapter bait. Without it, and relying on Direct TV, people will not catch the “special window” aspect for mid-tier flicks, since this same demo isn’t even aware of when the average movie’s opening has come and gone.
Thanks for these two insightful pieces, David. As others have mentioned previously, I agree that it finally comes down to content. If you make something that people truly need, want and are curious about to see, they will come. As for marketing, where did the “idea” come from that to spoil an entire film would entice people to go and see something?
As several ‘smaller’ films have proved over the years, you do not need a $100 million dollars or more to create that. [I shudder to think about what this summer will bring…] The wonderful thing about for example ‘The King’s Speech’ is that it was a very human and warm story. No blazing explosions required to appreciate that. The obvious problem is that when you rely almost exclusively on tentpole pictures and events, the risks become higher, and it gets harder and harder to earn something on such an investment.
Myself, I am a big fan of the theatrical experience. The time and attention spent on a film in it’s natural habitat is to me incomparable in it’s effect/affect than watching a film at home, on a computer or even on your phone (?!).
So not only would such a delivelution harm the studios itself, on a deeper level, – indeed like you stated, how to differentiate Feature films -, the in my opinion optimal experience of a film would be devaluated. Meaning, the emotional effect of a film looses its impact. Which will undoubtedly harm the studios in the long run.
This is a very interesting topic but it’s hard for me to judge since I know so little about it. One question I have David, is where do the people you talk to see things going in 10-20 years?
To me it seems like the studios see their product as a matter of format: 80-180 minute filmed narratives adhering to certain generic standards of content and production technique. In that way it doesn’t matter to them how it is consumed: theaters, dvds, on demand, ipads, whatever. Which leads to the natural question of how Warners or Paramount is ultimately any different from HBO or AMC (or comcast or netflix).
But a studio might have a different approach and define their product by the method of exhibition. It always seems clever to think that the theater experience is declining, but there seems to be an abiding and specific desire that people have to experience entertainment in a shared time and place. For example, I believe the yearly gross for live music performances has to be well into the billions, comparable to box office numbers. So maybe there is an opportunity for producers to really define their product as a theatrical experience. The problem is that this is simply not something that can be done across a current studio’s production slate. Whatever you think about Avatar it has shown that the market for a unique theatrical experience exists and is quite large. But you can’t do that with Avatar AND the latest Jennifer Aniston movie. It’s much easier to put generic product in the pipeline, whatever that pipeline is.
yeah. If you kill exhibition, every studio becomes a TV producer.
lol, even that would probably not be enough to allow human below the line talent to move back and forth between the TV world and ‘film’ world. For a generation or more they’d be separate but equal, but by 2035 there would probably no longer be a distinction in content creators between TV and film. Film would just be those TV-movies that are selected for one week theatrical runs in the two remaining LA/NYC theatres for oscar consideration. Oscars wouldn’t be about the best movies, you’d already know they were the best movies by virtue of having been one of the 52 selected to play in a theatre. :-p
Now LA and NYC MIGHT have more than one theatre a piece still running films, but if they do it will be like stage/broadway. A handful of theatres screening at super premium pricing. indy films would sell $20-60 tickets, while big studio films would sell $80-200 tickets. And you’d still be able to see the same thing at home at any time.