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David Poland

By David Poland

Delivelution 10/29/11: It’s The Windows, Stupid!

It was a big week for the ongoing evolution of the post-theatrical/post-first-run-tv business.

After all the relief expressed by the media – already anxious for a comeback – regarding Netflix’s deal with the CW, the deal that really explains where things are going came along. You see, it’s not Netflix vs Hulu at all. It’s the creation of a post-first-run window on Hulu and then a secondary window for Netflix.

Meanwhile, the evolving plan for a 4-week sell-thru window for DVD expanded to Blockbuster/Dish as their contract with WB came up for renegotiation.

This is also kind a Voilà! moment for the fight over the theatrical window as well. It becomes clearer and clearer that regardless of the games being played by the studios lately, the thing they may well be chasing is a similar 28-day window for theatrical. They keep making the argument that most of the theatrical revenue is in the first four weeks of most movies. And they are right.

But the thinking is wildly simplistic.

Theatrical release films are not TV shows. TV shows are free. If you sell someone a subscription to a slate of TV reruns for $8 a month, it’s a different thing than trying to get people to buy individual movies for, say, $8 a pop, one a month.

There is absolutely a point where feature films can and should become subscription bait. There are massive libraries for which this makes perfect sense.

But feature films released into the market are individual products being launched every week of the year. Unlike TV, you are not selling an ongoing relationship with the film. You are selling a product with a single, focused call to action. Then, in the sell-thru business, you are selling to an expanded market as well as an existing market. But you are still relying on the perceived value created by the initial theatrical offer.

The film business found out very clearly about how increasing the competition in the sell-thru and rental marketplaces led to a massive increase in marketing costs for that post-theatrical market. Some want to blame this on too wide a space between the theatrical marketing and the DVD marketing. But I would argue, still, that it is the competition in the DVD space that created an increasing need to spend on marketing DVD, not a lack of brand identity four-to-six months after theatrical release.

I would also argue that streaming is actually more of a cannibalism problem for theatrical than DVD because it becomes a part of a a massive, massive pool instantly. And real people on real budgets, already spending $80 – $110 a month on their cable/satellite entertainment, are never, NEVER going for “fight pricing.” After a decade of intense effort, VOD/PPV are still a limited business at $5 or so a pop.

Even people who write about how they would happily pay $20 to see the new film at home, spending less than the cost of movie tickets and parking and dinner and babysitting, etc, on a Saturday night, are probably not projecting just how many times they would really be willing to drop that 20. When they do research on this, have they thought to ask, “Will you pay $1000 a year to see one just-released movie on your TV every week for the year.” I know. It hurts.

$100 a year for a service that gives you access to a wide array of otherwise difficult-to-come-by-quickly content on your TV want is a very different sell than deciding to drop $20 to watch one movie on your TV or even to go out for the evening and spending $100, all in. Similarly, $350 for 17 Sundays of football broadcasts that are on free TV may seem nuts… about $20 a weekend. But it’s an indulgence that people choose, overcoming the price point. It’s also a live event, which will never be fresh again once completed.

The value of movies is an artificial one, now more than ever. Putting piracy aside, that illusion has to be maintained to keep any price points as high as the cost of a DVD or Blu-ray or a trip to a theater, which is not just a purchase of a film, but of an out-of-home, communal experience. The more the industry signals to people that film is only television writ large, the more it will devalue the product.

Windows matter.

And now, back to television.

Windows matter.

The deals with the CW, as many of the deals Netflix and Hulu have done, signal that we should expect broadcast television to be windowed as first-run, paid second-run (with some free second-run and download per unit/season subscription at iTunes or elsewhere), and third-run to platforms like Netflix.

I personally believe that there will an additional option in the next decade that will involve a subscription platform that includes all options plus additional perks, like early view for shows. The question then will be who exploits content. In other words, if WB produces a show that runs on Disney’s ABC, which company exploits the content post-premiere and what will the sense of cannibalism be between the two forms of delivery.

Ironically, like the current issues in film theatrical, this is a real issue that is best determined by all the companies involved. This is why studios showing a lack of concern about their partners in exhibition seem so callous. As in the example above, if ABC was to allow WB to exploit a show that they premiered on their network soon after that first run – or even before first run – it would be a math equation. If an ABC show is watched or DVRed by 8 million people and that number drops to 6 million because 2 million have a subscription to The Warner Bros Stream and don’t feel the need to have a relationship to the network exhibition of that content anymore because they can pull it up on demand at any time, it’s not the end of the world. But it does change the value of the content to ABC.

And it continues from there. What is the value of a no-commercial window vs a commerical-loaded window? Instead of paying $8 a month for Hulu-Plus, would some happily pay $15 a month for Hulu-Plus-Plus with no commercials at all? Etc, etc, etc.

The technological opportunities are changing the math and consumers will soon have even more options. (Right now, they have more than ever before.) But in the end, it’s all about the giant pot of money and how it gets distributed. Getting caught up in “Netflix this” and “Hulu that” and “Amazon might” or even “YouTube is” really misses the point. The shake out we’re at the start of is a lot bigger than that.

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3 Responses to “Delivelution 10/29/11: It’s The Windows, Stupid!”

  1. Mike says:

    I think you’re right about so many parts of this conversation, and there are a number of parts I’d love to break off and talk more about, but one that I think is really interesting is the question of what the sell-through/rental market is going to look like once there’s no DVD or Blu-ray. You can see a number of places, like iTunes offering streaming movie rentals now, but I look at their price point (I think it’s $5) and it seems too high. Has Redbox already killed that price for streaming, or will iTunes or some other company be able to convince consumers that the convenience of staying at home is worth the 400% mark-up? Or will the demise of discs allow the studios better control of the rental market (perhaps killing the middleman), to maintain that price point as the only game in town?

  2. hcat says:

    Mike, what is the time frame you are thinking of for the demise of DVD and Blu-Ray, because I honestly can’t see that coming anytime (like decades) soon. I would think that almost everyone who streams content also rents physical discs, some through Netflix, Redbox, or even the remaining Brick and Mortar companies. I don’t have any numbers on digital purchases, but I would suspect they are still a very small part of the post theatrical pie compared to physical discs (in fact i would think there are more downloads from the blu-dvd-digital bundles than there are actual digital only purchases).

  3. Mike says:

    hcat, I was thinking pretty longterm, probably 5-10 years. You’re probably right, though, that I was thinking too soon. Considering that I still buy CDs, it’ll probably be a long time for movies to be done with physical media. I also wouldn’t be surprised if the studios decided to extend that, as the prospect of selling a digital download is going to be a hard concept for the public to embrace, especially with streaming subscriptions.

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