“It’s the future!”

“Stop fighting it. It’s stupid to leave a space between theatrical and Home Entertainment.”

“The future is digital! The future is change!”

No film has ever grossed $50 million in direct digital sales.

But surely, one will someday.

The simple question is whether the film industry is willing to risk the theatrical exhibition industry’s future to find out.

Th simple idea that seems to elude many is that while specific events can be manipulated (or have natural momentum) to expand the marketplace for a time, the overall market is finite. And the trend line in film entertainment continues to head towards a subscription-based universe and away from a la carte. But there are reasons why people make a la carte investments in movies. Getting out of the house and getting relatively inexpensive entertainment is a part of it for every age. For under 30s, there is a real excitement about seeing something early. And for people over 30, there is word of mouth that drives interest.

VOD for independents has been important because there is a functional cap on distribution. There are only so many screens and so many ad dollars and though “prints” are cheaper these days, only so many prints under an indie budget. VOD expands the market for these films.

This is not the issue with wide studio releases. Very little of the market is out of the range of a wide release. VOD is an extension of the theatrical release, not a needed expansion.

So what is the benefit of VOD for wide release major studio films? Well, the internal perception of those pushing the agenda is that it will expand the market. Also that because the return is slightly better, per unit sold, on VOD, that it will be more profitable. However, the fact that one person or 10 people can watch a rented film makes this imaginary concept dubious.

Let’s say 14 million people went to Harry Potter 7b in the US and Canada the weekend it opened, generating roughly $85 million for WB. The dream of day-n-date is that 20 million completely different households would so want to see the Potter finale on their home TVs that they would pay $30 to see it, maybe see it twice or three times, on that weekend, and generate $450m – $500m for WB. The prayer continues that the home revenue would not affect the theatrical.

Harry Potter‘s finale is the uber example and even there, the numbers seem iffy. No doubt, millions would buy VOD for it, many of whom had never purchased VOD before. No doubt, many more millions would see the film on TV that weekend, having been unlikely to see it in a theater. But what is the actual balance? How much cannibalism? And how much long-term (other non-theatrical) cannibalism? And would the home number be 20 million or 10 million or 5 million?

The biggest question, to me, remains, how much cannibalism will it take to start shutting down theaters? My estimate is, broadly, about 20%.

But it gets worse…

Because by taking the focus off theatrical exclusively in the early days and adding VOD whose pricing is controlled nationally and not by region, all of a sudden price competition becomes a part of the movie business. And that is a disaster waiting to happen.

The idea of discounting slow theatrical days or matinees has never been an issue for me. But when it becomes studio specific or “quality” specific, all of a sudden, there is a class system that causes potential viewers to question their spending. Never good.

But wait… I am discussing day-n-date in depth, when this effort by Paramount is not for day-n-date.

Why? Because the creep will creep… it always does.

But let’s go back to the deal on the table. Two weeks after a movie goes to under 300 screens, it can go into Home Entertainment distribution. Is that really such a big deal?

Well, firstly, it’s a moving target. So consumers can’t really follow it. They will only know when something is put in front of them. “Hey… if no one went to see it, you can see it really soon!” Great sales pitch, eh?

You wanna see April release Furious 7 on your TV in mid-July? Sorry. It’ll be another month. Avengers, too! But Aloha, you’re good to go.

The more the industry complicates its release patterns, the more likely consumers are to move on to some other kind of entertainment, especially when it’s still a minimum of 6 weeks since the giant push of theatrical. And with that thought, studios will shake their heads and say, “You’re right… let’s work to make it four weeks.”

That’s why I am discussing day-n-date. That is the fantasy… the Eden… the apple.

I have been saying for a very long time that I expect the future to offer only two distinct windows. Theatrical and post-theatrical. There will obviously be variables in post-theatrical, but those will be financial hurdles, not opportunity hurdles (for the most part).

I think that NATO and its members should absolutely be willing to go down the road with The Studios on shorter windows for lower-grossing product. I makes sense. If they can share some of the upside and downside, that’s a good business. The trouble, of course, will be that it could be very damaging to indie distributors who now are able to get that material for a price and make a reasonable profit. As we saw with indie, the majors will be more than happy to come in and trying to put that money in their portfolio too (until they get bored and/or frustrated).

But on bigger movies, I would be discussing widening the theatrical window, not shortening it. How can you make theatrical legs longer and more profitable for both sides? How can the line be more clear between theatrical and post-theatrical?

Paramount told the Wall Street Journal that a survey they did indicated that people were not aware of the 90-day-window. Of course they aren’t. No one has told them about it. No one has to… no one should. But who hasn’t heard a friend or many friends say, “I can wait for the DVD” or for it to come on cable. I would bet nearly everyone has. When the industry signals to audiences that the theatrical experience isn’t important, it becomes less important. This is simple human nature. The industry spends scores of millions on practically each film trying to convince people they HAVE TO GO SEE IT NOW and then, our of the side of their mouth, they say, “Ehhh… it’ll be available cheaper and more easily soon.”

Where is the highest revenue per person? Theatrical. Where is the indication that you lose a lot of eyeballs on a popular movie because it takes time to get to Home Entertainment? There is none… just the gut feeling that they shouldn’t be paying for more ads to sell it.

Follow The Money. Always.

Part 1 – Getting Here

Part 2 – What Paramount Is Doing

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