One of the most interesting bits of news to come out of CinemaCon is the new retail strategy by Warner Brothers, Universal, 20th Century Fox and Sony to offer theatrical movies two months after release on DirectTV for $30 dollars a pop. Theater owners are protesting, but they’ve been protesting video windows since studios have been shortening the release window to save advertising dollar.
Theater owners used to protest the short video windows, and had brokered a deal where there was at least a three month window before home video release. Now they want to go with a $30 Video On Demand (VOD) price point for more recent titles. Theater owners – facing four of the biggest studios – are going to have to fight for their lives. The big argument for the shorter windows has always been the effects of piracy, which is a terrible threat, but it seems the reactions to it are often misguided. PSA’s or suing a pirate for a million dollars haven’t changed anything.
Ever since the anti-trust laws of 1948 (in the case of the United States Vs. Paramount), studios have been unable to operate theaters, and have had to share some of their profits with the theater owners. But now that the industry has gone through massive changes, we may yet see this law revoked (frankly, I’m surprised it hasn’t been recently contested).Part of this is about studios have more control over the money they make, and about giving theaters less money, undoubtedly. They’d like to eliminate a supposedly unneeded middle-man.
But they need the theatrical release to gear up interest for these titles. Maybe a family would rather wait to watch – say – Just Go With It at home, but if that option is available, won’t that adversely affect initial ticket sales? And if so won’t more films be branded failures, which will make the VOD sale that much harder? Right now most films play less than eight weeks, with some notable exceptions (Black Swan or Inception). The question is if this will hurt films that effectively use word of mouth and get people to go back to the theater. It will for the domestic box office, but how we then view that could change. Perhaps a film doing $50 Million theatrically will be considered a winner if that leads to a million plus VOD rentals, and if the studios have to split their theatrical revenue with theater owners then they would be making more money with the VOD purchases.
The big benefit to the studios with this higher price point VOD is that it eliminates those theatrical rental fees. When the DVD industry collapsed the cushion they had for even their dumbest misfires was gone – DVD was a huge industry that returned to its roots as a collector’s market, but now mostly for young men. They’re simply not moving the same amount of units to consumers, when they were getting generally twice as much from DVD sales than they were from their theatrical revenues. DVD was a boom, but it was also a bubble and when the economy collapsed so too did the DVD market. DVD helped turn video rental shops into endangered species, something that Netflix helped speed up. We’ve seen massive closures of video stores across the country. We are also seeing the evolution of how people get stuff at home, and studios will probably eventually find a way to eliminate Netflix as well. Why stream through another company when a studio can have its own streaming network?
What this is going to do is increase the disparity of film budgets. It’s easy to sell a Pirates 4 or a Hangover Part II when you’ve got a brand in place, but are audiences going to turn up in the theater when they know they can wait two months to watch it at home? That’s always been the argument against shorter windows, and though we’ve seen films that break patterns like Inception do massive business, there’s also been a number of weird films (like, say, Scott Pilgrim or more recently Sucker Punch) that didn’t have the right whatever to open and play. It’s hard to justify chancy material when it’s that much easier to sell a known quantity.
It’s also no surprise studios have been chasing the supposed “micro-budgeted” films. When recently talking to James Gunn, he talked about how studios would rather be chasing hundred-million dollar films than anything else, which means either you’ve got a lot of money behind you or very little. This has also led to the rise of 3-D, which was considered a way to avoid getting pirated. Anything to drive up ticket sales and prices. Or spend as little as possible and either write it off, or get something like Paranormal Activity.
The problem as I see it is Macro. Studios want to eliminate as much in the middle as they can – which seems to be a larger thought process. But in doing so, they’ve downsized the number of people who are working within the industry. And though the benefits to them seem greater in the immediate, they’ve weakened the economic pool in doing so. If less people are working, then they don’t go to the theater or go to it less, which makes their case stronger – but it also builds a habit, especially when so many films are mediocre. As we’ve seen price points drop for DVD and windows shorten, if this is the first shot across the bow it will become harder and harder to convince a family to spend money for multiple tickets and popcorn if they can wait and spend less. And if less people have jobs, then the number of movies they see drops accordingly. The problem is going to be when this catches up with the supposed “can’t miss” blockbusters, which it did in the 1960′s when the industry was last struggling with how to redefine itself.
If this VOD strategy takes hold as a viable alternative, the paradigm shift could be quick. At the same time, how people get movies has been changing so quickly that it seems inevitable this catches up in a big way with theatrical distribution.
Do you think this is Chicken-Little talk?