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Archive for April, 2011|Monthly archive page

The Battle For VOD

In Uncategorized on April 10, 2011 at 12:07 pm

A slow, simmering battle has been brewing in Hollywood for months now, and the it has finally exploding into the open last week when the major studios announced their plans to begin a new Video On Demand service. Four of the six major studios – Warner Bros., Universal, Sony and Fox, but not Paramount and Disney –announced a new premium video on demand service at a $30 price point starting later in April to the 20 million subscribers of the U.S. cable television service DirecTV, soon to be rolled out later in the year to certain cable companies as well. This announced has infuriated theatre owners, with CineMark (the nations third largest theatre chain) telling the studios their theatres will not show trailers or have lobby displays of any movie until it has, in writing, the VOD window on that movie.

So what is the big deal? Why are the studios pushing for this, and the theatre owners so against it? And what does it mean for the general movie going public. The answer to all these questions is a simple one at first, but if you look a little deeper, you will see complexities as well.
The simple answer is of course money. Remember, it is called show business for a reason. All the parties involved are simply trying to protect their own business interests. A friend of mine is the co-host of one of the most well liked and respect entertainment podcasts on the net, and had this to say when I asked him about the new service:

“You are looking at two business models which are, by nature, opposed to each other. The studios one and only goal is to squeeze as much money out of their product in it’s short shelf life. The theatre owners main goal is to get people into the seats. One would think these two goals are the same, but they are not. By closing the viewing window on a film, the studios are taking people out of the theatres. This is a battle that has been raging since the rise of the VCR, and there really is no end in sight.”

In order to fully grasp what he is saying, you need to understand what the studios are doing. There is normally a 90-120 viewing window for a movie before it is released by the studios on DVD (Disney got in trouble last year on Alice In Wonderland when they significantly shrank this window). This is the generally accepted timeframe by all parties involved for a movie to be fully viewed in the theatres. With the new VOD model, this timeframe will be shrunk to 60 days. Meaning that Limitless or The Lincoln Lawyer (movies which both opened in March) will be available for view in your home in May.

Now your may ask yourself, so what? Is really anyone going to see these movies 60 days from their release any way? Well, yes and no. When a theatre get s a movie, they must sign an agreement to keep the movie running for X number of days. This agreement does not stipulate that the movie has to have people watching. This means that in order to get movie X from the studios, a theatre MUST agree to run the movie on the studio’s terms. Most of the time, the viewing terms are a 30-45 day stipulation, sometimes it can be less. But the problem is, sometimes it can also be more. This is why when you walk into your local theatre and see a movie that has completely bombed and you ask yourself “why is that still playing here?” If it because the theatre has to keep playing it, at least once day, even if no one buys a ticket for it.

Now think about this one time. If you have the option to take your family of 4 (at the average cost of $9 a ticket) to see a movie in its last days at a theatre, or sit at home and watch the same movie a week later for $30, which are you going to choose? See where the movie theatre owners issues come from? They are not just losing out on the $18 they would make on the tickets (the standard split is 50/50 after a certain number of days a movie runs in the theatre), but they are losing out on something even more valuable: the concessions. Concessions at a movie theatre are a 90/10 split in favour of the theatre. Meaning for every $1 you spend, 90 cents of it is profit for the theatre. This more than anything is the money the theatre owners are deathly afraid they are going to lose.

But there is an even deeper fear from the theatre owners. Many see this as a slippery slope. The 60 day window gets cut down to 45 days, then to 30 days and finally to what they all fear: same day VOD. Remember what I said earlier, the studios only concern is maximizing the profit life of its product. Same day VOD accomplished this by cutting out one of the biggest expenses to getting a movie seen: the distribution. By allowing consumers to bypass the theatres and simply have same day first run movies right in their homes, the studios do not have to share the revenue stream. Now there are of course two major hurdles in the way of this happening.

The first is a fundamental principle of the movies : people want to see it on the big screen. No matter how nice your home set up may be, nothing will compare to watching a great film in a dark theatre. I was waning in my belief in this principle until recently, when I had the chance to see two of my all time favorite movies (Bridge On The River Kwai and North By Northwest) on the big screen, and I instantly changed my mind. People want this experience. This point was made when I spoke with a theatre owner about the proposed VOD plan:

“From the information I have read, several of the big studios will not plan on participating with the shortened (two-month) window between theatrical and on-demand release, as they want to protect their investment and earn as much in the theatrical run as possible. In addition, I have heard that the on-demand pricing will be comparable to two adult tickets, so I am guessing $20+. Movie theaters are still about the experience…the big screen, the huge sound, the popcorn…so I am not particularily worried given the combination of high pricing for on-demand coupled with several studios not participating and customers loving the movies.”

Second, and perhaps the most terrifying to the studios, is piracy. No matter how hard they try, the studios will always be one step behind the hackers. They just need to come to that realization and devise a new game plan. With this in mind, there is no security measure on the planet the studios can us that will prevent a new VOD movie from appearing online within hours of its release. This thought has the studios absolutely shaking….but I have to wonder why? The two most downloaded films last year (Avatar and Inception) have a combined domestic box office gross of slightly over $1 billion. That is billion..with a b! The notion that downloading is killing the movie industry is laughable (what actually is killing the industry will be saved for another day, and a MUCH longer blog!).

VOD is not going to hurt the blockbuster, tent pole movies. No matter how VOD is implemented, you are still going to have the $100 million opening weekend for Harry Potter and Transformers. What VOD is going to hurt are the smaller films. The films that need to “find an audience”. No longer will theatre owners be able to sit back and let films like RED, The Fighter and True Grit build momentum. The idea of the slow roll out and letting a movie develop will be gone with VOD. Audiences will be willing to wait the extra couple of days to watch these times of non-special effects movies at home.
One interesting side note to this is what a writer/director friend of mine had to say when I approached him for an opinion on the matter:

“If you asked the members of WGA and DGA (Writers Guild of America/Directors Guild of America) off the record for their stance on VOD, about 90% of them would be for it. We want our stuff to be seen by as many people as possible. VOD allows for this to happen. The problem is, the 10% who are against it are the powerful 10%. They are the millionaires.”

Although no names were mentioned, I get the feeling this individual was speaking of James Cameron (Avatar) and Todd Phillips (The Hangover), who came out hard against VOD this week. Both these directors lambasted the studios for turning their films in “tv movies”. Their positions on the subject would be tolerable if they were not also hypocritical. Combines, Avatar and The Hangover have 7 different DVD versions out, every one of which the directors had a hand in releasing. If you don’t want your movies to be made into “tv movies”, then don’t put out 7 versions of them which are specifically made to be viewed on a television. Plus, unlike the theatre owners who are being cut out of the equation monetarily when VOD goes into effect, Cameron and Phillips will still receive a check every time someone orders their movie at home.

This plan will rise or fall based on the consumers, plain and simple. Just like everything in the entertainment business, it is about money. If the studios see their profit margins swell with VOD, you are going to see it begin to take hold. No matter how much fight the theatre owners have in them, the cold reality is that the studios control the product. If VOD takes off, the theatres will have their legs cut out from under them, and nothing to bargin with. However, should VOD fall, the studios will be backed into a corner. The studios can not push to hard on the theatres at the beginning, because a failure of the VOD plan will mean the theatres will be able to dictate much more favorable terms with the studios in the future.

In the end, it is up to the consumers to let both sides know which option they like by voting with their wallets.

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