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Hollywood Eyes Shortcut to TV (from WSJ) 24 May 2010 23:03 #34027

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Hollywood Eyes Shortcut to TV
New Films Would Hit Homes in 30 Days

5/22/2010 -- Wall Street Journal, Weekend Edition

Major Hollywood studios and one of the country's largest cable operators are in discussions to send movies to people's living-room TVs just weeks after films hit the multiplex, a step that would shake up film distribution.

During a cable industry convention last week, executives from Time Warner Cable Inc. made the first formal pitch to the Hollywood studios for what is known as "home theater on demand." The cable company presented a variety of scenarios. But the main one, which has received early support from some studio executives, would allow consumers to watch a movie at home just 30 days after its theatrical release—far earlier than the usual four months—for roughly $20 to $30 a pop.

That proposal is still being debated and talks are fluid. People close to the matter say that several studios could sign on to a version of it as soon as the fall, making the first movies available on such a system by the end of the year or early 2011.

Among the studios who have reviewed the proposal are Time Warner Inc.'s Warner Bros., Walt Disney Co.'s Disney Studios, General Electric Co.'s Universal Pictures, Sony Corp.'s Sony Pictures, Viacom Inc.'s Paramount Pictures and News Corp.'s Twentieth Century Fox. News Corp. is the parent company of The Wall Street Journal.

While the plan could be a boon for consumers, it stands to be highly disruptive for the movie business, particularly theater owners. Hollywood would essentially be overhauling the "windowing" system which has sustained the industry for years.

Studios now maximize revenue by staggering a movie's theatrical release date and the window, or time period, when it is released later on DVD or cable TV. DVD sales don't diminish a movie's box-office take, since the discs are sold long after a theatrical run.

But maintaining windows has grown more difficult as consumers have grown accustomed to an array of devices that make it easier watch movies whenever and wherever they want.

For years, theater owners have closely guarded the theatrical window to preserve revenues. But as Hollywood's own fortunes have declined recently, studios have become more willing to challenge that system. Though box-office receipts were up by 10% last year, based almost entirely on the success of higher-priced 3-D movies, that hasn't been enough to compensate for the sharp decline in DVD revenues, which have dropped by 27% since their 2004 peak of $12 billion, according to Adams Media Research.

Early this year, Disney Chief Executive Robert Iger caused a furor among theater owners when he announced that the company would release the DVD of "Alice in Wonderland" roughly four weeks earlier than usual, shortening the exclusive theatrical window to three months from the traditional four.

Premium video on demand offerings would only create incremental revenue at first, according to industry experts, who say that an average studio, which releases roughly 20 movies annually, would initially stand to bring in just $100 million in additional revenue a year. However, the studios believe they must aggressively respond to rapidly changing consumer habits in order to retain control of their business models.

Many studio executives remark that the music industry was slow to adapt to consumer demands and was powerless when new technologies upended their industry.

Time Warner Inc. Chief Executive Jeff Bewkes highlighted the balancing act at an investor conference in March, saying: "We have every interest in maintaining the strength and the resources of our theatrical distributors to make the film in a theater experience, a live experience. It's also true that people demand the films earlier in their home." (Time Warner spun off its cable operations into a freestanding company in early 2009.)

Theater owners argue that early home-viewing options would eat into ticket sales.

Tony Kerasotes, chief executive of Kerasotes Showplace Theatres LLC, said that an offering like Time Warner Cable's "would be very destructive to our business," noting that plenty of films continue to do big business in their fifth or sixth week at the box office.

"A lot of theater owners would be resistant," he said. He described a possible scenario in which exhibitors might refuse to show films that were offered too soon on video on demand. "I would hate to see things to come to that, but I could see it happening if things get bad enough."

Despite concerns over theater owners, some studios could decide to test a Time Warner Cable's proposal with smaller movies—what one media executive called a "trial balloon." That would give other studios a chance to gauge the level of theater owners' opposition, along with the damage the offering would do to DVD sales.

There are other obstacles. Premium cable channels like HBO have pre-existing deals with movie studios. A new V.O.D. offering could complicate those arrangements, which are based on pre-established release windows. Companies such as Netflix Inc., which offer movie rentals, would be less affected because they make movies available several months after they have run in theaters.

Not all the studios are eager to make their movies available at home while they're still in theaters. News Corp.'s Twentieth Century Fox Chairman and CEO Jim Gianopulos has told exhibitors that while his studio is exploring premium V.O.D. offerings, it is contemplating making movies available only during the period after they leave theaters.

Viacom Inc.'s Paramount Pictures doesn't appear likely to sign up initially, according to a person briefed on the proposal.

Other studios, however, have expressed strong interest in pursuing premium video on demand, especially in the wake of massive losses from declining DVD sales and a tough economic climate that has forced studios to make fewer films.

Sony Corp. has experimented with early release of its own studio's films to its Internet-enabled Bravia televisions. Last year, for instance, it offered Bravia owners the chance to watch "Cloudy With a Chance of Meatballs" for about $25 a month before it was released on DVD.

Sony has also explored licensing films from other studios, but has gotten little traction to date.
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Re:Hollywood Eyes Shortcut to TV (from WSJ) 24 May 2010 23:51 #34028

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Given the fuss that Disney caused both here (primarily with AMC) and across the pond in Europe with the shortened 'Alice in Wonderland' theatrical window, I'd wager this will turn out to be a big bunch of nothing in the end.

I was looking over the box office take over the first 4 weeks of release from the top 25 movies of 2009, and beyond long-running exceptions like Avatar, The Hangover, and The Blind Side, most films earn almost all of their box office grosses over the first month. Here's the percentage of total gross earned by the top 10 2009 films during the first 4 weeks of release:

67% -- Avatar
93% -- Transformers
94% -- Harry Potter
93% -- Twilight
86% -- UP
74% -- The Hangover
87% -- Star Trek
64% -- The Blind Side
92% -- Alvin & the Chipmunks
91% -- Sherlock Holmes

Average 4-week gross: 84% of total box
Adjusted 4-week avg: 91% of total box << excludes the longer grossing films

While I'm certainly not in favor of squeezing the release window to 30 days, the numbers point to the conclusion that first-run day & date theaters won't be tremendously impacted from a ticket revenue standpoint if the window drops from the traditional 16 weeks to something shorter.

Also, while I know that the studios have a penchant for stupid, short-sighted decisions even in the face of overwhelming evidence to the contrary, I find it difficult to believe that they would basically cut their own throat only ~2 months after finalizing the DCIP digital upgrade financing for the top 3 theater chains, as well as ponying up previously for the independents via NATO's CBG. The studios have committed themselves to $1 billion+ over the next 3-5 years in digital upgrades...why bother investing that much capital over an extended period in the cinema sales channel if you're really just planning to undercut it 7-9 months later? Doesn't make much sense from a business standpoint, even if the studios have oodles of loose change to throw around (which they don't at the moment). Additionally, with the box office earning more revenue than DVD/home video in 2009 (a trend that is likely to continue in 2010+) I think it would be a hard sell to the studio brass to purposely cannibalize a large (and growing) revenue segment like theaters.

My opinion is that the studios are probably throwing this lark out there to gauge exhibitor temperature for a general shortening of the release window over the next several years. The suits running the studios have to be scared spitless over what happened to the music industry with the advent of digital music/MP3s and associated issues of cost structures, piracy, and digital distribution. Something like a 30-day window has the potential to actually change consumer behavior. My main question would be this: if the studios can sell the same content 3 times (family movie night on opening weekend->Video on Demand with the babysitter->kids watching the DVD at home), why risk the possibility of only selling it once through this revised VOD channel?

I ain't good with math, but here's a comparison of the current sales cycle versus the new hypothetical 30-day VOD sales cycle might look like:

55% film rent x 4 tickets: (0.55) x ($7.50 x 4) = $16.50
70% revenue share on VOD sales: (0.70) x ($6.00) = $4.20
40% wholesale revenue on DVD: (0.40) x ($20.00) = $8.00
=======
$28.70 total revenue

85% revenue share on new VOD: (0.85) x ($15.00) = $12.75
40% wholesale revenue on DVD: (0.40) x ($20.00) = $8.00
=======
$20.75 total revenue

Frankly, the $15 price on the new premium VOD is probably too high; the net average price over a longer-term will probably be closer to $10 or so (my guess). I know Cloudy With a Chance of Meatballs was offered at $24.95 when Sony tried something like this on its new Bravia TVs last year. However, that experiment was a complete flop since customers only had to wait another 3 weeks to get the DVD for $14.99 at Wal-mart. Also, 85% revenue share on the new VOD is probably overly generous since cable companies are serving up the end customers and that access isn't going to come cheaply. I also have the new sales system including ancillary DVD revenue, which probably isn't necessarily going to keep happening since its quite likely that the home video market continues to weaken going forward and unit ASPs will continue to drop in the future. Anyways, just a thought exercise.

With home video having seen massive average selling price deflation over the past 4-6 years (remember $20 new DVDs from Blockbuster a few years ago? Say hello to $1 Redbox rentals today with the studio cut at ~$0.50/rental), they are probably throwing anything they can think of at trying to revive/support the home video channel and just looking to see what might stick.
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Re:Hollywood Eyes Shortcut to TV (from WSJ) 25 May 2010 14:32 #34030

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BWT,

The studio cut on new theatrical dvd sales is a min. $15 and probably closer to $16. Blu-Ray is a couple of dollars higer. Also 3 studios (WB/Fox/Uni) have agreements with Redbox & Netflix to where they do not get titles for 28 days. It is beleived that the cut to the studios that are working with Redbox to be closer to 60%, maybe higher.
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