Coming off a 2011 that saw North American box office revenue decline nearly 4 percent and movie ticket sales fall to their lowest levels in nearly 16 years, noted media-business analyst Richard Greenfield called for Hollywood’s major studios to quit pussy-footing around the theater chains and finally collapse the age-old theatrical release window.
So now, nearly three months later, with the domestic box office on a torrid Hunger Games-fueled winning streak and up nearly 22 percent, according to Hollywood.com, has the BTIG Research analyst softened his tone?
With the movie exhibition business getting ready to kick off its big annual Las Vegas trade show, CinemaCon, next week, Greenfield acknowledges that the box office has enjoyed a rebound in 2012 in his Monday blog titled, “Movie Industry Must Bring the Theater ‘Home’ — Windows Need to Collapse in 2012” (login required).
However, with the annual number of movies attended in the U.S. per capita dropping from 5.1 to 3.9 over the last decade, and DVD and Blu-ray sales plunging below $9 billion last year, Greenfield believes it’s time for Hollywood to shake things up.
This starts, he says, with the theatrical release window, that three-to-four month period in which a movie plays at your local multi-plex before it’s released to disc and download. Greenfield thinks we should ditch that window:
“In a rapidly evolving media world, where HDTV penetration now exceeds 70 percent and the average U.S. living room TV sold is 44 inches, the concept of forcing consumers to attend/pay for a movie in a theater for the first three to four months of a film’s lifespan feels increasingly archaic.”
By making movies available to consumers at a high-margin price point when or soon after they come out, studios would tap into a market that’s dissonant to the theatrical experience because of hassle, baby-sitting needs or myriad other reasons. He adds:
“We believe there would be substantial consumer interest in offering movies in the home four weeks after their theatrical release at $20-$25, and there could be meaningful interest in offering movies day-and-date into the home at prices as high as $50.”
Make war, not tests
OK, it’s here where you can’t fault the studios for shrugging their shoulders. In a highly competitive business in which the assets being windowed can cost upward of $200 million to produce and market, how do you incur the risk of shoving your century-old partners, the theaters, to the curb?
A year ago, at CinemaCon, the major theater chains, led by their trade group, the National Association of Theater Owners (NATO), erupted with fiery press releases threatening boycots after Warner Bros., (s TWX) Sony, (s SNE) Fox (s NWS) and Universal agreed to participate in an early VOD pilot program in which movies like Adam Sandler’s Just Go With It were made available on DirecTV for $30 just eight weeks after their theatrical premiere.
Then, in October, Universal faced threatened boycots from theater chains National Amusements and Cinemark when it tried an experiment in which the Brett Ratner-directed ensemble caper film Tower Heist would become available for $60 on VOD three weeks after theatrical premiere. Potentially blocked out from 12 percent of the nation’s 39,000 movie screens, Universal chose not to risk an asset that cost more than $75 million to produce and certainly as much or more to market worldwide. The studio ditched the plan.
Greenfield suggests the studios, en masse, quit experimenting and all at once force their new models onto theaters:
“Unfortunately, the major Hollywood studios that attempted to ‘trial’ or ‘test’ releasing movies earlier have succumbed to the aggressive push back from exhibition chains. The time has come for every studio to stop trialing and permanently collapse windows as the new Hollywood business model. Exhibitors will acquiesce as they simply cannot afford to be without content from Hollywood. It is time for studios to play offense!”
But wait! Don’t they need the test data first?
I believe Greenfield poses a number of valid points, as he always does, but also wonder if his argument has some key flaws.
First off, before they collectively force their exhibition partners into accepting vastly downscaled exclusivity on their content, shouldn’t they be rather certain that they’ll come out on the other side with improved profit margins?
Neither DirecTV or the participating studios have ever publicly released data on last year’s early VOD experiment. But studio distribution executives I talked to were never excited about it. And you’d have to believe that, in a continually eroding home entertainment market, the DirecTV program wouldn’t have gone away if the studios were making any real money on it.
Greenfield rightly points out that a number of independent distributors have made money recently with release strategies like “ultra VOD,” whereby titles show up on platforms like Netflix and Vudu weeks before they hit theaters. But most of these films are arthouse flicks that were always going to make most of their money on VOD and other home entertainment channels anyway.
Secondly, while Greenfield may be correct about the U.S. theatrical market being in secular decline, Hollywood may want to think twice about fundamentally disrupting its premiere market at a time in which the global box office is growing quite robustly.
Last year, driven by emerging markets like Russia and China, the global box office grew 3 percent to $32.6 billion. Setting up a chain of distribution events that would roil foreign markets might not be such a good idea right now.
But lets end this post on an agreeable note: Greenfield blogs that award-winning films like The Artist, this year’s Oscar-winner for Best Picture, are often held back from home entertainment release after their big trophy night so that their studio can re-release them into theaters.
With the Weinstein Company’s Artist only grossing about a quarter of its $44 million North American theatrical total after its February Oscar clean-up and subsequent re-release, Greenfield wonders if these awards movies wouldn’t benefit more from a premium VOD window.
With theatrical revenue for the film now slowing to a trickle by mid-March, and disc/download release for The Artist not happening until April 24, we have to agree — most of the audience that was going to see the movie in a theater already had three months from the film’s Nov. 25 release to do so. Certainly, making that film more widely available for home viewing after it caught its awards buzz makes a lot of sense.