Movie Industry Must Bring The Theater "Home"

This article from Tribeca I found fascinating. The author is suggesting, what some might call, radical ideas. There are quite a few ideas explored here and honestly, most of them make sense. The average theater goer describes me. While being the cheap bastige I am, the $20-$50 premium charged for the 4-week television premiere would probably be utilized very little. I could imagine a big movie with inviting over a lot of family and friends.

Now the follow-up post goes further talking about tweet seats and I still don’t understand that culture at all. I don’t tweet or facebook, or watch big events sports-wise or other, so I don’t get what all that activity is about.

I’ve said for quite a while, the demise of the DVD is on the horizon. With articles like this, it does make me wonder about my own habits. It’s already happened with CD’s. I can easily imagine it will happen with DVD’s. I have not fully embraced new technology today with digital downloads & cloud technology. But I have been slowly removing the physical product. It’s a slow transition.

Read the article and let me know what you think of these ideas.

In a rapidly evolving media world, where HDTV penetration now exceeds 70% and the average US living room TV sold is 44″, the concept of forcing consumers to attend/pay for a movie in a theater for the first three-four months of a film’s lifespan feels increasingly archaic. The overwhelming majority of multichannel video homes are capable of utilizing video-on-demand, with the exponential growth of IP-enabled TVs (directly or via third-party devices); not to mention the growth of web-enabled iPads that have a sharper screen than any TV set. The stage is set for the “home” to become the new “theater.”

Why Buy When You Can Rent?
Falling DVD sales and consumers’ lack of interest in buying movies digitally (Electronic Sell-Through, EST) has received most of the blame for Hollywood’s financial problems. Hollywood is hoping that expanding the functionality of digital content, meaning a cross-device, cloud-based storage system for movies (Ultraviolet), will invigorate interest in buying movies. Unfortunately, the fundamental issue is that consumers no longer need to own content.

Movie Attendance in Secular Decline
Hollywood’s problems go beyond declining interest in buying movies—consumers are also less interested in going out to the movies. The annual number of movies attended per capita has dropped from 5.1 to 3.9 over the past decade. Simply put, consumers are watching fewer movies in their initial release window. While movie going has rebounded in the early part of 2012, we believe this is an exception to a secular trend. Attendance declines have been masked by pricing increases, especially from 3D pricing. With 3D no longer a growth vehicle, we believe the secular attendance trends will be increasingly troublesome.

The Problem: Technology is “Raising the Entertainment Bar”
The downward trend in movie attendance and DVD purchases are really the result of one, simple catch-all word: “technology.” Technological advances in home theater, especially since 2005 have shrunk the difference between watching movies in the home and watching in the theater. Average television size growth hit a huge inflection point with the flat panel revolution, with the average television purchased for a US living room now a 44″ HDTV screen.

Broadband has also created competition for a viewer’s time and enabled new ways to experience media. Netflix streaming has brought large quantities of content to consumers at low prices, while creating competition between first-run “fresh” content and long-tail, catalog content. Netflix has also enabled the rise of the serial drama, creating even more competition for movies. Netflix not only gives consumers a way to watch hours and hours of high quality serial dramas that they have never seen before, but it provides a syndication outlet for serial dramas, allowing networks and studios to invest more in the production of quality content. Add to Netflix, online content options such as Hulu, iTunes, Amazon Prime Instant Video, Vudu, etc.

While video-on-demand (VOD) via a multichannel video programming distributor (MVPD) has become nearly ubiquitous over the past decade, navigational interfaces, depth of content and video quality have only recently begun to take a step-function forward. The HBOGO experience is night and day compared to HBO-on-Demand and Xfinity-on-Demand via the XBox with Kinect enables you to use your voice and hand gestures to navigate deep menus of content versus a clunky, remote control with arrow keys and color coded buttons to navigate a Comcast set-top box.

The confluence of these technology catalysts has “raised the bar” for consumers to either leave their home and buy a movie ticket or to buy a movie on DVD or digitally. We expect the bar to move notably higher over the next few years as an increasing percentage of TVs become IP-enabled. Studios need to understand the “new” consumer and technological paradigms and work with them, not against them.

Academy Awards Crystallizes Hollywood’s Windowing Problem
On February 27, 2012, the night after The Oscars, we received an e-mail blast from Vudu highlighting the Academy Award-winning films available on Vudu. While films such as HUGO and THE HELP were available immediately, films such as THE DESCENDANTS, THE MUPPETS, THE GIRL WITH THE DRAGON TATTOO, THE IRON LADY and THE ARTIST would not be available for rental or purchase until mid-March to late-April.

•  Prior to The Oscars, THE ARTIST generated $32 mm of box office. Following the  Oscars, the film re-expanded into theaters reaching a peak of 1,700 screens but  only  generated an incremental $12 mm of box office. Even with the added  Academy Award  thrust, the film was only seen in theaters by 5 mm people in the  US (1.6% of the  population).

•  Similarly, THE DESCENDANTS generated $78 mm of box office prior to the Oscars. Following the Oscars, the film generated only $5 mm more in box office, for a total of  $82 mm, implying the film was viewed by less than 10 mm people in  the US (just over  3% of the US population).

While both THE ARTIST and THE DESCENDANTS will generate incremental revenues as they are released into the home entertainment channel (DVD, VOD, iVOD), we believe studios are simply not maximizing the profit potential of a film by maintaining an antiquated sequential release pattern, a.k.a windowing.

With consumers increasingly unlikely to buy a movie ticket in the theater and/or end up buying the content on DVD or digitally, maintaining a three-to-four month window between theatrical release and home video release is illogical. To make matters worse, studios are essentially marketing the same movie twice - with each set of marketing generating a lower return than in the past. Finally, movie industry piracy is flourishing during the two-three month period of time between when a movie has left most theaters and the time it reaches the home entertainment market.

BTIG’s Solution: Enable Consumers to Pay for Access vs. Ownership
If the bar is higher for consumers to leave their home and go to a theater, why not bring the theater to consumers?
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 (not everyone bought a ticket to a Saturday night boxing match or a WWF event, with many choosing Pay-Per-View and subsequently VOD to access the content). Furthermore, releasing movies earlier at home should not simply be rental/VOD, but rather offer consumers the ability to own a digital copy (Ultraviolet or iTunes) for a modest premium (sub $10 above the VOD price).

• The rationale behind four weeks is simply that most movies have completed the overwhelming majority of their theatrical run within four weeks (Avatar is a dramatic  outlier).

• We believe you have a much better chance of convincing someone to spend $20 to access a movie four weeks or less after its release than you do four months. Enable consumers to pay for “access” to content earlier vs. “ownership.”

Consider that in addition to the cost of a movie ticket and the possible inconvenience of leaving the home, there are meaningful expenses for the consumer in going to the movies (Fandango fees, way over-priced concessions, parking, $5/gallon gas and often times babysitting); none of which benefit studio profitability. While we still expect a robust movie theater going public, enabling consumers to leverage their in-home technology and reduce a wide array of non-movie costs should fuel consumer spending on movie content itself to the direct benefit of studios.

• It is worth remembering that movie studios keep only half of each movie ticket, but would keep 80%-plus of VOD/iVOD transactions.

We also believe eliminating the two-three month dormant period for movies between theatrical and home entertainment would significantly reduce the leakage to piracy - giving those that want to watch at home a high-quality alternative to theft.

Risks/Problems with Collapsing Windows
What to Do About the Exhibitors? We appreciate the importance of remaining on “good” terms with long-time partners, meaning movie exhibitors. That being said, movie studios need to focus on generating returns on their investment that are acceptable to justify their continued investment in making movies.

First and foremost, movie studios need to embrace consumer and technological trends, even if it applies pressure to the movie exhibition industry. Exhibitors have been layered with too much debt by private equity firms and pushed the consumer far too hard from a pricing standpoint, both in terms of tickets and concessions; with 3D-pricing the latest abuse.

The collapsing of the window between theatrical and home entertainment has been quite successful for an array of independent, non-major films. 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!

Will Day and Date Increase Piracy? The other risk/problem created by collapsing windows is that going fully day-and-date could increase the risk of piracy during the initial theatrical run. Waiting one month would eliminate the vast majority of that risk. Yet, we cannot help but feel like the competition for consumers’ time as technology improves poses a far larger threat than piracy. Studios need to take risks today, even if there is some degree of cannibalization to build a healthy movie industry for the future.

and then a well thought out follow up post with a different perspective...

Harrison Wall 6 pts
Richard, I think that you make a very interesting suggestion here. In fact, when the topic of “tweet seats” was brought up in a recent blog post, a few similar ideas came to mind. As a filmmaker and a great lover of cinema, I would be greatly saddened if the home ever did replace the movie theatre – so for that reason my viewpoint is quite biased towards protecting cinema – however, the “Access vs. Ownership” idea is something that I do believe could really work in cinema’s favour…
 
Although they are not directly related, I am going to try and link the BTIG suggestion here with my initial thoughts from reading the blog on “tweet seats”. Whereas I understand that the previous “tweet seats” notion was intended to bring more viewers to the cinema, I think that a lot of people saw it as resulting in viewers becoming disengaged from the film viewing experience, which is partially true. However, for me the whole tweet aspect seemed pointless unless we could devise some sort of direct participation opportunity for those outside of the cinema. The idea of “tweeting” about your film viewing experience would be ineffective if this experience was limited solely to yourself telling others about the film. It is sort of a one-way conversation. What you really want is to share that conversation, and for everyone else to whom you are socially connected to be experiencing the same thing as you are. For example, consider the amount of people that participate in online conversation during a live event, such as a football match or a television series finale, where there are a large percentage of people all watching the same thing at the same time…
 
If cinemas really wanted to adapt to the digital age and attract more viewers, I agree with your idea of synchronising them with the home in some way. It might seem crazy, but the four-week offset that you are suggesting (before films are available on demand) may not even be necessary at all. An option might be for cinemas, during these first four weeks, to synchronise their screening rooms with live streams or broadcasts of newly-released films, that are also being shown live on the internet and/or on television at set times. I think you might find that many would still go to the cinema to see films in the same way that sports fans might go to the pub to see a live football match. With it being so accessible, it might even encourage more people to go (especially if everyone is talking about it online). For one, there is more pressure to be amongst the first to see the content. Secondly, a cinema offers the chance to be in an environment with other fans. (I sometimes go to the Prince Charles cinema in Leicester Square and they often do themed movie nights, which attract big audiences. Perhaps cinemas could use this sort of idea to their advantage?)
 
For me, instant access certainly hasn’t damaged television – television content is now available to watch online pretty much immediately after broadcast – and I don’t think it would damage cinemas either. The “Lost” series finale provided a great example of how mass-syncronisation can be used successfully by using a similar strategy to my suggestion above. Throughout its entire series, “Lost” was broadcast in the US ahead of any other country. However, for the final episode, which was shrouded in secrecy, the producers realised that they had a problem on their hands. If the American viewers saw it before everyone else, there was a good chance that many non-US viewers would have their experience ruined by online spoilers. To counter this, the producers decided to stream and broadcast “Lost” in every country at the same time on multiple formats. For instance, I watched the final episode in the UK on an X-box, at the same time as those in America watched it on television. And it was an incredible moment to be apart of (for those like me!)
 
Another way of looking at how “Access over Ownership” could benefit us is that cinema itself might even be able to increase its range of content.  For instance, it might not be limited to newly released feature films solely. In another previous blog, many suggested screening older movies on demand, which would be a great idea. However, could we not screen television there too? Just imagine that cinemas had decided to stream that long awaited final episode of “Lost” on the big screen. I don’t know if it has ever been tried this before, but I am pretty sure some television series would get a pretty good crowd considering that they are essentially treated like big live events. You might even see a rise in the quality of television productions?
 
This might all seem slightly off topic now but the bottom line is that in order to bring more people into the cinema environment, cinema needs to re-invent itself by connecting to the digital world. Like you said, nothing is stopping viewers from having access to movies in their own homes, and most of the time this includes films that are still showing in cinemas. The mindset all comes down to, “why should I go to the cinema when I can see the same movie at home at a much cheaper price and at my own convenience?” Cinemas need to pose a strong answer to that question, and they need to consider what appeals to viewers. If you asked most people if they prefer seeing a film on their laptop or on a big screen (convenience and cost aside), I guarantee that most people I know would say the big screen. Why? Because it provides more of an experience. So perhaps build on the experience element. Build up the environment, build up the “fans”, build up the idea that if you go to the cinema to see a film or television show then you are considered a “die-hard fan”. That way, cinema is connecting with the online world and you’ve got everyone talking about the same thing at the same time. That’s where tweet seats then become effective. The stronger the level of mass-participation, the larger the hype, and the more people that would want to gain access.