Originally published Nov. 30, 2010
LOS ANGELES – A seismic revolution is taking place in Hollywood. Movie fans everywhere will have more options than ever before in getting their entertainment directly from studios, threatening the established movie theater business and vastly changing the landscape of movie exhibition.
The technological innovations in personal computers and home theater systems are forcing Hollywood moguls and executives to question their longstanding business model. Motion picture studios are now looking beyond traditional cinema theaters and making a major commitment to offer their latest productions on video-on-demand (VOD), as well as Web and Internet television, all in an effort to further push their product like never before and expand their audience.
“It’s a hot button issue,” said Lontih Khatami, in the Cinema Technology, Feature Film Post Production Department at Universal Studios. “It’s a sensitive issue among the studios right now because of all the interested parties that are involved.”
One of those most interested and invested are traditional movie theaters, who are most at risk of losing patrons and substantial dollars to the pending shifts in Hollywood’s distribution and exhibition philosophy.
“They’re (theater owners) certainly concerned about what studios are doing with their product,” said Tom Holman, Academy Award-winning sound engineer who works extensively with theaters around the world. “They’re concerned about the closing window between theatrical and DVD releases, but also in technical quality. The Blu-ray format is pretty much the movie. It’s what you get in theaters.”
Three major studios — Sony, Warner, and Disney — recently announced their eagerness to test a premium VOD market sometime in the first quarter of 2011 according to recent Hollywood trades. This means movies could be available to homes via electronic delivery just 30-60 days after initial theatrical release, staying open for about a month. Costs will depend on the availability date but they will most likely range between $30-$40.
“All these options are good for movie-lovers but it has to be perceived as an affordable habit,” said Hollywood.com Box Office Division President Paul Degarabedian. “People will have to feel that they’re getting a good value for their experience.”
Despite the potential expensive price in these initial VOD runs, just the fact that studios are planning such a move is a major change from traditional Hollywood practice. The movie business has depended on the reliable structure of “windows” since the mid-1980s when the concept of home video really took shape.
The traditional “window” structure allows studios to release movies in an arranged succession, first in theaters, then around six months later on DVD, then pay-per-view, then cable television, then one year later on network television, and then, finally, on local TV and syndication, allowing studios several opportunities to sell the same movie. Now, it seems those “windows” are collapsing and studios are taking the steps to strategically offer their product on a number of different platforms roughly around the same time.
Jason E. Squire, industry analyst, says movie theaters need a new business model.
This was made possible when the Federal Communication Commission (FCC) in May of 2010 approved a request by Hollywood studios’ lobbying organization, the Motion Picture Association of America (MPAA), to permit recent movies to be sent directly to American households.
John Fithian, head of the National Association of Theater Owners (NATO) said in a recent Director’s Guild interview that the traditional model still worked best for everyone and that it would be “self-destructive for (studios) to cannibalize the theatrical window with accelerations in the DVD window or the video-on-demand window.”
However, with DVD sales continuing to fall — on pace this year for less than $13 billion — since reaching its peak in 2005 with sales totaling around $16 billion, the industry is eagerly seeking new ways to generate dollars for the lost revenue.
At a Hollywood Future of Film Summit with studio executives in early November 2010, the Daily Variety reported that VOD was a major topic of conversation. Stacey Snider, CEO of DreamWorks, said one of the challenges ahead was to figure out VOD amid a declining DVD market without harming the theatrical market. Film distribution company IM Global’s CEO Stuart Ford, who has a worldwide perspective, said, “Once VOD becomes the biggest revenue stream and you have 1.6 billion people (in China) who can watch a movie at a push of a button, how could that not become a huge, huge pipeline?”
In addition to VOD, Web TV has emerged as another outlet for studios to showcase their product. Major networks like ABC and NBC have produced original programs like “Gemini Division” along with other projects like Joss Whedon’s cult favorite “Dr. Horrible’s Sing-Along Blog.” And Michael Eisner’s Vuguru subdivision, the Tornante Company, recently finalized plans to produce 30 new Web shows a year. The relatively modest-sized budgets to produce these Web-based shows and the much improved technology in video streaming allows producers to reach a global audience around the clock, every day.
This type of 24-hour-a-day streaming is also available with varying forms of Internet television, like VUDU, ROKU, and HULU, which is also vying for the public’s attention with the latest movie releases and television channels and shows, like “Iron Man 2,” ”Toy Story 3,” and the “Family Guy,” that are instantly streamed to computers in HD quality.
Movie theaters are not only threatened by these kinds of innovations in home computers and theater systems, but the content itself may be tempting potential audiences to stay at home.
“Shows like “Boardwalk Empire” on cable TV are so good and edgy that it’s another form of competition for theater owners right now,” said Holman.
Technological advancement and quality programming for home entertainment are not the only driving forces shaping this change. It is also the audience.
“What’s happening is an increasing impatience by the younger audience (13-18 year-olds),” said industry analyst and the “Movie Business Book” author Jason E. Squire. “Because of the personal screen, where they can visit different styles and forms of media and entertainment whenever they want, they’re demanding and impatient.”
Squire said that independent companies outside the Hollywood system, like billionaire Mark Cuban’s 2929 Entertainment, are on the cutting edge and have already been experimenting with new possible business models, attempting to satisfy the new demanding public.
In 2006, Cuban’s company released Steven Soderbergh’s film “Bubble” day-and-date, meaning it was shown in theaters, as well as offered on cable/satellite TV and on DVD all at the same time. Squire said Cuban was able to do this because he owns or has a substantial investment in all phases: the 2929 Production company, Landmark theaters and HDTV.
For movie theaters, the challenge to fill the seats remains the same despite the changing landscape of how films will be viewed by audiences.
Event movies, like “Inception” or “Avatar,” should continue to bring people out to theaters even if they are available on different platforms. The current popularity of 3-D and its surcharges are also helping theater owners stay in business, but more atypical ideas will be needed, like offering gourmet dinner and first class service like Gold Class Cinemas, or screening sporting events, live concerts and special events to bring in people.
“Theaters are struggling with identity right now,” said Bill Whittington, PhD, Professor of Digital Culture at USC’s School of Cinematic Arts. “It’s a vibrant time because of all the change and theaters have to ask themselves: how do they brand themselves as being better than all these other formats?”
Despite all the imminent changes coming from Hollywood, there is a prevailing notion by industry analysts that movie theaters, while evolving, will never completely go away because of its social impact.
“What will keep theaters going?” asked Holman rhetorically. “Comedies. They’re funnier when you’re with a lot of people.”
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