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Reasons not to shorten theatrical windows

Theater chain chief argues against studio trend

I just saw Johnny Depp at the grocery store.

Dressed as the Mad Hatter, he was in the Redbox machine available for $1. All I could think was what a shame it was that this wonderful movie was being so terribly devalued.

What does it say to the consumer when such a high-profile movie is available so cheap so fast? It was released in theaters only 90 days before, which to a studio seems like forever, but to the consumer goes by in a millisecond.

Now there is talk about shortening the theatrical release window to as little as 30 to 60 days for a premium VOD platform.

Why?

Schuyler Moore, writing in a recent THR column, says that a shorter window will greatly reduce movie theft (he calls it piracy, but that romanticizes it). That sounds great to the studios, whose home video platform has suffered in recent years.

But for every complex problem, there is a solution that is simple, neat -- and wrong.

The advent of reasonably priced DVDs for purchase created significant sales that fueled the industry for much of the past decade. However, in a recession, DVD libraries with many rarely played titles were an easy target for consumers, and thanks to Redbox and Netflix, there was a cheap alternative. What seemed like an annuity (DVD sell-through revenue) was actually a short-lived windfall.

Windowed release patterns are brilliant. Release a movie to different outlets over time so it can be sold to the same person multiple times. First see it in the theater, then buy or rent it, then catch it on cable or TV. Shorten the window and risk losing the ability to sell the product multiple times.

Windows also allow the distributor to charge a premium for immediacy. The earlier someone wants to view the product, the more they pay. As the only window able to charge per capita, theaters collect the most per head. As the product moves through ancillary markets, the price per head declines. It won't take many people (trading out of the theater) attending a premium VOD "viewing party" to negatively impact per capita revenue.

The studios also risk losing the marketing impact theaters deliver. Every Monday, the weekend boxoffice is news, because each week studios (and theaters) are able to get 20 million-30 million people to leave their homes to consume a new product. One big movie can account for 8 million-10 million admissions. That large, communal experience is worth reporting on. Would a big weekend on the couch be newsworthy?

Studio executives might not worry if exhibition shrinks from a $10 billion business to $7 billion or $8 billion, with the difference made up in theft reduction and marketing savings. But exhibition is a high, fixed-cost business. Rent is expensive, as is paying people to operate a complex. The marginal revenue the studios might be willing to sacrifice at the theatrical window would decimate exhibitor's profits.

It is not as if exhibitors have outsized returns. If too much revenue leaves the theatrical window, further investment in state-of-the-art facilities will dry up as will maintenance capital. Over time, theaters would become less and less desirable to the consumer, leading to even greater unprofitability. The negative impact on the prime venue for the great American art form could be significant.

Will this stop theft? The argument usually starts with comparisons to the music industry, as in being "Napsterized." The fact that both music and film can be transmitted electronically -- and thus stolen -- makes this seem an apt comparison. However, the industries are very different. Music never enjoyed a windowed release pattern, so sales-channel trade-offs never mattered. More importantly, music and film are consumed differently. People buy music and listen to it repeatedly, but they don't with film. This is precisely what led to the shift from sell-through to rental.

Thanks to iTunes, a legal electronic music market now exists. Theft has been reduced. However, the price was steep. With music's pricing scheme abandoned, no one buys albums/CDs. Now people buy one track at a time, for about $1. Sound familiar?

Moore asserts that encryption technology will stop thieves, but eventually some teenager will crack the code, and even if not, it won't stop camcording in a theater or stealing a copy in the manufacturing process. Also, at $20-$40 for a premium VOD, the choice to view it for free still will be very appealing.

No one knows how much -- if any -- theft will be prevented by a premium VOD window. The risk of negatively impacting the pricing scheme, however, seems high and not unprecedented. I find it hard to believe studios really like rentals for a $1.

Please don't say, "We need to give the consumer what he wants," because the historical implication was, "or your competitor will provide it," not "or the customer will steal it." The proper response cannot be to cede to the thieves' demands and earn less along the way.

If I were the studio execs, I would focus on catching and punishing thieves and look for less destructive opportunities to grow my business. Currently, the studios are enabling the digital transformation of exhibition. They should look for ways to further monetize the digital theatrical platform they are helping to create.

We all know about the frog in the frying pan: A frog cannot sense gradual changes in temperature. Put him into a frying pan and slowly turn up the heat, and he will cook before realizing he has to jump out. I have always hoped that the gradual decline in the length of the exhibition window has not been the slowly increasing heat. Studio execs, be careful before you cook us all, yourselves included.

Gregory S. Marcus is president and CEO of the Marcus Corp., the parent company of Marcus Theatres Corp.