COLUMN: Theater Owners Should Stop Complaining About VOD

CinemaCon was buzzing with the news that four major studios have entered into an exclusive agreement with DirecTV to launch Home Premiere, which will bring films to the home about eight weeks after their theatrical release. Cable operators and telcos, among others, will soon follow in select markets.

The National Association of Theatre Owners blasted the move. But despite their remonstrations, none of this was surprising to any of the participants. The contours of the key negotiating issues were known last year (see my Nov. 10 column in THR), and all that was missing was a critical mass of studios willing to face the ire of theater owners.  

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As previously speculated, DirecTV will charge a household $29.99 to view a film in HD and turn over 80 percent of that “box office” to the studio. Statistics compiled by nonpartisan research firms reveal that more than 97 percent of a film’s theatrical gross is earned within the first eight weeks of release; in fact, check the April 1-3 box-office chart, and you’ll find that none of the films earning more than $1 million has lasted 56 days. Thus, the exercise should have only a limited impact on a film’s performance in theaters.

So what are the prospects for Home Premiere, and how might or should it evolve?  

Let’s look first from the studio side. Only one major (Paramount) has declared it will not support the effort, at least not now. Its opposition is said to be based on piracy concerns, but a cynic might note that its ultimate parent company’s operating business is exhibiting films in New England, and opposing the effort has the convenient effect of currying the favor of theater circuits.

All of the studio executives with whom I’ve discussed this issue indicate that their support is largely predicated on a belief that there is no good commercial reason for withholding a film from the home for a four-month period. They also take a “no harm, no foul” position vis-a-vis the theaters on one hand and home video mass merchants on the other. So reaching the home with a film after two months makes sense.

Studios believe Home Premiere could work only if there is a continual flow of good product — especially family films or tentpoles — from producers, as opposed to trying to turn the proposition into a one-off or event mentality. The initial launch titles might not be blockbusters, but that’s because they are winter releases. As many as six to eight films a year from each of the major studios, and perhaps four to six from mini-majors, could be offered once things get going (in, say, two years).

None of the studio execs believes Home Premiere is a game-changer or that it will solve the major economic problem facing them today: the decline of the physical home video sell-through business, down substantially the past five years. But even with buy rates predicted at less than 1 percent, and with the necessary service upgrades limited to fewer than 10 million households today, Home Premiere can help, if all goes well (more about that below).

Still, the NATO and theater circuit opposition continues unabated.

They rail against shortening the theatrical window, though statistics reveal that, on average, only 3 percent of the audience watches a film after it has been in theaters for eight weeks. Plus, the price for viewing is not likely to attract singles or couples, nor will the plan alter the theatrical experience.

Theater owners solicited the creative community to fight the studios but did not get any significant support. Then they obliquely threatened to charge the studios for trailer exhibition in theaters — as if trailers don’t also benefit them!

Now the biggest attack against the studios is leveled for their being “volume hungry” and having no price discipline. The argument is that studios have always collapsed or decreased pricing in the home video arena to attract more customers, and that eventually that will happen here.

Putting aside antitrust considerations (studios are not permitted to conspire to control pricing), one would think the shift from a high-priced sell-through VHS tape in the ’90s to a less expensive (but higher quality) DVD was a benefit to the industry, not a departure from sound business practices. And what about the fact that the major studios have essentially funded the theater chains’ digital-cinema installation, creating 3D opportunities for both studios and theaters?

The mystery to me is why the theaters are fighting so hard to preserve a full four-month window instead of joining forces. As we’re all aware, advertising and promotion in theaters (whether paid ads or trailers) has the highest CPM around, and a theater can readily set up a link or contract with online and traditional carriers to sell tickets to upcoming Home Premiere films. Why not share in the upside, even if limited, rather than be so intransigent?

Kenneth Ziffren is a senior partner at Ziffren Brittenham and an adjunct professor at UCLA Law School.