The Incredibly Shrinking Rental Window

Are movies showing up too soon on TV?

Video retailers think so, and they say it’s a key reason video rentals got off to such a slow start this year. Earlier this summer, the Disney movie “Evita” showed up on pay-per-view television just one month after it arrived in video stores.

Retailers across the country said the early arrival hurt rentals, particularly because ads for the broadcasts hit around the same time that videos first appeared in stores. And the Blockbuster video chain took the unusual step of halving its purchase in retaliation.

Retailers now are lobbying studios for longer windows between the time a movie is released on video and the time it shows up on television, cable or satellite pay-per-view stations.

Movies typically are distributed through a sequence of exclusive “windows”--first to theaters, then video, then pay-per-view, then pay TV (such as HBO and Showtime) and, lastly, free broadcast TV. Each link in the distribution chain wants the longest possible exclusive period, but those desires may collide with the interest of studios to recoup investments on ever more expensive movies as quickly as possible.

While theater owners typically get six months, video retailers--from whom movie studios derive about half their revenues--now have to make do with as little as 30 days. And that, retailers say, simply isn’t enough.

“I have five pay-per-view channels in my town, along with all the Showtimes and HBOs, and I’m constantly getting customers coming in and saying, ‘I’ve seen that,’ or ‘I’ve taped that,’ ” said Ken Dorrance, owner of the Video Station in Alameda. “And with short windows [of 30 days], I get comments like that for movies that are still on my ‘new release’ wall.”

Steve Apple, vice president of corporate development for Philadelphia-based West Coast Entertainment, which operates 568 video stores in 17 states, cited statistics from Paul Kagan Associates that show movie studios last year generated $5.3 billion from video and just $274 million from pay-per-view. “We contribute more to the bottom line of movie studios than anyone, including theaters, and to strengthen their cash cow they should extend windows to upwards of 90 days,” he said.

Executives with the home video divisions of major studios insist their hands are tied because the decision on how long to offer exclusives doesn’t rest solely with them. Quite often it’s an internal battle between studio divisions. And although pay-per-view revenues pale beside the mature video business, some studio executives want to nurture the faster-growing pay-per-view arena.

Jack Kanne, executive vice president of Paramount Home Video, says, “Our mandate at Viacom is to make sure all our businesses are doing well, video included and pay-per-view included. We all wrestle with how to maximize each of our businesses, and yet it’s a tough balancing act.”

Retailer Apple said the impact of short windows on video rentals is most acute in areas where illegal cable signal converters, or “black boxes,” are prevalent. “When movies hit the airwaves in places like Northern New Jersey or Miami, the rental curve is drastically reduced,” he said. “After 30 days, we run out of steam.”

Monthlong windows were commonplace when pay-per-view was launched in the mid-1980s but were not regarded as a problem because of the modest penetration of pay-per-view. Retailers’ complaints have paralleled the growth of pay-per-view.

Four years ago, several studios offered to extend windows on certain titles to 60 days and beyond if retailers bought more copies. Initially, they did, but when the buys tapered off, so did the windows.

In the past year, the proliferation of satellite dishes has expanded pay-per-view’s reach and made the exclusivity window a hot-button issue for retailers.

“It’s not a matter of buying more [copies of videos with longer windows],” said Ross Flint, owner of Video Station Superstore in Taylor, Texas. “It’s a matter of buying at all. If studios don’t start offering us longer windows, they’ll put us out of business.”

The Video Software Dealers Assn. has made pay-per-view windows its top priority for this year. In May, the trade group issued an official call for video exclusives of at least 60 days on all new releases. VSDA leaders have since held a series of meetings with studio executives to drive home their point, and are now running trade ads with the same message. Trade group President Jeffrey P. Eves said “short windows are shortsighted” because if retailers earn less money, they spend less money on new movies.

The fight for longer windows continues to pick up steam. At the VSDA’s 16th annual convention in July in Las Vegas, pay-per-view windows dominated discussions between retailers and studio executives. In his state-of-the-industry speech, Eves encouraged retailers to “take pay-per-view windows into consideration” when making buying decisions.

“In the past,” added Texas retailer Flint, “pay-per-view has never been as harmful as it is now. It used to be $4.99, and always 90 days after it hit video. But now, not only are the windows shorter, but the price has come down. DirectTV started out with one movie a month for 49 cents.”

The video retail community’s resolve is buoyed by a study by a Wall Street investment firm, released earlier this year, that says movie studios should protect their video retailing revenue stream by extending windows to 120 to 180 days. The study, from Sanford C. Bernstein and Co., concluded that as many as 5 million rentals a month “evaporate” from the market due to movies on pay-per-view, and that it takes 30 pay-per-view buys for a studio to generate as much revenue as selling a single rental-priced ($60) cassette to a retailer.

Still, there are some who feel that any outcry is in vain unless there is a boycott of videos with short pay-per-view windows. “The only language the studios understand is money,” said one retailer who asked that his name not be used.

Arnold is editor of Video Store magazine, a trade publication covering the home video business.

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Video Windows

Retailers say the video rental business is being hurt by the short periods of exclusivity before films are available via pay-per-view satellite or cable TV. They are trying to pressure studios to lengthen the windows, but it is often in the interest of studios to push their movies more quickly through the revenue chain. Some upcoming releases and the video windows:

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Movie Video release date The Saint (Paramount) Sept. 16 The English Patient (Miramax) Sept. 23 Liar Liar (Universal) Sept. 30 Anaconda (Columbia/TriStar) Oct. 7 Glory Days (Columbia/TriStar) Oct. 7 Grosse Pointe Blank (Buena Vista) Oct. 14 Night Falls on Manhattan Oct. 14 (Paramount) The Sixth Man (Buena Vista) Oct. 21 Austin Powers (New Line) Oct. 21 Nowhere (New Line) Oct. 21 The Winner (Live) Oct. 21 That Old Feeling (Universal) Oct. 7

Window before Movie pay per view (days) The Saint (Paramount) 46 The English Patient (Miramax) 60 Liar Liar (Universal) 86 Anaconda (Columbia/TriStar) 42 Glory Days (Columbia/TriStar) 90 Grosse Pointe Blank (Buena Vista) 50 Night Falls on Manhattan 60 (Paramount) The Sixth Man (Buena Vista) 55 Austin Powers (New Line) 45 Nowhere (New Line) 60 The Winner (Live) 60 That Old Feeling (Universal) 45

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Source: Video Store magazine