Theater operators fight studios’ plan to release movies in homes earlier
Theater operators are mounting a challenge to plans by Hollywood studios to release movies in the home when they are still in theaters.
The nation’s largest theater chains have been reaching out to investors and analysts on Wall Street, as well as directors, producers and agents, in an effort to build support for preserving so-called theatrical windows — the period of time between when a movie opens in cinemas and when it comes out on DVD or other media.
The outreach is in response to statements by media executives touting plans to offer movies in the home via video on demand at a price of $30 to $60, one to two months after they are released in theaters.
Premium-priced VOD is foreseen as a new revenue source for studios looking to offset declining DVD sales, as well as a boon for cable companies that have been stymied in their efforts to deliver movies into the home earlier in part because of concerns it could cannibalize home video sales.
But theater companies contend that the VOD plans will undercut movie ticket sales, giving consumers less incentive to trek to the theater if they can wait a few extra weeks to watch the movie in the comfort of their home.
“A 30-day window makes absolutely no sense to us whatsoever,” said Gerry Lopez, chief executive of AMC Entertainment, the nation’s second-largest theater operator. “We’re concerned about the grave consequences this could bring.”
Currently movies are available on VOD about the same time they become available on DVD, about 130 days after they debut in theaters.
The pushback is led by the National Assn. of Theater Owners, the trade group that represents most of the country’s major theater circuits.
“We are reaching out to the creative community and the business community because we think some of the studios are moving down a path of a bad business model,” said John Fithian, the association’s president. “They risk losing two dimes to save one nickel.”
Theater owners are taking their case directly to Wall Street. In recent weeks, Fithian and top theater executives have held meetings with analysts from such firms as Deutsche Bank and Barclays to outline their concerns on early premium VOD releases and make the argument that the studios’ strategy won’t pay off for either side.
They’ve also been enlisting the support of filmmakers, hoping that their voices can help sway opinion.
“We don’t make movies for the small screen, we make movies for the big screen,” Jon Landau, producer of James Cameron’s blockbuster “Avatar.” “Television is a great art form, but it’s an oxymoron to say we’re giving you a premium experience on TV.”
But theater operators could be fighting against the inevitable. As broadband technology becomes faster and consumers increasingly turn to their high-definition, big-screen televisions to watch movies, the demand for content will also grow, potentially tipping the economics away from theaters.
Studio executives contend too that they need to find ways to generate new sources of revenue in the face of emerging technologies, changing consumer habits and a steady decline in home video sales, which for many years propped up the movie industry.
“We are exploring every conceivable additional revenue stream out there,” Universal Pictures Chairman Adam Fogelson said. “The facts are irrefutable that our business models are under an extraordinary amount of pressure. In order for the studios to remain healthy, we need to find ways to recapture that revenue.”
Studios and theaters have a symbiotic relationship stretching back a century that has been mutually beneficial. Theaters get to keep roughly half the revenue from ticket sales, while the studios keep the other half and resell their movies multiple times to consumers: first in theaters, then on DVD, followed by video on demand, then showings on cable channels such as HBO and Showtime.
However, the partnership is now under strain.
Theaters threatened to pull Walt Disney Co.'s “Alice in Wonderland” from screens this year after Disney announced plans to release the movie on DVD one month earlier than it typically does. In May, the Federal Communications Commission granted a controversial waiver to studios, clearing the way for an anti-piracy technology that makes it easier for studios to pipe first-run movies into the home.
More troubling, movie theater operators are leery about the pending merger of Comcast Corp. with NBC Universal, which would put a top Hollywood studio into the hands of the company that provides cable TV service to one out of every five homes in the U.S. Comcast executives have signaled their desire to offer movies from Universal’s film library earlier to cable subscribers than traditionally has been the case.
Time Warner Inc., owner of the Warner Bros. movie studio, expects to offer premium-priced movies through video on demand 30 to 60 days after their release in theaters. News Corp.'s 20th Century Fox and Sony Corp.'s Sony Pictures studios are also weighing earlier VOD service.
“In a world where consumers see our DVDs available at Redbox for $1 a night, we want to establish the value of our content,” said Kevin Tsujihara, president of Warner Bros. Home Entertainment.
He added that the studio would be flexible, adjusting VOD release depending on how long a film plays in theaters.
Studios aren’t all looking through the same window, however. Viacom Inc.'s Paramount Pictures studio is not pursuing a premium VOD window, said an executive with the company.
“We’re operating under the belief that the best strategy for our business is to have an exclusive theatrical window,” Paramount Vice Chairman Rob Moore said.
Moore agreed with exhibitors that they need to protect the movie-going experience, otherwise “attendance could drop significantly.”
Paramount is also the only studio that has corporate ties to the theater business. Its parent company, Viacom, is controlled by Sumner Redstone, who also controls the National Amusements theater chain.
Attendance is down 3.4% this year and has generally been flat in the last five years, although revenue for the industry has risen because of higher ticket prices.
Unease among theater operators has been fueled by a breakdown in talks that studios and exhibitors began a year ago over the theatrical windows issue.
“Our concern is that we have read more about specific intentions of certain studios in the press versus direct communication with us,” said Amy Miles, chief executive of Regal Entertainment, the country’s largest theater chain. “We believe pursuit of a collaborative strategy potentially avoids the need for defensive alternatives to protect our business.”
Michael Lynton, chairman of Sony Pictures Entertainment, said the subject of making movies available earlier on VOD had been broached with theater operators, but at the same time he acknowledged that there had not been a “meaningful dialogue.”
Some industry analysts contend that the concerns are overblown, arguing that studios have too much at stake to risk biting the hand that feeds them, and that with fewer than half of U.S. households capable of viewing VOD, the upside would not be significant.
“The potential market for someone who is going to pay $30 or more 30 days after a movie is released is a very small market,” said James Marsh, a media industry analyst with Piper Jaffray.