• Hollywood Considers Squeezing Theatrical Window

    An article in the WSJ.com this past weekend, "Hollywood Eyes Shortcut to TV," describes how some Hollywood studios' appear ready to further squeeze their bread-and-butter theatrical relationships in the name of accelerated electronic distribution to viewers' TVs.

    The article cites proposals that Time Warner Cable, America's 2nd largest cable operator, is discussing with studios to offer movies to Video-on-Demand (VOD) just 1 month after they open in theaters, instead of today's typical 4 months. The idea, dubbed "home theater on demand" ("HTOD" for short) would mean a movie would be available on HTOD while still playing in theaters. Adopting such an approach would be akin to Hollywood sticking its finger in the eye of its theatrical partners, who would obviously suffer some degree of diminished ticket sales.

    Hollywood studios surely know the firestorm an HTOD move would create. In the past 6 months, plans to overlap theatrical and electronic distribution - with Disney's "Alice in Wonderland" and Sony's "Cloudy With a Chance of Meatballs" - met with stiff resistance from theater owners. With the new HTOD concept, studios seem intent on pushing further into this perilous territory, motivated by a desire to get movies into viewers' hands earlier than ever before.

    In general I applaud studios willingness to experiment, but I think the value of HTOD and other early release plans is overestimated and more likely to backfire on studios than produce any tangible financial benefits.

    The first issue is cannibalization. It's hard to imagine, given all the marketing effort around a movie's premiere, that the aggregate short-term audience for a particular movie can be expanded all that much. Certainly few people who just paid to see the movie in the theater will pay again to see it at home so quickly thereafter. And if you really wanted to see a movie, wouldn't you have made it to the theater in the first place?

    Instead of tempting people to not bother going out, studios should be giving consumers more reasons to actually do so. Studios have so many new opportunities with social media, local-based services and user-generated content to add excitement to movie premieres. This is particularly true for younger audiences critical to box office results. Some of these new efforts can extend all the way through a movie's DVD and electronic release, adding downstream value as well.

    In addition, even with movie ticket prices now approaching or hitting $20 apiece, in my opinion, HTOD's proposed fee of $20-30 is way too high. Most VOD movies today cost around $5-6; trying to justify a multiple of that price for HTOD, for the sole benefit of earlier in-home access, is a huge stretch. In reality, consumers seem plenty willing to wait in exchange for lower prices. That's the key takeaway from Netflix's willingness to do the 28-day DVD window deals with major studios. If a consumer can pay a paltry $9/mo they'll be just fine waiting until the movie becomes available on DVD or for streaming. Hollywood needs to be careful not to overestimate the value of its product.

    Last but not least, HTOD is a risky play because cable-delivered VOD itself is going to be coming under intensifying competition. Recently I explained how competition for movie rentals is intensifying, making VOD just one of many, many choices for consumers. Initiatives like Google TV undermine VOD because when a consumer can just as easily access movies from various online outlets directly on their TVs, VOD usage will inevitably suffer. Though I'm skeptical about new efforts from retailers like Wal-Mart and Best Buy, they will add more on-demand movie choices and will further turn up the pressure on VOD.

    Electronic distribution is a hot topic these days, and studios are right to explore their options. But while studios' relationships with theater owners are far from optimal, in my opinion studios need to be very careful about jeopardizing them further. Rather than undermining theatrical release with ever-earlier electronic distribution plans, studios should be figuring out how to build more value into them.

    (Note - if you want to learn more about how Hollywood succeeds in the digital distribution era, make sure to join us for the upcoming VideoSchmooze breakfast in Beverly Hills on June 15th! Click here to learn more and register for the early bird discount)

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