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With both the theatrical and home video channels in revenue decline, and amid panic that digital piracy will soon crest into a tidal wave, B…

Just Go With It Prem Vod A Slot

With both the theatrical and home video channels in revenue decline, and amid panic that digital piracy will soon crest into a tidal wave, BTIG Research analyst Richard Greenfield says Hollywood must once and for all scrap its long-sacred policy of releasing movies in theaters several months before offering them for video on demand. It’s actually a strategy that another part of the movie business — independent films — has been using lately and with some success.

In a BTIG blog post Tuesday, the widely read analyst suggested studios release movies via video on demand the same day as they debut in theaters, and charging consumers $20 to $25 for rentals. Typically, movies these days are out in theaters for three months before they’ve available in VOD, and the window has in the past been even wider than that.

Acknowledging that a number of studios experimented with early VOD last year, only to be smacked in the press and met with boycott threats by exhibition chains, Greenfield suggested they find strength in numbers. “If more than half the studios substantially reduced the theatrical-to-home video window,” he wrote, “exhibitors would simply have no choice – they have too much debt leverage to not play half the movies that are released into theaters. No more tests or trials, studios simply need to shift their model and the exhibitor backlash will evaporate.”

Last year, Warner Bros. (NYSE: TWX), Sony (NYSE: SNE), Universal and Paramount (NYSE: VIA) endured a series of threats and public rebukes from the National Association of Theater Owners when they experimented with a VOD model that made movies like Adam Sandler’s Just Go With It available for $30 on DirecTV (NYSE: DTV) eight weeks after their theatrical debut.

The so-called Home Premiere offering on DirecTV has quietly faded away, however, with neither the participating studios or the satellite company publicly offering up any insight into how well it sold. Separately, in October, Universal announced a limited VOD trial among Comcast (NSDQ: CMCSA) cable subscribers in Portland, Ore., and Atlanta, making the Ben Stiller/Eddie Murphy comedy-thriller Tower Heist available the same day as three weeks after its theatrical release for $60. The studio scuttled the plan after exhibition chains Cinemark and National Amusements refused to book the film.

So what would cramming early VOD down the throats of exhibitors offer Hollywood? Greenfield believes it would engage a segment of the market that has stopped seeing movies in theaters and with a higher-margin transaction. While studios get to keep $4 of every $8 domestic movie ticket, Greenfield argues, they could keep as much as 80 percent ($20) of a $25 day-and-date VOD purchase. “The reality is most people who were planning to go out to the movies would still go,” Greenfield also contends.

What about piracy? Never mind creeps with camcorders in movie theaters, what happens if VOD purchasers start creating more pristine illicit copies in the comfort of their home and go into the MegaUpload business en masse? Well, nearly all of Netflix’s streaming catalog is available through online piracy, Greenfield says, but the company still gets 21 million subscribers to pay $7.99 a month.

Given back-to-back years of recession at the domestic box office – the market declined 3.7 percent last years to $10.17 billion – convincing Hollywood to risk civil war by blowing up a century-old business model might be a tough proposition. Then again, independent producers and distributors – who don’t have much leverage to lose with the big exhibition chains – are enjoying notable success with simultaneous VOD releasing.

Lionsgate (NYSE: LGF) and Roadside Productions, for example, released Kevin Spacey title Margin Call on October 21 in theaters and through VOD providers like Netflix (NSDQ: NFLX) and Time Warner Cable (NYSE: TWC). To date, the $3.5 million film has grossed more than $5 million in each of those channels.

  1. Yes, please. I’m amazed Hollywood is so scared of upsetting theaters, which continue to decline in influence, that they’re completely ignoring consumer demand and driving people to either stay at home or steal. 2011 US box office attendance was the lowest since 1995. It’s time to innovate and adapt.

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  2. Separately, in October, Universal announced a limited VOD trial among Comcast (NSDQ: CMCSA) cable subscribers in Portland, Ore., and Atlanta, making the Ben Stiller/Eddie Murphy comedy-thriller Tower Heist available the same day as its theatrical release for $60.

    That’s actually incorrect. It allowed people to watch it On Demand for $60 three weeks after theatrical release, not the same day.

    “If more than half the studios substantially reduced the
    theatrical-to-home video window,” he wrote, “exhibitors would simply
    have no choice – they have too much debt leverage to not play half the
    movies that are released into theaters. No more tests or trials, studios
    simply need to shift their model and the exhibitor backlash will
    evaporate.”

    It will evaporate because many of the theater exhibition chains will evaporate.

    Neither Greenfield nor PaidContent has mentioned one major reason why theaters are so heavily opposed to disrupting the window system: the current distribution of box office revenue between the distributor and the theaters. Theaters have to send upwards of 80% of the opening weekend box office back to the distributor, with the percentage they have to send back shrinking every weekend from then on. I assume it’s easy to understand why they’d be opposed to anything that threatens to destroy box office tallies after the first or second weekends.

    If you want to get theaters on board with early VOD releases, you need to give them a bigger cut of the box office tally from the first couple of weekends. I think they’d be much more willing to let distributors release the films for VOD the second weekend if they got to keep 80% of the box office tally from the first weekend.

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    1. You are indeed correct about “Tower Heist” — the VOD plan called for a premiere three weeks after theatrical debut. I’ve struck through and corrected.

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  3. this is an idiotic analysis.  the film business will fall apart if there is only a single market–vod.  amazing how someone can make such a simplistic, uninformed, and foolhardy a suggestion.

    this isn’t about splits, it’s about how revenue is earned.  take away theatrical and certainly any aftermarkets and you become completely dependent on a single revenue stream.  no one in their right mind should do that.

    that isn’t even to mention the creative aspects.  movies aren’t made for the small screen.  movies aren’t music or books which are not in their essence social media.

    think before you write

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