Exhibition And Distribution In The Digital Age

The Future of Film Blog, launched as part of the Tribeca (Online) Film Festival, features filmmakers and other experts in the film industry sharing their thoughts on film, technology and the future of media. Entrepreneur Todd Wagner is co-owner (with Mark Cuban) of 2929 Entertainment:

I’ve been in the movie and media business for more than a decade now (after nearly a decade in the Internet/technology space), and along the way I’ve learned that the old adage is true – the more things change, the more they stay the same. I’ve taken my fair share of criticism for challenging some of the film industry’s most fundamental notions, particularly in the area of content distribution. And while a lot has been said about the future of distribution, I think it’s good to take a quick look back before looking forward.

The film industry at various times has fought player pianos, the phonograph, radio, jukeboxes, cassette decks, cable TV and the VCR. Each, in its era, was going to negatively impact or be the death of the movies. In the 1980s, for example, Jack Valenti famously said that the VCR would be to movies what the Boston Strangler was to women. Of course, that didn’t happen. So are these notions of premiering a film on ultra VOD or shortening/collapsing release windows really that crazy? Or, is it simply the next natural step? Remember, as recently as 50 years ago, release windows didn’t even exist, yet today they’re spoken of like sacred scripture. They’re not.

As someone who has a vested interest in all of the “life stages” of content creation and delivery, my job is to leverage what’s “new” in order to generate – per user – what I did under the “old” system. It used to mean selling theater tickets; then it became a combination of theater tickets and television; and then it became the combination of both of those along with video/DVD sales, as well as now selling a myriad of ancillary rights. You get the idea. According to a Nielsen study from a couple of years ago, 50 percent of movie-goers represent 80 percent of revenues in the exhibition industry, and study after study shows that core audience base isn’t going anywhere. They like to go out, and they like the communal experience of going to the movies regardless of what other means are available to consume it. To me, what matters in this distributionevolution is how we take advantage of the latest technology and distribution channels to expand the customer base and reach what I refer to as the “impulse entertainment buyer.”

For years, the retail industry has understood the power of the impulse buy at check-out – a trinket, a candy bar, a tabloid magazine. With today’s rapidly advancing technology – 3G and now 4G, WiFi, DVRs, iPads, iPhones, Android phones, whatever –people can quickly and easily bring the movies not just into their homes, but wherever they happen to be, at a moment’s notice. It is now possible for the film industry to capture the coveted impulse buy like never before. And trust me, I get that it can’t be at the expense of cannibalizing the existing business.

Personally, by the time a movie is out on pay-per-view or DVD, I often don’t care about it anymore because it’s simply off my radar. People aren’t talking about it, and I’ve got new movies or other entertainment choices that are more top of mind at that moment. So they’ve lost me as a potential customer. The goal here is to grow the customer pie, and share it.

According to the Nielsen study, avid moviegoers – those who go to 10 or more movies per year – said they would go to a theatre even if movies were available simultaneously on DVD or for download. So your bread and butter (the aforementioned 80 percent of revenues) aren’t leaving, but yes, you must sell to the lighter movie-goers or risk losing them to the alternatives. I think that’s healthy, and I think that with things like IMAX, 3D and all sorts of new enhancements on the horizon, there will be even more reasons to go to the theatre. But exhibition cannot afford to ignore the changing marketplace. The Nielsen study goes on to state: “The data highlights an interrelationship between movie-going, DVD sales, DVD rentals, suggesting that multiple platforms for movie consumption could be expanding total revenue, bringing once active, now inactive, or potentially never active, movie consumers into thefamily, as opposed to cannibalizing and shrinking revenues. Movie fans are likely to consume a greater frequency of movies as complementary platforms emerge to accommodate their lifestyle and preferences. If the movie industry can overcome the short-term business issues and resolve to empower consumerchoice in what today feels like a risky proposition, it might very well be rewarding in the long run.”

I couldn’t have said it better myself. Okay, well maybe I could have. What I’m proposing is a business model that would reduce costs, increase revenues and make customers happy and in charge. But it would require a sea change in thinking. A realization that we are in a digital world and there is no going back. Technology is like a freight train coming down a mountain – it just keeps coming. I have a couple of other favorites as well. Technology NEVER goes backwards, EVER. We need to look for ways to personalize, customize and interact in ways that weren’t possible before. We had a favorite technology saying back in the day: “Technology never goes as far or as fast in 2 years as you think it should, but it always goes farther and faster in ten years.” BOOM. Let’s come together as an industry and figure out how we can increase total sales and, by the way, share some of that revenue pie with the theatres/exhibitors.

There are many ways to make the theatre whole. I do not view this as a zero-sum game and a horrible threat to the exhibition industry. One idea is to kick a piece of ancillary revenues back to the exhibitors who help make our movie successful. Even at 2 percent of ancillaries, it would make an enormous difference to the bottom line of exhibitors, for it is pure profit. I have analyzed the numbers of publicly traded theatre chains, and the margins aren’t pretty. A 2 percent ancillary revenue check would, in many cases, add an additional 50 to 100 percent of net income to the bottom line.

If ancillaries aren’t the answer, then let’s change the film rental rates the exhibitors pay depending on how soon it is released in other media. For example, a lower rate if the film is released day and date, another higher rate if released 30 days later in other media, yet another if we employ a more traditional 3-to-4-month window. Let’s experiment, but let’s make sure the exhibitors are not worse off. Also, we can and should charge a premium for people to have the convenience of seeing it at home (our ultra VOD model), on DVD or on their mobile device. The idea is to still make exhibition the place to experience film.

Hollywood has always maintained that telling a story will never go out of style. I wholeheartedly agree. But how you tell it, and how you distribute it, might very well change.

Entrepreneur Todd Wagner is the co-owner of 2929 Entertainment, a vertically integrated media and entertainment company whose businesses span the entire life cycle of film – from content creation to distribution to exhibition. An Internet pioneer and vocal advocate for new thinking in the film industry, Wagner was the first to test day-and-date distribution and offer sneak peeks of feature films through his company’s Ultra Video-On-Demand service. Wagner is also a proud member of the American Film Institute’s Board of Directors.

This article originally appeared in Tribeca.