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CinemaCon: Real Stuff Hits the Fan as Theater Owners Protest Studio VOD Plans

by Anthony D'Alessandro
March 31, 2011 7:38 AM
3 Comments
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Thompson on Hollywood

All is not sweetness and light these days between the Hollywood studios and theater owners. So it's no shock that the exhibs reacted badly when news broke--intentionally, to grab prime media coverage--during their Las Vegas confab of four studios' move to VOD.

Anthony D'Alessandro reports on negative exhibitor reaction and assesses this explosive developing situation--he thinks the studios are making a big mistake. Do you agree?


As the studios vie to drum up good vibes at CinemaCon, exhibitors reacted angrily to the unexpected news that Warner Bros., Fox, Sony and Universal will embrace an April premium DirectTV VOD service allowing movie fans to stream from home such titles as Unknown ($62.4 million) and Just Go With It($100.5 million). In sum, wide releases will become available on this service 60 days after their theatrical bows-- at a tidy $30 a pop.

NATO issued the following statement Thursday:

On March 30, it was reported that Warner Bros., Fox, Sony and Universal planned to release a certain number of their films to the home 60 days after their theatrical release in “premium” Video on Demand at a price point of $30. On behalf of its members, the National Association of Theater Owners (NATO) expresses our surprise and strong disappointment.

Theater operators were not consulted or informed of the substance, details or timing of this announcement. It’s particularly disappointing to confront this issue today, while we are celebrating our industry partnerships at our annual convention – CinemaCon – in Las Vegas.NATO has repeatedly, publicly and privately, raised concerns and questions about the wisdom of shortening the theatrical release window to address the studios’ difficulties in the home market. We have pointed out the strength of theatrical exhibition—revenues have grown in four of the last five years—and that early-to-the-home VoD will import the problems of the home entertainment market into the theatrical market without fixing those problems.

The studios have not managed to maintain a price point in the home market and we expect that they will be unable to do so with early VoD. They risk accelerating the already intense need to maximize revenues on every screen opening weekend and driving out films that need time to develop—like many of the recent Academy Award-nominated pictures. They risk exacerbating the scourge of movie theft by delivering a pristine, high definition, digital copy to pirates months earlier than they had previously been available. Paramount has explicitly cited piracy as a reason they will not pursue early VoD. Further, they risk damaging theatrical revenues without actually delivering what the home consumer seems to want, which is flexibility, portability and a low price.

These plans fundamentally alter the economic relationship between exhibitors, filmmakers and producers, and the studios taking part in this misguided venture. We would expect cinema owners to respond to such a fundamental change and to reevaluate all aspects of their relationships with these four studios. As NATO’s Executive Board noted in their open letter of June 16, 2010, the length of a movie’s release window is an important economic consideration for theater owners in whether, how widely and under what terms they book a film.

Additionally, cinema owners devote countless hours of screen time each year to trailers promoting the movies that will play on their screens. With those trailers now arguably promoting movies that will appear shortly in the home market to the detriment of theater admissions, we can expect theater owners to calculate just how much that valuable screen time is worth to their bottom lines and to the studios that have collapsed the release window. The same consideration will no doubt be given to the acres of wall and floor space devoted to posters and standees.

In the end, the entire motion picture community will have a say in how the industry moves forward. These studios have made their decision in what they no doubt perceive to be their best interests. Theater owners will do the same.

NATO is right. The majors need to be careful as they legitimize the digital film market. Look at the music industry: following Napster's demise, the iPod business assisted in weathering CD sales. Through March 13 per Nielsen Soundscan, album sales numbered 59 million, off 7% from the same frame last year, whereas digital downloads are up by the same percentage at 264.9 million. Sure digital is cheaper, but it’s easier to pirate. VOD might be fine for post-theatrical runs but for premium films, its an apocalyptic sign for exhibitors: It throws them completely out of the distribution equation, particularly with the advancements being made in home theater.

Still, while studios contend that they’ll keep high grossing tentpoles off the premium service, it’s in the latter weeks of a film’s theatrical run that an exhibitor earns a greater share of the B.O. An obvious case of VOD potentially eroding domestic B.O. returns can be seen with certain day-and-date Magnolia and IFC titles. Such Magnolia VOD successes as [Rec] 2 ($28K) and the Meg Ryan comedy Serious Moonlight ($25k domestic B.O.) have posted lackluster results at the arthouse. On the other hand, it’s an apples to oranges comparison as VOD has been a saving grace to indie films, providing a wider audience on one particular release date versus a city-by-city rollout over three months. Thus, a Fox Searchlight film like Win Win ($737K), could see a boost from upscale viewers at home. The only good news for theater owners: Home video pundits don’t think home dwellers will shell out $29.99 to see major studio films because they won’t own a copy.

Thus, exhibitors shouldn’t gripe about NATO’s urge to update to 3-D: Such fare cannot be pirated and they keep moviegoing an event.

Studios' love affair with premium VOD is apt to be a game of Russian roulette, particularly when it comes to their war on piracy. Why mess with a well-oiled machine? Unlike the music industry, which was bent out of shape by Napster, the movie business has maintained record annual grosses of $10.6 billion over the last two years. The majors are lucky: They’ve never had to deal with a Napster per se, specifically a illegal large website that drew 25 million users, rather a small band of rogue sites.

A day after MPAA Chief Senator Chris Dodd and NATO Chairman John Fithian asserted their orgs’ crusade against piracy, a serendipitous Hollywood Reporter story appeared reporting that Gilberto Sanchez, the New York based musician and glass installer who uploaded a working print of Fox’s X-Men Origins: Wolverine in May 2009, pleaded guilty to felony copyright infringement in federal court. Sanchez faces up to three years in jail and a $250,000 fine (or twice the gross gain or loss attributable to the offense). Despite Wolverine’s leakage on the web, the X-Men spinoff was a huge hit for the studio grossing $180 million stateside and another $193 million abroad. In sum, piracy hardly dented the film’s B.O.

Piracy isn't to blame for the current domestic B.O. recession, rather lame marquee selections which aren’t catching fire with crowds. Making premium films available on VOD is a surefire means, not only to fuel piracy, but to deplete grosses further. Those at home will soon realize that’s it’s not worth the trip to the cinema, even if it is for a potentially bad film.

3 Comments

  • sherlockjr | April 1, 2011 4:24 AMReply

    Our survival is always tied to the movies the studios make. If they are bad or have little interest for audiences, the theater business suffers too and the odds are not in favor of an abundance of quality, word-of-mouth wide release movies being made. In fact, with this new short window plan, there is even less reason for studios to tweak a movie to make a better product that might not fall as rapidly after the first weekend. Home movie watchers are much less demanding than those who make the effort to go out to theaters. They watch more junk, even at $30 (which is less than three admissions in most metropolitan areas).

    The public cannot tell the difference between a WB/Par/Fox/Unv picture and a Par/Disney/Lions Gate/Summit/ etc release. They just know "the movies are coming into our homes very soon....we can wait."

    Always scared me when going into a video rental store and overhearing people state, "This was just in theaters a few weeks ago."

    And don't be surprised when the VOD delivery platforms start advertising before films are released to theaters and take pre-orders the way Amazon and Netflix already do. It will happen.

    Neighborhood and small town theaters are already struggling to survive with the outrageous terms geared to multiplexes and with demands by distributors to hold beyond what is reasonable because they are insisting the big guns hold and can't be caught letting a single or twin come off.

    And with exhibition being told there will be no more film prints by 2013, that is digging the grave for many of us who cannot justify the costs. 3D is not our savior. Digital benefits the studios first and foremost and the economics will continue to tilt in their favor. Our greed to jump on the 3D bandwagon ignored the wisdom of "look before you leap." There maybe plenty of movies jumping off our screens but how soon before the public tires of gimmicks and upcharges?

    John Fithian told exhibition at CinemaCon:
    "For any exhibitor who can hear my voice who hasn’t begun your digital transition, I urge you to get moving. The distribution and exhibition industries achieved history when
    we agreed to technical standards and a virtual print fee model to enable this transition. But the VPFs won’t last forever. Domestically, you must be installed by the end of 2012 if you want to qualify. Equally significantly, based on our assessment of the roll-out schedule and our conversations with our distribution partners, I believe that film prints could be unavailable as early as the end of 2013. Simply put, if you don’t make the decision to get on the digital train soon, you will be making the decision to get out of the business.”

    Wonder what clever new businesses can go into subrun venue spaces because they won't get films until VOD dates. Or will it be an opportunity for them to create buzz by promoting $3 admissions versus $30 at home? If subrun availabilties are moved up that cuts into the first run houses' already limited window.

    It will not be long before almost all distributors follow suit and what can exhibition do? If we boycott the distributors, we have no film to play. When they insist on keeping film rental high, we have to go long to get the movies.

    And I believe the timing of this announcement during CinemaCon is a very conscious choice because as exhibition responds, we could appear to be the greedy players to the film public who mostly want to see their movies conveniently and cheaply in their favorite (and variable) platforms. Very clever on the distributions part. Did all four just happen to make their announcement the same day. No collusion I hope.

    It is true that exhibitors blindly play whatever trailers studios ask them to, even if they will not be playing that film. Let's start charging for all screen and lobby space.

    And if we are going to do screen ad pre-shows we'd better make them damned entertaining because right now they are annoying background noise.

    What would the studios think if theaters started playing commercials for NetFlix and Redbox?

    What else can exhibition to be different? Some theaters are trying "Premium" policies, charging higher prices for fancy seating, bar and food service at your seat and no doubt a foot massage is next. But guess what folks? The studios want a percentage of the "amenities fees" even if the same film is available in a regular admission auditorium.
    So we paid for the digital projectors that save the studios well over a billion dollars (and counting) each year in prints, shipping, storage. Then we make our theaters fancy and hire extra staff to provide customer service and distribution takes a huge cut from that.
    It is a whole new ball game but will the gloves come out?

  • sherlockjr | April 1, 2011 1:53 AMReply

    There are few film rental deals from left where the percentage goes down each week. Most studios are demanding aggregate film rental for the entire engagement and it can be over 60% regardless of whether you operate a megaplex of a small town single screen.

    It would be interesting to bring in art house exhibitors into this discussion as they are already living with day and date VOD from IFC and Magnolia. Sony Pictures Classics has taken a strong stand against such a program but will things shift as ther parent company reduces windows?

  • Mr Cranky | March 31, 2011 11:43 AMReply

    Between the studios making shit product that doesn't appeal to ticket-buyers and exhibitors creating ugly and noisy spaces where we can pay too much for the experience (not to mention the exhibitors bragging they are selling at huge mark-ups garbage that costs pennies), it's kinda hard to distinguish between the heroes and the villains in this story.

    When the studios get back to making pictures that matter to the audience (which means treating us like people, not wallets), and when the theater experience becomes enjoyable (no, I don't want to see pre-show programming, thank you very much, I want to talk to my wife or shoot shit with my pals), then maybe the movie business has a future.

    (That said, I really want to see Super-8 the first weekend, with a big noisy crowd of excited people in big darnk room, not on a stream on my MacBook.)

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