Sunday, September 16, 2012

Shifting Distribution Patterns

The world of film distribution is changing.  What we take for granted, and have for years, may soon no longer be the case.  Movies open in theatres.  Three months later, they're on DVD.  Then they move to pay TV and finally free TV.

Theatre audiences in the U.S. and Canada are shrinking.  Hollywood has compensated for this by raising prices, so that the overall theatrical grosses go up while the number of people buying tickets goes down.  Last summer was a disappointment in that everything went down.  Deadline Hollywood reports that the summer movie season ended with grosses in the U.S. and Canada down 2.8% over last summer and the number of tickets sold dropped 4.3%.  And that was with a rise in ticket prices of 1.5%.

Just like studios have gone to digital projection as a way to cut their distribution costs, they're now shifting to downloads to cut their costs on DVD manufacture and distribution.  DVD sales have gone down in recent years, so the move to downloads is a way to increase the profit when people pay to see the movie at home.  Variety reports (and the article is behind a paywall):
In a first for the studio, 20th Century Fox is making Ridley Scott's sci-fi thriller "Prometheus" available for HD download Sept. 18, three weeks before the release of the physical discs.
Pic marks the inaugural film in Fox's strategy of carving out a new digital window for homevid releases. Studio will make all of its films available for HD download about two weeks before the titles hit store shelves. The three-week jump for "Prometheus" window is an exception. The next few pics in Fox's queue are "Abraham Lincoln: Vampire Hunter," "Ice Age: Continental Drift" and "Diary of a Wimpy Kid: Dog Days."

And the digital versions will be cheaper: Retailers will offer the digital version of "Prometheus" for less than $15, rather than the $20 they usually offer films through the electronic-sell-through category.

On the day of "Prometheus'" launch, the studio will also make 600 of its library titles available through the new service. Those include mainstream movies like "Avatar" and "Rio," but also less readily available DVD fare like the original 1968 version of "Planet of the Apes" and "French Connection." The price point for the studio's library titles may vary slightly from its upcoming releases but will hover around the $15 mark.
We're reaching a tipping point.  As theatrical revenues decrease (even with rising ticket prices) and DVD sales go down, the studios are hungry for cash.  By making downloads available before DVDs go on sale, Hollywood is saying "screw you" to retailers like Wallmart.  They're throwing retailers under the bus, not caring if they reduce the retailer's take so long as they increase their own.

It's only a matter of time before some studio decides to do the same to the theatres.  We are quickly reaching a point where a studio will make a download available the same day a film opens theatrically.  There may be some pushback.  Perhaps a major retailer like Wallmart will tell Fox that they'll no longer carry their DVDs or a theatre chain will boycott movies from a particular studio.  However, that may simply drive more business directly to the studios.  If you want to see a Fox film and can't find the DVD, why not download it?

Just like record stores have mostly disappeared and physical bookstores are suffering, movie theatres may be next.  While they won't vanish entirely, we could be looking at a drastic reduction in the number of theatres.

The theatres are not blameless in this.  While multiplexes are the standard, their selection of films is limited to mainstream releases.  That has narrowed the audience that goes to the movies.  Theatres have done nothing to police their patrons with regard to talking during films and because audiences have been shrinking, theatres have inflated the cost of tickets and their concessions in order to bolster their own bottom lines.  Combine all that with a soft economy, and audience has many reasons to stay home.

It would be ironic after theatres have invested heavily in digital projection at the request of the studios if the studios walked away from them, but it wouldn't surprise me.  I don't doubt that Hollywood bean counters are staring at the numbers right now, deciding at exactly what point the revenue from downloads will be comparable to the revenue from theatres.  Once they reach that point, it's the end of movie theatres as we know them.


Milton Gray said...

Mark, I really appreciate your article, but my view of the industry is quite different from what the industry reports. Perhaps the most concrete fact in the article is that the number of theatrical tickets sold dropped 4.3% But I think that a more important fact is that people are staying away because they are tired of endlessly repeated cliched plots in movies -- typically "attack and revenge", with lots of mindless car crashes and exploding buildings -- and a general lack of original stories. If Hollywood would make better use of the writers that are available, and make movies with more interesting stories, I believe many of us would return more often to the theaters.

Chris Sobieniak said...

I go with Milt's opinion on the matter too. If only they could stop repeating these reboot/remake stuff like crazy, it would be nice to see something 'original' for once or something that would be worth going out to see if they didn't try to release it anywhere else for quite a long while.

Mark Mayerson said...

One of the sad facts of life is that foreign box office is now equal to or greater than North American box office. For instance, Brave grossed $273 million in North America but $470 million worldwide.

If you look at the chart at you will see that very few films have made even half of their total gross in North America. Ice Age: Continental Drift made less than 20% of its gross in North America.

There's little motivation to change things when the films are doing so well around the world. Hollywood always heads towards the money, so while films are successful overseas, they won't change. And if North American theatrical grosses continue to drop, Hollywood will look to squeeze more money out of each release. If that means abandoning theatres for downloads where Hollywood can keep all the money, that's what's going to happen. I'm curious to see how long it's going to take and which studio will be the first to make downloads available the same day as a film premieres in North American theatres.

Michael Sporn said...

It's nice to see a distributor who says they don't really know what they're doing. Just looking at the Ice Age releases, Fox has had some of their most successful sales with these films, and that includes Ice Age: Continental Drift. The last release did extraordinary well with much more than half their sales coming from Foreign release.

However, by holding back the DVD they're giving up totally on one product to sell another. They've attempted this before on a smaller basis, and it hasn't worked. Netflix tried to make their entire sales a download business, but they still offer downloads.

I can understand Fox trying it with a not-big-seller like Prometheus, but taking a high selling piece like Ice Age, they're cutting off their nose to spite the face. It's foolish.

Charles Kenny said...

I agree Mark, the distribution model is changing, but I sincerely doubt that we'll see a significant change to the current stranglehold of the cinema chains on the studios.

For one, there is simply too much money at stake as far as the studios are concerned. The box office may be down, but it's still a massive market. It's also where films reap a lot of their revenue from; the very best continue to make a profit based on box office receipts alone. No studio in their right mind will give that up and the cinema owners know this.

I also doubt we'll see a significant decrease in the number of cinemas either. Hollywood has harped on for years about how the latest technology will kill them all off. TV was supposed to do it, as were VHS tapes. By all accounts, Hollywood studios and cinemas should have been dead and buried multiple times by now, but here we are in 2012 and they're still knocking around.

The current push for digital projection is just the latest in such developments, and by all accounts Sony has been giving the projectors away for free in return for marketing space and other concessions, so the cost to cinema's themselves is negligible.

Addressing the content aspect is something that cinema owners have to address on their own. It would be nice if they appealed to more niche markets, but at the end of the day, mainstream films have and have always brought in the most people and therefore money.

What cinema owners will discover in the near future is that they will have to start competing on merit alone. Being the only place to view the latest films won't be enough. Once the experience aspect comes to the fore, you can expect service (and likely offerings) to improve. That day is rapidly approaching and many cinemas are not prepared.