For Some Movies, âSecond Pay Windowâ Can Come Years After Theatrical Release. Implications for Streaming Business?
by Terence Keegan
Time was subscribers to Netflixâs discs-by-mail service faced a âvery long waitâ for popular titles. Now, in the age of streaming subscription services, that wait is measured in months, if not years â despite the instant-access convenience of the technology.
Following Wednesdayâs announcement by Amazonâs Lovefilm that it had secured âsecond pay windowâ rights to Universal movies in the UK, we asked analysts about the evolving nature of pay-TV windows, both in the U.S. and abroad.
Windows for video-on-demand and pay-TV services âcan absolutely varyâ with the advent of subscription streaming, according to Michael Pachter, managing director of equity research for Wedbush Securities. But Pachter tells M&E Daily that while all services âwant content as soon as they can,â itâs hard to say how critical first-run rights to content are to the market success of Netflix, Lovefilm, or other streaming services.
Netflix, for one, maintains that its subscribers value breadth-and-depth over first-run access â at least when it comes to DVDs by mail in the U.S. Speaking at a Nomura investor conference in New York on Wednesday, Ted Sarandos, Netflixâs chief content officer,Â said that âstay[ing] out of the path of the first 28 days of VOD transactions or DVD sales….supports the overall creation of contentâ (via Home Media Magazine). (The more content thatâs created, the broader catalog Netflix will have to license/offer.)
In Netflix’s disc rental business, the 28-day window remains relatively settled, apart from the company’s 56-day window for Warner titles. But among movies available via streaming services from Netflix and other companies, windows run considerably longer.
Richard Broughton, senior principal analyst and head of broadband at IHS Screen Digest in London, illustrates how UK pay-TV windows typically are structured with the example of Universal film âGreen Zone.â The movie â among those that Lovefilm offers its streaming subscribers as of May 2012 â was released in UK cinemas more than two years ago, in March 2010, according to Screen Digest. It then saw a pay-per-view release via the Sky Box Office in July 2010, followed by availability to subscribers of the Sky Movies service beginning in late January, 2011.
âSo Lovefilm customers,â Broughton tells M&E Daily, âare likely to have to wait a reasonable amount of time from a filmâs debut on Sky Movies before gaining access. With blackout periods taken into account, Sky looks to have the films for roughly 14 months.â Screen Digestâs estimated length of the Sky window is in line with the recent findings of the UKâs Competition Commission on movie windowing structures in the country, Broughton adds.
To be sure, windowing strategies are in flux in every segment of movie and video distribution, from theatrical to streaming. For content owners, the value of ânew releaseâ content in any window is one issue. But the instant-access nature of streaming services â not to mention the obvious technological feasibility of day-and-date theatrical and digital movie debuts â gives rise to a more complicated question: when does a ânew releaseâ program cease to be ânewâ in todayâs marketplace?
As far as Lovefilm and Universalâs movie deal goes, âLovefilm is getting hold of the films potentially over a year later than Sky, which will diminish the appeal of the catalogue,â Broughton says. âItâs hard to quantify in monetary terms, but the effect is present.â
NCR Entertainment will raise DVD rental prices at its 10,000 Blockbuster Express kiosks nationwide, following a similar move by its competitor Redbox to offset an increase operating costs.
Whereas Coinstar-owned Redbox recently raised its daily DVD rental rate by 20 percent (from $1 to $1.20), NCR will introduce what it calls â3-2-1â pricing for DVD rentals at Blockbuster Express kiosks. DVD titles within their first 28 days of release will cost $3 to rent; after 28 days, the initial rental price shifts to $2, and after 90 days, the first-day price becomes $1. Additional days for all movies will continue to cost $1 plus tax, NCR says. The price increase goes into effect Nov. 8.
While Redbox had cited higher debit-card transaction fees as a reason for its daily price hike, Blockbuster Express attributes its change to a general rise in operating costs. But the price increase tracks movie studiosâ ongoing efforts to enforce an exclusive sales window for DVD and Blu-ray titles. Some analysts argue that studios should widen the window to 90 days, from the 28 days of current windowing agreements with rental companies.
In the wake of Netflixâs recent PR debacle over its own price hike, Blockbuster Express is taking pains to sell consumers on the change. âWe are making this change based on feedback from our customers as well as to address higher operating costs currently facing the industry,â the company tells customers on a FAQ page. âWith this change we are simplifying our pricing structure and clearly defining our portfolio of movie rental options.Â We have opted to retain a $1 one night movie rental option, which our customers have told us is important to them.â
In addition, more than 70 percent of a kioskâs titles will still carry the $1-a-day price, NCR Entertainment general manager Justin Hotard told Bloomberg on Thursday.
by Marcy Magiera
As networks and studios take advantage of myriad new ways to distribute content, they face greater challenges in managing windows to extract maximum profit from each transaction, said executives speaking at Variety’s Entertainment and Technology Summit at the Ritz-Carlton Hotel in Marina del Rey, Calif. on Monday.
Speaking on a “Trendsetters in Entertainment Distribution” panel,Â David Spiegelman, president of domestic television and digital distribution for Relativity Media, discussed the studioâs decision to give its movies to Netflix for streaming in the pay TV window, bypassing cable programmers HBO, Showtime, Starz, and others. âThereâs a huge benefit for us to be on Netflix,â said Spiegelman, noting that while Netflix has a big audience â more than 20 million people subscribe to Netflixâs streaming service â the films will get less consumer exposure than they would in HBO rotation, for instance, preserving value for buyers in the downstream windows including basic cable.
âYou can never have enough buyers,â said panelist Scott Koondel, president of distribution for CBS. âRight now itâs about getting paid the most for every transaction.â
For programmers like Showtime and Starz, that is driving a move to replace theatricals with original content so that they can control both the exposure and revenue of the properties in multiple windows, said Koondel and John Penney, executive vice president of strategy and business development for Starz.
Because of growing international markets and new distribution platforms, âyou can produce shows for network and make money right out of the gate,â instead of waiting for syndication, said Koondel.
âPricing is critical,â said Penney. âWhoever is setting the price has to get it right to generate enough revenue to finance new content.â He used as an example Netflixâs acquisition of the first-run series âHouse of Cards,â which according to Penneyâs estimate, will cost one monthâs revenue from all 25 million Netflix subscribers to finance.
For content owners, that means developing new distribution outlets, such as Facebook, even though it isnât clear whether consumers want to watch movies over social networks, said Spiegelman. âIf you can tap into a very small percentage of that huge platform, you could be generating so much revenue,â he said. âWe want to train behavior now.â
Conference keynoter Kevin Mayer, executive vice president of corporate strategy and business development for The Walt Disney Co., also addressed windows management. As an example, he said the studio now views its ABC network as simply the first window of distribution for its TV content. âNetwork used to be the business,â he said. âNow content is the business.â
News Corp. COO Vows Company Will Continue to Impose Delays on New-Release Product for Kiosks, Streaming Platforms
Discussing News Corp.âs operating priorities during a Wednesday earnings call, chief operating officer Chase Carey said that the companyâs studio subsidiaries would continue to delay availability of new video programming on digital platforms such as Hulu â as well as in DVD rental kiosks from Redbox and others â in efforts to preserve content âvalue.â
âWe need to intelligently take advantage of expanding digital platforms that continue to reshape our business,â Carey said (transcript via Seeking Alpha). âWe believe authentication is a core strategy in this regard, both to maximize and protect the value of our content. Recently, this has led us to put an 8-day delay on pre-unauthenticated access to our network content and it has been a cornerstone for new digital extensions to our franchises like âBig Tenâ to go.â
Under the companyâs first âauthenticationâ initiative, online viewers of Fox TV shows such as âGleeâ will need to prove they are a Dish Network subscriber to access new episodes. Otherwise, viewers will have to wait 8 days to access new episodes on Hulu.com and Fox.com.
Carey added that News Corp. would continue to âmake sure we are vigilant about attacking practices that undervalue our products, like $1 rentals, and building new platforms that fairly value our content. Weâll do business with new emerging digital platforms like Netflix, where we establish clear rules about what is library product…However, our priority is to make sure weâre thoughtful and do not allow a quick buck to jeopardize the longer-term value of our product.â
Liberty Mediaâs Starz, a key supplier of streaming video content to Netflix, says that it will institute a 90-day window on episodes of its original series beginning April 1.
The Starz announcement (via The Hollywood Reporter) comes two days after Showtime said it plans to pull its original series from Netflixâs streaming service, and one week after Netflix touted its exclusive licensing of a TV drama series for release in late 2012.
By then, Starz may have instituted delays on the movies from Walt Disney Pictures and Sony Pictures that it supplies to Netflix as well. The companiesâ current âwindowlessâ movie streaming agreement reportedly runs through early next year.
Renegotiation of the Starz-Netflix streaming deal has been the subject of much speculation. Starz is increasingly promoting its own library of online programming as a value-add for its pay-TV subscribers.
The timing of Starzâs announcement is notable in more ways than one: the network is in the midst of promoting its newest original TV series, âCamelot,â which premieres next Friday.
Time Warner will encourage home entertainment consumers to purchasing more digital media goods over physical discs because digital transactions represent âbetterâ earnings prospects for the company âon a like-for-like basis,â according to John Martin, the media conglomerateâs chief financial officer.
âOur strategy,â Martin said at a Morgan Stanley investor conference March 2, âis to try to push usage, through pricing and windowing, to the highest-margin channels.â
Those channels could include so-called premium VOD, which Warner Bros. and other studios plan to launch in partnership with cable, satellite and Internet service providers later this year; and digital services marketed directly by Warner units, such as HBOâs Internet VOD service, HBO Go. Martinâs remarks followed HBO Go unveiling online access to a library of some 1,400 movies and original series for its pay-TV subscribers.
Martin added that Warner Bros.â windowing strategy with DVD rental services such as Netflix and Redbox has brought an approximate 15% sales lift âfor comparable films once the window was instituted versus before the window was instituted.
âWeâre convinced,â he said, that the studioâs institution of a window âwas helpfulâ and âthe right thing to do.â Warner executives noted during the companyâs earnings call in February that the studio would be evaluating the terms of its window agreements. âBut [we] would certainly rather have the window than not have the window,â Martin said.
For Time Warner, whose business units span television production and videogame development, the home entertainment industryâs digital transition is a long-term growth prospect. In 2011, Martin offered, increases in cable network affiliate fees, among other sectors, pose more immediate and assured revenue growth opportunities.
âItâs going to take some time [for home entertainment markets] to shake out,â he said, âbut I think if we successfully execute and can transition from physical to digital, as an industry, it [will present] a nice opportunity for us.â
By Marcy Magiera
BEVERLY HILLS, Calif. â DEG: The Digital Entertainment Group couldnât have gotten a bigger headliner for its Blu-Con 2010 conference here or a more ringing endorsement for the Blu-ray format than it got from filmmaker James Cameron.
Cameron appeared at the Nov. 2 event at the Beverly Hilton with producer Jon Landau to walk attendees through Pandora as seen on the âAvatarâ Three-Disc Extended Collectorâs Editon, due Nov. 16 from Fox. He lavished praise on the format as he showed features created for the new release, including additional footage rendered specifically for the Blu-ray and new documentaries.
âOn Blu-ray, you can see the one-to-one relationship of what the actors did to how it was translated in the movie,â Cameron said.
âWe know that going forward, more consumers are going to see movies in their homes. Blu-ray is the best way to do that,â said Landau, who with Cameron spoke for a full hour. âAvatarââs earlier release in its original theatrical version has already shattered all format records by selling more than 8 million Blu-ray units worldwide and 5 million in the U.S.
Perspective on 3D
Though âAvatarâ will not see general release this year in Blu-ray 3D (i.e., outside a hardware bundle), as many as two dozen titles will, said Blu-Con participants. In a DEG-coordinated effort, 10 titles from Warner, Sony and Disney will be released at retail on Nov. 16 (the same day as the non-3D âAvatarâ).
DEG is creating a Blu-ray 3D demo reel that will be available to stores before Black Friday, and â3D University,â a guide for use by retailers and the press in educating consumers, said Kris Brown, Warnerâs VP of worldwide high def market expansion and leader of DEGâs 3D task force.
âAny indications that content was struggling were premature,â Brown said. Nevertheless, âsome studios are sitting on some content and could be a little more liberalâ with releases, he said.
Warner Bros. Chief Executive Barry Meyer says that the studioâs 28-day delay on DVD releases via Redbox or Netflix has not only helped spur DVD sales â it has helped increase consumer video-on-demand purchases by 20-30%.
Meyer made his remarks at the Bank of America/Merrill Lynch 2010 Media, Communications & Entertainment Conference in Newport Beach, Calif. yesterday (via AP). Echoing comments made by Time Warner CEO Jeff Bewkes early last month (via paidContent), Meyer noted that the 28-day window, implemented by the studio earlier this year, has had a positive effect on the studio’s DVD business.
Meyer also weighed in on Appleâs plan to rent TV shows via iTunes for 99 cents an episode, telling Merrill Lynch analyst Jessica Reif Cohen in an interview at the conference, âWe just donât think the value proposition (of Apple TV) is a good one for usâ (via the Los Angeles Times). According to the LA Times report, Meyer added that he would prefer to license entire seasons of shows rather than âopen up a rental business in television at a low price.â
The Hollywood Reporter faults a shorter summer movie season for a projected 1% decline in box-office revenues between May 7 and Labor Day, with total industry grosses expected to top $4.24 billion.
The sore spot, however, is a near-6% decline in admissions, to a projected 538 million â for which the Reporter implicates exhibitors’ 4.5% increase in average movie ticket prices.
Under a different analysis, 3D may wind up saving studiosâ summer revenues, even if high prices kept some moviegoers away. Research site Hollywood.com expects box office grosses from the first weekend of May through Labor Day weekend to rise 2.4% to $4.35 billion in the U.S. and Canada, thanks in no small part to 3D versions of films such as Toy Story 3 (via Bloomberg). Summer admissions are still another story: Hollywood.com expects attendance to slip 2.6% year-over-year to 552 million.
No matter what the final percentages are, the flagging attendance is bound to exacerbate tensions between studios and exhibitors, which have been skirmishing over theatrical and home entertainment release windows for months.
One common thread running through entertainment companiesâ Q2 earnings is the continued decline in DVD sales.
Some companies, such as Time Warner, say that the tweaking of home entertainment release windows will bring improvements. Others, such as the Walt Disney Co., look to restructure their theatrical release windows to maximize home entertainment revenues. Meanwhile, digital distribution of movies via VOD and Internet-based streaming continues to emerge.
Such initiatives, however, may not be enough to allay investor fears that studio profitability may take a greater hit than expected in the near term. The Wall Street Journal has a roundup of recent perspectives.
Walt Disney Studios plans to be âaggressiveâ in tweaking its home entertainment release windows, with the possibility of offering early premium access to films, Disney CEO Robert Iger said yesterday in a quarterly earnings call with analysts (via paidContent).
In contrast to previous years, Disney is now seeing DVD sales successes on a âtitle by titleâ basis, Iger told analysts. In tandem with developing new release windows, he said, âwe have to be judicious about how many films we releaseâ as packaged home entertainment.
The executive declined to offer specific ideas about pricing or availability under new window schemes.
Warnerâs agreements with Redbox and Netflix to delay rental availability of new releases for 28 days had a positive effect on sales of titles such as âSherlock Holmesâ and âThe Blind Side,â according to Time Warner CEO Jeff Bewkes (via paidContent).
Discussing the companyâs second-quarter performance, Bewkes said that Warnerâs positive experience with the 28-day window was similar to that of other studios testing the new business model, âwhile other studios not using that window structure appear to be underperforming.â
paidContent notes that Bewkes did not offer specific figures. Thatâs in keeping with the general vagueness of the public release-window debate. On the other side, Disneyâs Robert Iger asserted in June that his studio saw no cannibalization in sales of its âAlice in Wonderlandâ from the titles day-and-date availability in Redbox kiosks. But Iger did not offer unit or revenue specifics either.
Revenue at Time Warnerâs filmed entertainment division was up 8% year-over-year during the second quarter, to $2.5 billion (via Home Media Magazine).
With Paramount Home Entertainment signing a multi-year, day-and-date rental agreement with Redbox â and with Disney having stated its position that Redbox rentals of new-release DVDs do not cannibalize sales â Hollywoodâs three other major studios are going to have a tough time establishing 28-day windows for kiosks, according to analyst Richard Greenfield of BTIG Research. âWe simply do not believe marketing campaigns around a Redbox (or Netflix) window can be effective, if only half the blockbuster movies desired by consumers are windowed,â Greenfield writes on his research blog (registration required).
Major movie exhibitors are embarking on a media campaign to decry studiosâ stated enthusiasm for releasing films on new âpremium video-on-demandâ channels while the movies are still in theaters. The National Association of Theater Owners also calls on studios to give pause before âtamperingâ with the length of theatrical release windows, which typically run 120 days.
âCollapsing windows,â the trade group says, âmuddies the value proposition for the consumer, blurs distinctions between theatrical and âstraight-to-videoâ and undercuts one of the important selling points for theatrical exhibition â the timeliness of the exclusive event.â Theaters lay out their argument against changing release windows in a press release (available here in PDF).
Paramount Home Entertainment announced today that it is extending its revenue sharing license agreement with Redbox, providing access to the studioâs DVD and Blu-ray titles to rental kiosks on the same day they are released in the sell-through market.
After analyzing the data from a âtest periodâ between the companies that began last August, Paramount âconcluded that Redbox day-and-date rental activity has had minimal impact on our DVD sales,â said Dennis Maguire, Worldwide President of Paramount Home Entertainment, in a statement (via PR Newswire).
According to a Redbox press release from August 2009, the Paramount licensing program would run through 2014, with the studio retaining an out clause after two years.
BTIG Research analyst Richard Greenfield continues his campaign for sell-through release windows in home entertainment, disputing Disney CEO Robert Igerâs comments from last week that Redbox rental kiosks and Netflix subscriptions have not cannibalized the studioâs DVD and Blu-ray sales of âAlice in Wonderland.â
âWe find that hard to believe,â Greenfield says in a blog post (registration required), âgiven that Wal-Mart stores (#1 outlet for Redbox) had Alice DVDs at the front of their stores in kiosks widely available at $1/day, while in the back of the store it was trying to sell Alice DVDs for $15.96 (Blu-ray $19.96).â
Greenfield states that Disneyâs reluctance to follow other studios in supporting release windows will hamper consumer marketing efforts for new distribution models such as cable video-on-demand. By BTIG Research
Speaking at an investor conference in New York yesterday, Walt Disney CEO Robert Iger said that the discounts rival home entertainment companies give to Redbox (in exchange for 28-day windows on new releases) would be unacceptable to his studio. âSelling [Redbox] units at a 50 percent reduction in cost, or whatever the proposition, even for the 28-day window was not an equation that made sense to us,â Iger said. Disney, whose “Alice in Wonderland” is the top-grossing film of 2010 to date, surprised analysts by not striking a windowing deal with Redbox ahead of the DVD’s June 1 release. By Bloomberg (via Business Week)
Studios continue to take differing approaches to their release window experimnents. Despite analyst speculation that Disney would strike a last-minute deal with Redbox for a four-week window on the âAlice in Wonderlandâ DVD, copies of the top-grossing film of 2010 to date have been spotted in Redbox kiosks, Home Media Magazine reports. By Home Media Magazine
The New York Times reports that âone or more studiosâ are hot to try premiering films over cable video-on-demand services, now that the FCC has greenlit Hollywoodâs âselectable output controlâ copy protection scheme. One unnamed executive tells the Times that the first VOD premieres could arrive as early as this year. By The New York Times
A reordering of home entertainment release windows seems to be a foregone conclusion for BTIG Research analyst Richard Greenfield.
The analyst has long urged studios to adopt a sequential release window scheme that begins with high-margin disc sales and ends with offering movies via low-margin rental services Netflix and Redbox. The scheme, Greenfield argues, is crucial for studios to maximize profitability amidst DVD sales declines.
To date, studios such as Disney and Paramount havenât seen the market Greenfieldâs way. But in his May 17 blog post (subscription required), Greenfield muses that Disney and Paramount would soon join the ranks of Fox, Universal, and in withholding new-release titles from rental services for 28 days.
Disney, Greenfield notes, has its âAlice in Wonderlandâ DVD and Blu-ray hitting store shelves June 1, and presumably would want a window of sell-through exclusivity for the top-grossing film. Paramount, meanwhile, has an option to end its current windowless terms with Redbox on June 30.
Other analysts dispute whether Disney is on the verge of joining the pro-window camp â and whether the margin considerations make the adoption of a new distribution order inevitable for all studios.
âIâm not sure why âAlice in Wonderlandâ would prompt Disney to go from their informal agreement with Redbox or Netflix to one with a window,â Eric Wold of Merriman Curhan Ford tells Home Media Magazine. âI havenât heard any rumblings and assume the status quo for now.â
If Disney does grant availability in kiosks and on Netflix for âAliceâ day-and-date with the filmâs DVD and Blu-ray release, it could serve as a high-profile test of the impact that value-oriented rental services have on disc sales.
Netflix is busy casting itself as an ally to studios in their efforts to restructure their business âWeâre trying to help studios create a sell-through and premium rental market window,â Netflix chief Reed Hastings told a JP Morgan investor conference this weekend (via Business Insider). Studios, in return, are granting Netflix streaming rights to more movies and TV shows.
There are early indications that Netflixâs 28-day deals with studios are win-win. Fox sold nearly 20 million DVD and Blu-ray copies of âAvatarâ in the first three weeks of the discâs exclusive sell-through window. Netflix, meanwhile, reports accelerated subscriber growth thanks to its larger streaming library.
But analyst Greenfield views Netflix as a continuing drain on studio profitability, and urges pro-window studios to be more aggressive in marketing the benefits of premium video-on-demand over cable.
The chief benefit to studios and cable operatorsâ new pay-per-view VOD offering is immediate access to new releases. A new round of TV ads for the âMovies On Demandâ service communicates as much with a voiceover line, âNo waiting for the mail.â
But as Greenfield points out, the line has been pulled from some of the spots â leaving the analyst to wonder whether studio agreements with Netflix preclude the VOD initiative from being âtoo mean/harsh in promotional materials.â
The FCC has granted a request by the Motion Picture Association of America to make use of VOD technology that essentially disables analog signal outputs on digital TVs and set-top devices. The MPAA spins the âselectable output controlâ technology as paving the way for distribution of more films via cable, satellite and IPTV before their release on DVD or Blu-ray. The LA Times considers further implications, noting the technology also makes possible pay-per-view film premieres. Bottom line: greater potential leverage for studios in their ongoing negotiations with theaters, rental services, and retailers over release windows. By the Los Angeles Times
âIt is clear that our performance, and the overall appeal of the Netflix service, is being driven by subscribers watching instantly,â said Netflixâs Reed Hastings in delivering the companyâs first-quarter earnings April 21. Netflix says that 55 percent of its subscribers have streamed a movie or TV show via the DVD renterâs âWatch Instantlyâ service.
In response to an analyst question during the companyâs earnings call (transcript via Seeking Alpha), Hastings said Netflix was âseeing some substitution of DVD rental for streamingâ among subscribers.
Netflix ended the quarter of 2010 with nearly 14 million subscribers, a 35 percent year-over-year increase, and a 14 percent increase from the fourth quarter.
On whether Netflix has seen any indication of subscriber response to its new 28-day windows for some new releases, Hastings said, âOur indication is our record low churn [of 3.8 percent].â
As to quantifying subscriber behavior regarding delayed availability of âThe Blind Sideâ â the first major title subject to Netflixâs window agreement with Warner Bros. â Hastings mused that some subscribers purchased the DVD at retail or watched the film via pay-per-view services during the 28-day period. But he acknowledged a âpent-up demandâ from subscribers to rent the film.
Hastings said there “is a little bit of guesswork” in determining how many DVDs will satisfy demand for windowed films. “We are still learning together with Warner Brothers how to predict that.â Via Seeking Alpha
Walt Disney Studios Home Entertainment announced today a June 1 release date for Blu-ray and DVD versions of âAlice In Wonderland,â which has earned some $320 million in theaters to date since its March 5 premiere.
The 88-day window between the filmâs theatrical and home entertainment releases shaves more than seven weeks off studiosâ average for films released in the first quarter of 2009, according to data from the National Association of Theater Owners. Moreover, the time between âAliceââs premiere and Disneyâs Blu-ray/DVD announcement is one month and 12 days, nearly half the industry average of two months and 15 days for first-quarter films in 2009.
Despite the controversy it stirred with exhibitors, âAliceâ is not the first major-studio blockbuster to carry such a schedule.
Last summer, Paramount set an 88-day home entertainment window for its âGI Joe,â which took in $150.2 million during a theatrical run that began Aug. 7. More recently, Warner Bros. brought âSherlock Holmesâ to Blu-ray and DVD 95 days after its Dec. 25, 2009 theatrical premiere.
Windows of 95 days or less were few among films that earned $150 million or more in theaters last year, according to theater ownersâ data. But the home entertainment marketâs recent performance is erratic, at best. Most surprisingly, rental revenues for the first quarter of 2010 were off 14% from the same period last year, after having surged 4% for all of 2009, according to the Digital Entertainment Group.
The latest home entertainment market figures may augur a greater number of exceptions to the unwritten release-window rules between theaters and studios.
Studios including Fox, Warner, and Universal are hoping to realize a sales lift on new releases with the institution of four-week delays in availability from Netflix and other rental services. But according to Merriman Curhan Ford analyst Eric Wold, consumers will be more likely to watch a windowed new release via video-on-demand services than to purchase a DVD or Blu-ray copy of the film.
Thatâs if the new 28-day windows motivate consumers to spend at all. âWe continue to believe that most consumers will wait the 28 days (choosing a different movie for now) in order to obtain the much lower pricing of Redbox and/or Netflix after the window passes,â Wold says in an April 12 note. By Home Media Magazine
Netflix announced agreements with the home entertainment units of Twentieth Century Fox and Universal Studios, in which the service forgoes renting new-release movies from the studios for 28 days in exchange for expanded streaming video licenses.
Among the titles that the studios hope will benefit from the creation of a four-week sales window are Foxâs âAvatarâ (released April 22) and Universalâs âItâs Complicatedâ (in stores April 27).
Through the expanded streaming licenses, Netflix gains Universal titles such as âGosford Parkâ and Fox catalog films, along with complete prior seasons of several Fox television series such as â24â and âBones.â
The new agreements follow Netflixâs first 28-day deal with Warner Home Video, which went into effect in March. There has been little subscriber outcry over the four-week wait to rent Warnerâs âThe Blind Sideâ and other new releases.
Meanwhile, Netflixâs stock price was hovering above $80 a share this morning, as investors continue to be wowed by the companyâs April 3 introduction of a streaming video app for Appleâs iPad. The stock sold this week for as high as $83.97 a share; current earnings per share are $1.98.
Indeed, Netflix seems to have given up little, if any, brand equity on Wall Street with its delayed DVD acccess deals. âNetflix is a cult stock,â analyst Jim Cramer wrote in a recent blog post. âThis stock is loved, and the product is loved, and I cannot countenance selling it even at 31 times next yearâs earnings.â
Continuing its efforts to avoid bankruptcy, Blockbuster has secured new payment terms from Sony Pictures Home Entertainment, Twentieth Century Fox Home Entertainment, and Warner Home Video. In exchange, the studios receive a first lien on assets of the chainâs Canada subsidiary. As with Blockbusterâs previously announced rental deal with Warner, Fox and Sony also provide new-release movies for rental via the chainâs stores and by-mail channel day-and-date with the moviesâ availability for purchase. Via PR Newswire
Studios appear reluctant to carve out a âdigital windowâ for major titles, despite the potential for significantly greater margins and reduced exposure to piracy, reports Home Media Magazine. Sony Pictures and Universal Studios Home Entertainment have made one-off digital window deals in recent months. But home entertainment representatives from Universal, as well as 20th Century Fox Home Entertainment and Lionsgate, all say there are no plans this year to pre-release theatrical titles electronically ahead of packaged media. By Home Media Magazine
The new agreement between the studio and the rental chain gives Blockbuster a four-week lead on the likes of Redbox and Netflix for DVD, Blu-ray and digital on-demand rentals. Warner Bros. movies such as âThe Blind Sideâ and âSherlock Holmesâ are being made available for rental at Blockbuster day-and-date with their sell-through release. Via PR Newswire
Addressing movie theater owners at their annual ShoWest trade conference on Monday, Sony Pictures chairman and CEO Michael Lynton first made a case for theaters to offer healthier snacks. Eventually, however, Lynton got to commenting about the growing debate between studios and exhibitors over shortened theatrical windows.
âWe donât want to open windows in a way that closes yours,â Lynton said to the ShoWest audience. âWeâve all got to be open to experimenting with new and different windows, taking advantage of new and different technologies.â By Variety
Most of the nationâs major exhibition chains have refused to give Summit Entertainment more screens for Oscar winner âThe Hurt Locker,â citing a policy of not showing films that are already available to watch at home. Two of the three biggest, AMC Entertainment and Cinemark, agreed to play the movie at just a handful of theaters, according to a knowledgeable person. However, Regal Entertainment, the biggest theater circuit in the U.S., won’t show the film at all. By the Los Angeles Times
A Manhattan woman argues that a deal worked out between Netflix and Warner Home Video is an old-fashioned “scheme to restrain trade” and has to stop, according to the class-action lawsuit filed in Manhattan Federal Court. By the New York Daily News
Theatrical distribution insiders tell Variety that it took a big title such as Disneyâs âAlice In Wonderlandâ to âredraw the lineâ on release windows. âNo exhibitor wanted to risk a poor quarterly earnings report because theyâd passed on screening âAlice,â whose commercial prospects appear bright, particularly with the upcharge for a 3D ticket,â the magazine says in its Feb. 26 analysis of the release-window debate.
Exactly what the Disney truce portends for the quarterly earnings of DVD distributors and other home entertainment service providers, however, is far from clear.
So far, few have addressed the extent to which a filmâs âcommercial prospectsâ factor into a studioâs push for a shorter theatrical window. Commercial prospects can shift right up to the eve of a filmâs theatrical premiere.
From the standpoint of recouping a filmâs production costs, studios would seemingly benefit from a general ability to move up home entertainment release dates if a titleâs box office forecasts dimmed. But such an option, if exercised too freely by studios on a varying case-by-case basis, could wreak havoc on home entertainment supply chain planning.
The chief issue for service providers going forward is whether studios will push for a uniform shortening of theatrical release windows, or insist on flexibility for individual titles.
The UKâs biggest movie theater chain, Odeon, has ended its standoff with the Walt Disney Co., and will join exhibitors Vue and Cineworld to show âAlice In Wonderlandâ as scheduled. By Deadline Hollywood
The UKâs Vue cinema chain has agreed to show âAlice In Wonderlandâ despite its 13-week release window, after Disney agreed to make a formal pledge to retain a 17-week standard for most of its films. But as of Feb. 22, Odeon, which owns one quarter of British cinema screens, still had no plans to show the film. By the Times Online
Walt Disney Pictures, whose decision to advance the date for the DVD release of its upcoming movie “Alice in Wonderland” has created an uproar with European theater operators, made peace with one major UK exhibitor. Cineworld announced Thursday that it had agreed to show Tim Burton’s 3D adaptation of the classic Lewis Carroll tale starring Johnny Depp on more than 150 screens when it debuts March 5. By the Los Angeles Times
Extending an olive branch to theater owners, Walt Disney Studios president of distribution Bob Chapek on Thursday assured exhibitors that the studio supports maintaining theatrical windows. “We remain committed to theatrical windows, with the need for exceptions to accommodate a shortened time frame on a case-by-case basis, such as with Disney’s ‘Alice in Wonderland,’” Chapek said in the one-paragraph statement. By Variety
Following news that UK exhibitors are being asked to accept a tightened theatrical window on Disneyâs spring tentpole âAlice in Wonderland,â The Hollywood Reporter says that U.S. theater owners have been similarly approached. Disney is talking about a theatrical run of just under 13 weeks on âAlice.â Itâs likely that Disney also will accelerate the availability of âAliceâ on VOD, which home-entertainment execs have come to view as less of a threat to DVD/Blu-ray income and more as a complementary revenue stream. By The Hollywood Reporter
New quantity limits imposed by Wal-Mart and Target on the purchase of new release DVD movies affect 40% of rental kiosk offerings, including market leader Redbox, according to an analyst. Wal-Mart spokesperson Melissa O’Brien Jan. 27 confirmed the world’s largest retailer had imposed single purchase limits on new release DVD movies to five copies for the first 28 days of the title’s release. By Home Media Magazine
Netflix, which recently agreed to a 28-day embargo for new release titles from Warner Home Video in exchange for greater copy depth and streaming access to the studio’s catalog, is expected to sign a number of additional streaming deals this year as it attempts to appease studios with a greater percentage of its profit margins, says analyst Michael Pachter with Wedbush Morgan Securities. By Home Media Magazine
Warner Bros.â new release titles on DVD and Blu-ray will now be made available to Netflix members after a 28-day window, under terms of a deal that also affords Netflix with an expanded license for Warner Bros. streaming content. In announcing the deal, which had been anticipated, Warner Bros. says it will have greater opportunity to maximize the sales potential of its disc titles, while Netflix says it will benefit from reduced product costs and significantly more units and better in-stock levels four weeks after street date. Via Netflix
At an investor conference in San Francisco yesterday, Blockbuster CEO Jim Keyes said physical distributionâs migration to electronic doesn’t meld with subscription-based business models. He said the likelihood of the companyâs Blockbuster On Demand service being able to offer new releases by subscription was slim due to the limited return to studios. âI don’t think [studios] want to spend $400 million to make a movie like “Avatar” and then see it go in the all-you-can-eat buffet after 30 days,â Keyes said. â[They] are going to want to monetize it on an individual title-by-title basis as best [they] can.â By Home Media Magazine
Comcast’s full slate of December day-and-date VOD titles follows a record-breaking November that had seven day-and-date VOD movies. Nearly all the studios are providing such simultaneous releases, including Warner Home Video, 20th Century Fox Home Entertainment, Universal Studios Home Entertainment, Summit Home Entertainment, Sony Pictures Home Entertainment and MGM Home Entertainment. By Video Business
Hollywood isnât the only entertainment media sector grappling with release window dilemmas. On the news that Simon & Schuster and Hachette Book Group will not release most e-book editions until four months after the booksâ hardcover release, Forrester Research analyst James McQuivey makes the case for two alternative digital release strategies âthat [donât] alienate consumers.â By paidContent
The Los Angeles County Economic Development Corporation claims that kiosk rentals of new release DVDs at $1 a night could lead to a ripple effect of $1 billion in lost revenues to the domestic home video industry in the Southern California region. âThe economics of the motion picture industry are based on exclusive release windows which allow price differentiation – that is – some earlier transactions take place at higher price points,â says Gregory Freeman, the LAEDCâs VP of Consulting and Economic Policy. âRedbox, or any other distributor that weakens the release window model, could reduce overall industry revenues. Lower revenues will likely lead to lower production activity, hurting the Southern California economy.âÂ Via PR Web
Variety reports that domestic movie ticket sales are up âa healthy 8%â from 2008, as the 2009 box office eyes the $10 billion mark. The summer brought record revenues, but it was an unusually strong spring, and now fall, that are boosting the bottom line. By Variety
With Redbox now unable to obtain new release DVDs from three major studios, the offering in the companyâs network of 21,000 kiosks is beginning to suffer, according to Pali Research analyst Richard Greenfield.
In late October, Warner Bros. and Fox joined Universal in precluding Redbox from obtaining new-release titles from distributors, in an ongoing battle for control over the DVD business. Greenfield believes Wal-Mart is the chief de facto supplier of new release DVDs, with the company buying titles in bulk at retail and stocking kiosks under the First Sale doctrine.
One Pali Research source witnessed a Redbox representative purchase 100 copies of Foxâs âIce Age: Dawn of the Dinosaursâ with a gift card at a local Wal-Mart store following the DVDâs Oct. 27 release.
Greenfield estimates that to keep its kiosks fresh with new releases from studios that do not distribute to it, Redbox is purchasing 20 DVDs per kiosk per week at retail. In other words, a âdoableâ workaround for a single studio refusal to supply is beginning to sound âvery difficult to comprehend,â Greenfield writes in a note (registration required).
Whatâs more, Redboxâs most-rented DVD charts have begun to diverge from those of the industry overall. That leads Greenfield to conclude âthat Redbox is having difficulty acquiring enough new release DVDs from Universal, Fox and Warner Bros. to meet consumer demand.â
Wal-Martâs role in the Redbox scheme remains unclear. If Paliâs estimation of the relationship is accurate, the retailer â which remains âthe largest purchaser of DVDs for every Hollywood studioâ â is on the way to becoming more of a studio wholesaler, the analyst says.
Fourteen new release movies hitting VOD in December represent more than $1 billion in combined box-office, according to cable VOD programmer InDemand. In addition, eight of the 14 will be released day-and-date with their DVD and Blu-ray versions. By Video Business
In its review of Rich Rossâ first 50 days as head of Walt Disney Studios, the Los Angeles Times speculates on how the marketing and distribution shake-up at the studio could lead to industry-wide changes in practice. By the Los Angeles Times
If studios imposed a 30-day delay on new releases at Blockbuster kiosks â similar to the delay directed at Redbox and others â Blockbuster would be in the best position to satisfy consumer demand for titles, according to CEO Jim Keyes. âHowever [these windows] shake out, Blockbuster has an advantage with its own vending machines,â Keyes said at the Morgan Stanley Global Consumer and Retail conference last week. âIf there is a 30-day window, we can use our distribution to move content from the shelves to our vending machines. We have the ability to replenish, managing a hub and spoke system.â ByÂ Video Business
Earlier this week, Sony Electronics announced that owners of its Internet-connected TVs and networked Blu-ray players would be able to digitally rent and buy Sony Picturesâ âCloudy With A Chance Of Meatballsâ almost a month ahead of its Jan. 5 DVD and Blu-ray release. Theater chains are reportedly condemning the promotion as another studio attempt to scrap the four-month window of exclusivity that they have historically maintained over new films.Â At least four major chains are now poised to pull âMeatballsâ from their screens: Regal Entertainment, AMC Entertainment, Cinemark and Marcus Theatres. By The Hollywood Reporter