Saturday, April 23, 2011

Hollywood's New Business Model

There is a showdown happening in Hollywood.....

No, it's not one from the movie set of a Western film. It is a very real showdown between Hollywood movie studios and the largest cinema chains in the United States. And it threatens to change the way Americans have watched movies for decades.

Hollywood's Pay-TV Deal

The problem started several weeks ago. Four major Hollywood movie studios agreed to make their films available on pay-televison only one or two months after their theatrical release. The four studios involved are: Warner Brothers, Sony Pictures Entertainment, Universal Studios and 20th Century Fox.

The movie studios agreed to release their films on a 'premium video-on-demand' basis with the satellite company, DirecTV. Consumers will have to pay about $30 to see a particular film. The first film to be shown this way is expected to be Liam Neeson's latest hit Unknown.

The studios currently wait up to four months before releasing movies on-demand and on DVD.

Why the change? For a very good reason – profits.

Falling Sales

DVD sales were once Hollywood's biggest cash generator. But now sales of DVDs are in inexorable decline, eaten away by online streaming services.

Meanwhile, another source of revenue for Hollywood – the price of tickets at movie theaters around the country – is also showing signs of slowing. Revenues have remained steady thanks to ticket price increases. But the number of paying customers to watch films in cinemas is falling. It fell close to 10 percent last year, according to

So Hollywood is in search of new revenue sources.

The movie studios are in talks in Netflix and other web streaming operators about making more of their content available for online distribution. Warner Brothers, in fact, recently announced a test with Facebook, making The Dark Knight and several other movies available to stream on the social network.

And now the studios have created the shorter premium video-on-demand release window to squeeze more money out of every movie title.

If the premium video-on-demand window is successful, it could potentially change the economics of the film business. It will create a new revenue stream between a film's theatrical release and its eventual release on DVD and Blu-ray.

However, this new Hollywood business model has angered the owners of the nation's cinema chains. They believe this scheme will erode ticket sales.

Angry Cinema Chains

Nationwide cinema chains, including AMC Entertainment, Regal Entertainment and Cinemark Holdings, are represented by the National Association of Theater Owners.

It recently released a very terse statement. It said it had “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.”

The Association added, “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.”

Now movie theater owners threaten to go beyond just angry words.

They are threatening to withhold movies from screens if the studios proceed with their plan to show movies 'on-demand' in homes less than two months after release.

The chief executive of the Association, John Fithian, said his members would allocate more screens to summer movies released by studios not involved in the 'on-demand' scheme.

This may be bad news for the owners of the four movie studios involved in the plan – Warner owned by Time Warner, Sony, Universal owned by General Electric and Fox owned by News Corporation.

But it may bode well for Paramount Pictures which is owned by Viacom.

Its summer releases – Captain America and Super 8 – are likely to get better slots than summer movies from the other studios such as X-Men: First Class and even the final Harry Potter film.

Theater owners have already begun to scale back the number of promotional trailers they screen based on whether the studios are involved in the video-on-demand plan.

It looks to be an interesting summer for movie goers...hopefully the movies will be as interesting.


  1. Why is the conservative congress so hell bent on regulating the internet when it comes to copyrights and so called intelectual property. If the so called conservative congress is so very concerned about excessive regulation of business than they ought to revamp the entire patent and tradmark system to make it harder for the holders of these patents and trademarks and copyrights to sue for violations. Everybody pays for the legation one way or another. Many businesses are seriously harmed by having to defend themselves against lawsuits brought by all the holders of these unreasonable patents and trademarks. Consumers are forced to pay much higher prices for the patented and trademarked services and products than would otherwise be the case. I believe these guys are in the pockets of the crony capitalists. The Movie and Music business is the main one crying wolf right now. But if sopha passes it could be hundreds of othe industries. Just wait and see what happens to the internet if its opened up to mass legation. Senator Orrin Hatch is one of the worst culprits on this issue. If he had his way their would be no internet because just about everything anybody did on the internet would be a violation of someones copyright or someones intellectual property rights. I would like to say one other thing about Senator Orrin Hatch. Mr Hatch please don't kill the goose that laid the golden egg.