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Shut the Window!

May 8, 2006 - 10:27am — Reid

In Saturday's New York Times, veteran producer Robert W. Cort makes a series of compelling arguments for films to be released in theatres and on video at the same time. As he says, "it's costly and self-defeating." It doubles advertising costs, it helps pirates, it's anti-consumer, etc.

I think there are endless reasons why the studios can increase their profits by accepting the inevitable - their business model will change someday. I've never heard one real reason why the current strategy is better - it's just sentimentality for the past and the theatre owners' desire to hold on as long as possible.

There will always be movie theatres. There are just going to be less of them. So it goes.

I loved the tribute to movie-going at this years Oscars. All these clips from movies that must be seen on big screens. Of course we were watching all these wonderful clips... on TV. If the Academy members love going to the movies so much, then why do they need all those DVDs?

Let's be honest. There is no theatrical movie business any more, and there hasn't been for a long time. Except for the biggest Hollywood movies and sleeper independent films, theatrical is a loss leader. You get reviews and publicity and generally lose money or break even if you're lucky. It's all about DVDs and the other so-called ancillaries.

Of course, the deals with the unions and guilds tend to be connected to the part of the business that loses money rather than the part of the business that mints billions.

Hmmmmm...

Comments

Actually SAG members receive

May 8, 2006 - 12:35pm — Jeffrey Levy-Hinte (not verified)

Actually SAG members receive residuals based on revenues from "ancillaries" and NOT on any theatrical revenues. Here is what a recent summary of the SAG agreement states:

"TELEVISION EXHIBITION & SUPPLEMENTAL MARKET USE OF THEATRICAL MOTION PICTURES

A. The Producer will pay to Screen Actors Guild 3.6% of the gross receipts from the distribution of theatrical motion pictures to free television, or pay television, which amount shall include pension and welfare contributions.

B. For theatrical motion pictures released in videocassette format, the Producer will pay performers the following percentages of gross receipts: 4.5% of the first million dollars; 5.4% of the excess over one million dollars."

For films done under certain "Low Budget" agreements these rates are doubled.

Here is the short, obvious

May 8, 2006 - 3:36pm — David Poland (not verified)

Here is the short, obvious answer to your call for a real reason for theatrical release, Reid... there is a lot of money in it and the uniqueness of the proposition is also how you raise the bar for Home Entertainment.

The concept of the "loss leader" is that you use it to bring people into "the store" to sell them other things at a profit. This is NOT what theatrical is.

When we see our first direct-to-video smash hit, then we can talk about how the industry can market DVD without the window.

Cort threw out every OLD argument for day-n-date and studios, who are seriously considering the issue, are quickly figuring out that the economics don't work.

That said, if you have an indie film at a small distributor, there is nothing but upside to day-n-date because there is so little upside in theatrical. I actually think that day-n-date can make small movies more viable on opening weekend and therefore, increase marketing budgets and might oddly make theatrical more successful.

But for studios, every dollar matters. And throwing away 20% because it is the first 20% and launching is expensive is stupid. Launching (and differentiating) will always be expensive in any format. Studios need to expand the window, not close it.

You count your money when you get up from the table... that is, if you are a pro.

Thanks, Jeff! I stand

May 8, 2006 - 5:54pm — Reid Rosefelt (not verified)

Thanks, Jeff! I stand corrected, although I think the rest of the post is ok. Anyone know what the rules are for residuals with the DGA and WGA?

Wouldn't it be a great idea

May 9, 2006 - 1:35pm — Tasso Lakas (not verified)

Wouldn't it be a great idea if you did what good journalist normally do. Read the agreements and find out for yourself what they do. If you intend on making comment knowing the world of which you write means you are credible. The agreements for each are posted on line... a little homework goes a long way.

I can't argue with this.

May 9, 2006 - 7:33pm — Reid Rosefelt (not verified)

I can't argue with this. I'll try to do better in the future.

I'm a WGA member, and the

May 9, 2006 - 7:51pm — Annie Frisbie (not verified)

I'm a WGA member, and the fact is that I have a 63-page book called Residuals Survival Guide, so performing these calculations isn't as simple as just looking things up online (and the teacher in me shudders at any mention of online fact-checking). Residuals really only pay off when you have a huge movie (there's that theatrical release thing again) or if you're talking TV. For young writers especially, the money you get up front might be the only real money you ever see, and the theatrical = prestige equation often means a higher purchase price + bonuses.

David, Is it not true that

May 9, 2006 - 9:19pm — Reid Rosefelt (not verified)

David,

Is it not true that studios have to collect the money from theatrical receipts? And that those collections tend to be 40% or 50% at most? And you know what it costs to make and market studio movies.

So how many films made and marketed for 60 million gross 120 to 150 million theatrical? How many films made and marketed for 80 million gross 160 to 200 million theatrical? Of course, some do, if you include international. But I do not think that the majority of films today make a profit during a theatrical release. And if they do, are you really arguing that a large percentage of the money the studio makes on them is from theatrical releases?

What theatrical does is create awareness, which pays off enormously in the long run.
Theatrical releases are currently the only way to go to promote a film. Because that's the way the media is set up now, and the way the advertising buys are set up now.

But I believe that this will change in the future.

Yes, there are no big day-and-date smashes. But as the studios are fighting this tooth and nail, how can there be? Also, it will take time for the system to change so this kind of thing can occur.

You say that the studios are seriously considering the issue and are quickly figuring out that the economics don't work. You state this like it's inarguable, but you don't give any backup to their numbers or their reasons.

I would argue that this is not the kind of thing that can be proved one way or the other, unless you have a time machine. So many things have to change in order to find out what will ultimately happen.

So we're stuck. We can't get to the future if people don't want to go there. The future looks different to Mark Cuban than it does to someone else.

The future will come and we'll all find out what it is. I believe it will come in tiny increments and people will be dragged kicking and screaming into it.

I believe the window will shut and it seems you think it would be better to open it more you want the good old days of longer windows.

Let's see what happens...

One of the most interesting

May 10, 2006 - 12:12am — Megan Cunningham (not verified)

One of the most interesting comparables to this question of revenue-projection (answering the question: which holds more profit-potential: theatrical or DVD?) is the sporting event / broadcast-blackout analysis --which has been going on for years.

After Mark Cuban launched his now-legendary "What Business are Theaters in?" blog post (http://www.blogmaverick.com/entry/1234000010073495/), the discussion included reference to the sporting-event metaphor, where
one blog-poster reports:

"They researched what effect local blackouts on games have on attendance, and conclude that "the gain in team revenue is small in comparison to the loss of viewership rights." Meaning that, while attendance might go up if you are in arms length of the thing, broadcast rights are far more lucrative."

My personal opinion is that it's going to vary wildly from film to film depending on how the marketing strategy is executed and the film content is positioned. However, at a back-of-the-envelope level, selling 100,000 DVDs at MSRP of $20 /unit (where the COGS is $1/unit) versus P&A boxoffice-driving campaigns of millions$ to sell $10 movie tickets, (with a COGS of theatre realestate, ticket-taker, projectionist, concession machines, etc.)....the risk/reward math --at a gut level-- is clearly in favor of DVDs.

But of course that doesn't mean the theatrical is unnecessary. I'm with Reid that a theatrical release and the potential PR, reviews, etc. that follow...are the best advertising for the DVD that you can't "buy" any other way.

Now my real interest starts when you begin charging for downloads. DRM issues aside, that's where the economics of scale get really interesting!

I've given some thought to

May 10, 2006 - 6:54am — Reid Rosefelt (not verified)

I've given some thought to my comment to tasso lakas above about doing what a good journalist does.

But I don't work for the NY Times, I'm a blogger. I love the idea that people can write in and share information on topics that I don't know enough about. A dialogue. Annie makes a point. Contracts are long and complex. Is it a crime if a experienced people chime in, using their experience? Personally, I've been doing this kind of thing myself for years, offering up my expertise to add to the dialogue.

That said, I stand behind the basis of my post. Just not the comment at the end about union agreements. This came from reading Variety every day and seeing that a share of DVD profits was a constant issue in union negotiations. I stand corrected that people are being paid. Whether they're being paid fairly is open to debate.

Here's what I've got on WGA

May 10, 2006 - 12:26pm — Annie Frisbie (not verified)

Here's what I've got on WGA residuals for made-for-theatrical:

No residuals are due for worldwide theatrical, including in-flight.

Free & pay television & basic cable - 1.2% of gross receipts.

DVD & video: 1.5% of first million, 1.8% thereafter.

There is a "DVD script publication fee" of $5000 split between all credited writers that happens when credits are determined.

The part of the equation that we're not talking about is how day-and-date affects the TV release windows. Does day-and-date potentially eliminate this revenue stream? With DVD, we're talking small amounts of money spread out over a long period of time - it's more like getting an allowance than earning an income. But TV sales could be money that matters to a writer. 1.2% of $250,000 is is $3,000. After taxes, that's still nothing to sneeze at. But 1.5% of, say $8 (I don't know what a studio grosses on a DVD, so I made this # up) is only 12 cents. It takes 25,000 DVD sales to make that $3,000. If you've written a small movie - say, an indie or an arthouse film - it's going to take a while to sell that many DVDs, if that ever even happens.

Another issue on theatrical

May 12, 2006 - 2:41pm — Reid Rosefelt (not verified)

Another issue on theatrical profits is print creation and shipping. Figure three or four thousand dollars for a 35mm print. On the low end this could be five or six million. On the high end this could be fifteen million. And this doesn't include shipping fees.

This is all pure profit, not anything that is shared with theatres, etc. If a studio releases fifteen films a year, it could mean 100 to 150 million dollars a year. Or much more, if they bring out a "lord of the rings" type movie.

You can question my numbers, but the basis for this is inarguable.

There are also a lot of people on the staff of a studio who work in theatrical distribution. These are highly paid people, because they are the ones who actually collect the money. Less theatres, less salaries. Maybe cruel, but true.

Already there has been a lot of pink-slipping at the studios while profits have not gone down.

Obviously this same kind of thing will happen anyway if digital cinema becomes universal. But right now, there are millions of additional dollars to be made if you cut theatrical back to theatres in major markets, and go day-and-date DVD everywhere else.