Making Waves In the Home Entertainment Business

With the all the news about expanding VOD solutions and new VOD platforms debuting, seemingly every day, it would be easy to think that discs’ sales revenue had dropped off a cliff.

And yet, this isn’t the case. One need look no further than Home Media Magazine‘s retail sales chart for the latest reporting week (WE 10/19/13) for evidence that home audiences are still fans of disc-based media, particularly Blu-ray. Although in this particular week overall disc sales revenue was down by 5.6%, sales of Blu-ray enjoyed an INCREASE of 7.7%, totaling a solid third of total disc sales. It’s not an unusual week when the red and green arrows track a decrease in DVD sales accompanied by an increase in Blu-ray sales. However, it’s not an immutable rule of the home entertainment business of today. Back in December, 2012, in the height of the pre-holiday shopping season, BOTH DVD and Blu-ray showed a year-to-year gain, posting some nice gains (29% and 53% respectively). While we’re still ramping up to that kind of retail activity this year as we enter the proper holiday shopping season, I wouldn’t be surprised if the same trend doesn’t repeat once again. (Watch this space!) For an increasing number of studios, the key to capturing this ‘lost revenue’ lies in discovering how to deliver content to consumers in new ways. Early Electronic Sell-thru (EST) is one of the new models, but it’s not favored by theater owners because it holds the potential to reduce the size of their popcorn-eating, soda-drinking, snack-consuming audience (where most theaters see a lion’s share of their income):

What was once an exception to traditional windowing for movies is steadily becoming the rule. One year after Fox announced plans to offer all of its films two to four weeks early under the “Digital HD” banner, more and more blockbuster titles are getting the same distribution treatment. Warner Bros.’ “The Great Gatsby” was available on select digital platforms weeks before its Aug. 27 street date, while Paramount’s “Star Trek Into Darkness” did the same Aug. 20 — though disc buyers will have to wait until Sept. 10.

And after a few years of scattered trials with what the industry calls “early electronic sellthrough,” or EST, it’s not just the timing and duration of the window that’s being tweaked. Both where and when films are offered is being tested outside the home in retail stores and movie theaters.

At least one forward-thinker is suggesting the revolution take one step further. Ted Sarandos of Netflix called out the studios and theater owners on the issue of release windowing at the Film Independent Forum:

“Why not follow with the consumer’s desire to watch things when they want, instead of spending tens of millions of dollars to advertise to people who may not live near a theater, and then make them wait for four or five months before they can even see it?” he added. “They’re probably going to forget.“

While the problem Ted describes is not surprising — theatrical marketing and home entertainment marketing rarely happen with enough temporal proximity to support each other — the fact that such significant changes to the traditional distribution model are being discussed openly IS surprising. When Universal tried to do a day/date EST release of Tower Heist in 2011, they became the focus of considerable pressure to abandon the idea by theater owners concerned about audience erosion (and ultimately bowed to this pressure and scrapped the idea). EST or VOD simultaneously with theatrical? That’s an idea which is just crazy enough that it just may work for at least two reasons. 1) I’m know that I’ve come out of a theater much more inclined to buy a copy (digital or otherwise) of the film I just saw because of the enthusiasm I’ve had for extraordinary filmmaking. Four or five months later? Not so much — I’m on to the next picture. 2) Considering that for most adults (with kids), the cost of going to a PG-13 or R movie (without committing the social crime of dragging the kids along) also includes 4 hours of babysitting, likely doubling or tripling the cost, the ability to watch a current movie at home makes sense for consumers. (Perhaps there will need to be a revenue share deal made with theater owners, at least initially, to compensate for the missing ticket purchasers. Perhaps, going one step further, studios should be allowed to own theaters once again.) Considering that MOST movies make 50%+ of their box office revenue within the first couple weeks of release, with notable exceptions, a coordinated EST/VOD opportunity concurrent with the theatrical release might be a surprising way to increase total movie box office, which is in everybody’s interest.