The Closing WindowMarch 12, 2007
Let's go back in time about 20 years... back to when the idea of renting movies on videotape was relatively new and the concept of a "home theater" was the province of wealthy videophiles. In the mid-1980s, the typical length of time between when a movie entered theaters and when it reached home video was about 8 months. In most cases, the initial video release was at a "rental" price - meaning that it was intended primarily for video stores to buy and rent, not for the average consumer. It was not unusual to find initial releases of many titles in the $80 to $100 range. Within four to six months (around the time the movie reached pay-movie stations like HBO), the price dropped precipitously to the "sell-through" range of $20 to $30.
This dual-tier pricing approach worked well for about a decade. Anyone impatient enough to desire a copy of a title as soon as it arrived on video paid a steep price. (I purchased a handful of movies in the $80 range because, in my twenties, I was not a patient individual.) DVDs changed the landscape in more ways than one. Not only did the rental/sell-through structure collapse but the window between the theatrical release and the home video release began to constrict. What had been about 8 months in 1987 was around six months in 1997 and is closer to four months in 2007.
How much more could/should the window close? There is no agreement about this in Hollywood. Some executives, like Disney's Robert Iger, are pushing for less time between theatrical and DVD releases. Others are taking a more cautious view, concerned about damaging multiplex box office revenue. At one point, the home video market was viewed as a secondary market, but with the combined DVD sales & rentals exploding in recent years, this is no longer the case. Hollywood is looking to maximize revenue and that means getting the most bang-for-a-buck from home video while not destroying the theatrical gravy train. Studies have shown that earlier DVD releases increase home video revenue, but at what point is that increase outweighed by the box office decrease?
The average successful motion picture title has about an eight week run. Flops and failures may come and go in as few as three weeks. Blockbusters can hang around for twelve weeks. However, in all cases, the primary revenue generating phase is less than the total time in theaters. Most major releases accrue 95% of their box office dollars within the first four weeks of release. Blockbusters double that. Consider Pirates of the Caribbean 2, last year's #1 movie. Its total theatrical take was around $420 million. Of that, about 90% ($380 million) came in the first five weeks, with the 95% mark arriving around week seven.
These figures are instructive in considering how much potential shrinkage still exists in the market. Right now, blockbusters reach video in 14-17 weeks after their theatrical debut; non-blockbusters shave two to three weeks from that total. (Independent films often take longer if they are not backed by a major studio.) Those time frames could be cut almost in half without seriously damaging theatrical revenue. It would not be unreasonable for a mid-May multiplex release to come to DVD before the end of the summer.
This sort of talk alarms theater owners, as well it should. With the window closing, it's true that more "fringe" movie-goers will wait to see films in the comfort of their homes. This wouldn't impact the core of the customer base, who will still flood multiplexes every weekend to see the biggest and newest, but it will cause some degree of erosion. Right now, there's a silent war going on with many disenchanted movie fans: they love seeing films as soon as they are available but they hate the "multiplex experience." When confronted with a four month wait, many of them bite the bullet and go to a theater. If the wait diminished to two months, how many would be patient?
To me, the solution for theaters is obvious: improve the movie-going experience. Currently, multiplexes have two advantages: showing a movie on a big screen and offering it now rather than later. As home theaters become more elaborate, the first advantage is going away. The second may not be far behind. Theater owners can stem the erosion, however, by taking pro-consumer steps: friendly and helpful employees, good sound and video, quick and effective responsiveness to technical problems, and the patrolling of auditoriums to remove disruptive audience members. Gimmicks aren't necessary, but consideration of customers is mandatory.
Implementing these steps will cost theaters, since it will require more hiring and better training. The longer they wait, however, the greater the danger of going past the point of no return. It's easier to retain customers, even disgruntled ones, than to try to win back lost ones. The window is shrinking and there's no indication the trend is going to stop. Home video is a genie that, once let out of the bottle, cannot be put back in. Multiplex owners would do well to stop whining about the inevitable and work to fix a system that is broken. Improving the movie-going experience and satisfying customer expectations should be first and foremost on their minds. Fighting gravity, after all, often leads to flattening results.
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