United States: Reinventing Hollywood's Theatrical Distribution Model

Last Updated: August 6 2015
Article by Jody Simon

This article was originally published in VideoInk

Hollywood is trying to change the way theatrical exhibitors do business.

In light of the success that television producers have achieved in innovative release strategies on distribution platforms like Netflix, Amazon Prime, Hulu and HBO Now, feature film studios have also begun to recognize the need to adapt to the new digital distribution paradigm or die.  However, despite studios' best intentions to satisfy the consumer by constantly delivering fresh content on every available platform as soon as possible, theater owners have been loath to shorten their ever-shrinking window of profitability.

Traditionally, theatrical exhibitors have refused to budge from their model requiring studios to wait at least 90 days before a film can make its home entertainment debut.  This model hasn't changed in decades despite shrinking ticket sales, the proliferation of home theatres, the rise of online viewing, and rampant piracy.

In the past several years, a few studios have attempted to disrupt exhibitors' traditional business model by experimenting with day-and-date premieres.  In day-and-date, a film is simultaneously available in theatres and on video-on-demand platforms.  For example, Radius-TWC (a division of The Weinstein Company) successfully rolled out the U.S. debut of Snowpiercer as a day-and-date last year.  Later in the year, when exhibitors dropped Seth Rogan and James Franco's The Interview like a hot potato for fear of a retaliatory hack, Sony – looking at a $95M plus write-down on the film – scrambled to secure a day-and-date release in specialty, independent theatres and on home entertainment platforms.  The controversial comedy ultimately racked up more than $40 million in cable, satellite, telecom and online VOD sales in just three weeks while grossing $6 million theatrically.  More recently, Amazon Original Movies announced that it would premiere the sequel to Crouching Tiger, Hidden Dragon as a day-and-date release so it would be available in theatres and on Prime Instant Video at the same time.  These day-and-date efforts may be the tip of the iceberg for the transformation of theatrical windowing strategy.

Exhibitors argue they aren't immune to change.  In fact, exhibitors have spent years combating shrinking ticket sales by offering more robust concessions, enhanced picture experiences like 3D and IMAX, reserved seating, improved sound and reclining seats.  If studios shrink exhibitors' exclusive theatrical window, exhibitors argue it will be impossible to make money.  This argument ignores the fact that most films finish their theatrical runs within one month of debuting.  Three months after debuting, the film is out of sight-out of mind, and studios must expend new marketing dollars for home entertainment debuts.  How can studios and exhibitors work together to find a solution to this problem?

Paramount recently announced a creative deal that benefits studios and exhibitors alike.  AMC Theatres and Cineplex Entertainment have agreed to shrink the window between the theatrical release and home entertainment debut of two of Paramount's low-budget horror titles this fall, shortening the traditional 90-day home entertainment debut window to just 17 days after the number of screens upon which the film is screened drops below 300.

Paramount's unorthodox deal means that the clock for the films' home entertainment debut will start running when it leaves the theatres rather than when it enters.  This represents a paradigm shift in theatrical distribution.  To entice exhibitors to agree to this model, Paramount sweetened the deal by sharing a percentage of its digital revenue for the first three months from the initial U.S. theatrical release.

The deal has not met with universal acceptance, however. Shortly after it was announced, Regal Entertainment Group, the nation's largest chain, announced its intention to stick with the "traditional distribution model." This may be a rear-guard action, however, as the Paramount-AMC compromise has the potential to expand the pie for everyone. Genre horror films typically have a theatrical run less than three weeks.  Exhibitors want a bite of the digital revenue apple, but don't want to hurt their own grosses by cannibalizing exclusive theatrical windows.  Under this model, the exhibitor maintains a certain minimum gap between a film's theatrical run and VOD debut, so it can still entice consumers into theatres while sharing the benefits of a shortened theatrical window that drives digital distribution returns. This model represents a more accurate barometer of current consumer habits, allowing exhibitors to offer their loyal consumers an exclusive window in which to catch a movie, but also capitalizing on those consumers who prefer to watch at home or on their tablets.

This win-win model will be tested by the market in the very near future, and may represent the future of film distribution, especially on lower-budget movies with traditionally short theatrical runs

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Jody Simon
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