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Weaponized VOD, at $50 a pop

Tuesday | March 15, 2016   open printable version open printable version

Ant-Man 500

Ant-Man 2: This time it’s personal. Not that it wasn’t before. But now it’s personal and expensive.

DB here:

Sean Parker, the Napster founder who taught everybody that digital piracy means never having to say you’re sorry, has come up with a new killer app. Called The Screening Room, the pitch is catching the eye of an industry that thrives on finding new niches for its product.

 

Stuff you probably already know

Recall, as background, that Hollywood’s economic model depends on two conditions.

(1) Strong Intellectual Property measures, both technological and legal. (Intellectual is to be taken in a broad sense here. It includes Paul Blart movies.) Encryption is designed to protect DVDs, streaming, and the Digital Cinema Package that plays in your local multiplex. Law enforcement, under the auspices of the Digital Millennium Copyright Act, backs up anti-piracy with fines and jail time.

(2) Price discrimination. The premise of the classic vertically-integrated studio system was that people will pay more to see a movie sooner than other people. Why this is true still mystifies me, but facts are facts. Hence the old system of “runs.” First-run movies demanded top dollar, then second runs were at lower prices, and subsequent runs were still cheaper. When the studios surrendered their theatre ownership, the runs system remained roughly in place, chiefly because most films were platform released, playing the big cities before gradually expanding to the provinces. And network TV was basically the only ancillary market. But wide releases–hundreds or even thousands of copies playing everywhere–became the industry norm as cable, home video, and other technologies came along. The run system was reborn, and price discrimination became much more fine-grained.

Known, confusingly, as “windows,” phases of the film’s life are assigned to various platforms. After the theatrical window, typically 90 days after release, there are windows for airline/hotel access, disc (DVD, Blu-ray), Pay-per-View, streaming, cable, and on down the line. The order of these windows for any one title can vary somewhat, depending on negotiations. Most of them are designed to define price points scaled along a curve: how much it’s worth to somebody to see the movie at intervals after the initial theatrical release. By the time a movie comes to free cable, you’ve pretty much squeezed everything out of it, though the industry relies very extensively on worldwide cable purchases.

The studios depend on the theatrical release, but not because it’s the biggest source of revenue. (For the top films it can yield a lot, of course, but most films don’t recoup their costs in that window.) The theatrical release builds awareness, making it stand out downstream in the ancillaries. Without theatrical release, a film needs a lot of publicity to draw notice. Witness all those films on your Netflix or Hulu menu, all those John Cusack movies you didn’t know existed.

Independent films are increasingly relying on day-and-date release between a mild theatrical run and some form of Video on Demand. Other indie titles, along with foreign ones, are going wholly VOD, and the big players–Netflix, Hulu, and Amazon–are vigorously buying titles and backing new projects against the looming day when the studios will license fewer blockbusters to them.

The studios need the theatre chains as a shop window for their top-tier product. The theatre chains obviously need the studios to keep crowds flowing in. But some parties have flirted with day-and-date theatrical/VOD. Most famously Ted Sarandos of Netflix argued for it in 2013, then had to backtrack a few days later. On the studio end, Universal in 2011 proposed softening the theatrical window by offering  Tower Heist on “premium VOD.” The plan was to drastically cut into the theatrical window by making the film available after three weeks of release, for the hefty price of $59.95. Theatre owners threatened to boycott the film, and filmmakers howled in protest. Many feared that it was the thin edge of a wedge that would eventually, through price wars, shorten windows and lower prices–not to mention wreck theatre attendance. The idea was quickly dropped.

No bad idea ever goes away, as we learn from claims that tax cuts create jobs and that we’re just one intervention away from creating peace in the world. Thanks to Parker, we now have Premium VOD in a new guise. That means a new window, with corresponding price discrimination.

 

Premium VOD, steroidal

Last week, The Screening Room project, sponsored by Parker and entrepreneur Prem Akkaraju, was made public. Brent Lang of Variety outlined the plan circulating among the major players.

Individuals briefed on the plan said Screening Room would charge about $150 for access to the set-top box that transmits the movies and charge $50 per view. Consumers have a 48-hour window to view the film.

To get exhibitors on board, the company proposes cutting them in on a significant percentage of the revenue, as much as $20 of the fee. As an added incentive to theater owners, Screening Room is also offering customers who pay the $50 two free tickets to see the movie at a cinema of their choice. That way, exhibitors would get the added benefit of profiting from concession sales to those moviegoers.

Participating distributors would also get a cut of the $50-per-view proceeds, also believed to be 20%, before Screening Room took its own fee of 10%.

Parker assures all stakeholders that the magic box would assure maximum antipiracy controls.

Since then, developments have been swift. Peter Jackson, Ron Howard, and J.J. Abrams are supporting the plan, while James Cameron is opposing it. The Cinemark and Regal chains, at this point the biggest theatre chains in the country, are against it, but there are hints that AMC, soon to be the biggest chain in the world if it’s allowed to purchase Carmike, might be interested. As for studios, Universal, Sony, and Fox are rumored to be considering the prospect. Once the give-and-take of dealmaking gets under way, there’s no telling what a final arrangement might look like.

What’s transparently clear is the opposition of the art-house sector. Tim League of Alamo Drafthouse issued the first warning on Monday, calling The Screening Room a “half-baked” idea. Today the Art House Convergence, an association of 600 theatres, issued a severe criticism of Parker’s plan. The open letter has been summarized in Variety and The Hollywood ReporterIndiewire has published it in its entirety, and I do the same, as follows.

The Art House Convergence, a specialty cinema organization representing 600 theaters and allied cinema exhibition businesses, strongly opposes Screening Room, the start-up backed by Napster co-founder Sean Parker and Prem Akkaraju. The proposed model is incongruous with the movie exhibition sector by devaluing the in-theater experience and enabling increased piracy. Furthermore, we seriously question the economics of the proposed revenue-sharing model.

We are not debating the day-and-date aspect of this model, nor are we arguing for the decrease in home entertainment availability for customers – most independent theaters already play alongside VOD and Premium VOD, and as exhibitors, we are acutely aware of patrons who stay home to watch films instead of coming out to our theaters.

Rather, we are focused on the impact this particular model will have on the cinema market as a whole. We strongly believe if the studios, distributors, and major chains adopt this model, we will see a wildfire spread of pirated content, and consequently, a decline in overall film profitability through the cannibalization of theatrical revenue. The theatrical experience is unique and beneficial to maximizing profit for films. A theatrical release contributes to healthy ancillary revenue generation and thus cinema grosses must be protected from the potential erosion effect of piracy.

The exhibition community was required to subscribe to DCI-compliance in a very material way – either by financing through VPF integrators (and those contracts have not yet expired) or by turning to other models which necessitated substantial time and commitment. Those exhibitors who were unable to make the transition were punished by a loss of product. The digital conversion had a substantial cost per theater, upwards of $100,000 per screen, all in the name of piracy eradication and lowering print, storage and delivery costs to benefit the distributors. How will Screening Room prevent piracy? If studios are concerned enough with projectionists and patrons videotaping a film in theaters that they provide security with night-vision goggles for premieres and opening weekends, how do they reason that an at-home viewer won’t set up a $40 HD camera and capture a near-pristine version of the film for immediate upload to torrent sites?

This proposed model would negate DCI-compliance by making first-run titles available to anyone with the set-top device for an incredibly low fee – how will Screening Room prevent the sale of these devices to an apartment complex, a bar owner, or any other individual or company interested in creating their own pop-up exhibition space? We must consider how the existing structures for exhibition will be affected or enforced, including rights fees, VPFs and box office percentages.

A model like this will also have a local economic impact by encouraging traditional moviegoers to stay home, reducing in-theater revenue and making high-quality pirated content readily available. This loss of revenue through box office decline and piracy will result in a loss of jobs, both entry level and long-term, from part time concessions and ticket-takers to full time projectionists and programmers, and will negatively impact local establishments in the restaurant industry and other nearby businesses. How many of today’s filmmakers started their careers at their local moviehouse?

There are many unanswered questions as to how this business model will actually work. The proposed model, as we have read in countless articles, suggests exhibitors will receive $20 for each film purchased. At first glance, an exhibitor may think it represents a small, but potentially steady, additional revenue stream. But how will this actually be divided among the number of theaters playing the purchased title; will exhibitors who open the title receive more than an exhibitor who does not get the title until several weeks later (based on a distributor’s decision); who will audit the revenue to ensure exhibitors are being paid fairly; does this revenue come from Screening Room or from the distributor… these are just a few of the issues yet to be explained.

Similarly, Screening Room promises to give each subscriber two free cinema tickets with each film purchase. Yet to be disclosed is how an exhibitor will recoup the value of those tickets from Screening Room so they can then pay the percentage of box office revenue owed to the distributor of the film. Yet to be explained is who will manage the ticket program details such as location choice, method of purchase, and so on. Will all exhibitors be expected to honor Screening Room free tickets, or will some exhibitors receive preferential treatment over others?

We strongly urge the studios, filmmakers, and exhibitors to truly consider the impact this model could have on the exhibition industry. We as the Art House and independent community have serious concerns regarding the security of an at-home set-top box system as well as the transparency and effectiveness of the revenue-sharing model. Our exhibition sector has always welcomed innovation, disruption and forward-thinking ideas, most especially onscreen through independent film; however, we do not see Screening Room as innovative or forward-thinking in our favor, rather we see it as inviting piracy and significantly decreasing the overall profitability of film releases.

At this time and with the information available to us we strongly encourage all studios to deny all content to this service.

One point of clarification. Some reports have interpreted the paragraph beginning “We are not debating the day-and-date aspect of this model…” as meaning that art-house programmers, managers, and owners are okay with day-and-date VOD. But many Art Housers wish that day-and-date VOD had been strangled in its cradle. For those people, “not debating” doesn’t mean “accepting” or “not disputing.” It means that this is not the occasion for taking issue with that feature of the concept, as the Parker proposal introduces serious problems of its own.

The churn around this proposal is turbulent; stories kept popping up as I was writing the entry. A useful update is here. To keep up to speed, you may want to visit these two summative links, one for Variety and the other for The Hollywood Reporter. 


There were, and are, still second-run movie houses. To my joy, Ant-Man, released last summer, has been playing for at least seven months at our second-run house here in Madison. And in 35! Is this a record in modern times? Also, too: My Ant-Man image up top comes from the first film, not the sequel, which doesn’t yet exist. I was just fooling and pretending.

What’s the Art House Convergence? Visit their site here. My visit to their annual confab is recorded here. An updated version is available in Pandora’s Digital Box.

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