Paramount and the movie business’s shrinking window

Sabri Ben-Achour Jul 9, 2015

Paramount and the movie business’s shrinking window

Sabri Ben-Achour Jul 9, 2015

Paramount Pictures has made a deal with movie theater chains Cineplex and AMC.  It goes something like this:  let us release a movie earlier than usual so we can sell it online, and we’ll share revenue with you.  It’s something of an attempt at a truce between warring parties, and it has engendered the same kinds of responses that war time truces do. 

“It’s brilliant,” says Michael Pachter, research analyst at Wedbush Securities.

And, “it’s as much a ploy,” says Jack Oberleitner, a movie theater consultant who’s been in the business for 50 years. 

Movie studios and movie theaters have been competing for profits since at least 1948, Oberleitner says. “When the government said motion picture production companies could not have ownership in movie theaters.”  No longer capable of being joined at the hip, the two industries would go on to sometimes be at one another’s throats, he says. 

This became the case particularly as people could watch movies in more places than movie theaters.  TV, cable, VHS, DVD, downloads and streaming. As each new technology came along, movie theaters were forced to cede some of their territory.  This took the form of a “time window” between when a movie would be released in theaters and when it could migrate to another platform. Network TV was the first threat to the movie theater, and theaters and studios were united in their fear.

Pachter says “they thought people would stop going to theaters.”  So the studios established a window between theatrical release and TV release: 14 years. 

When premium-charging cable channels came onto the scene in the ’70s, a new window was negotiated.   For cable, it’s around 1.5 years.

When VHS made its debut, the window shrank to between six and nine months.  DVDs shared the same window, which eventually shrank to around 3.5 months.

Many rental companies, including Redbox, have a window of 28 days beyond the DVD release, Pachter says ,

With the windows both multiplying and shrinking, theaters have become more anxious. 

“In the 1970s many film theaters ran Star Wars for a year or more,” Oberleitner recalls.  “Today a film comes in for a week or two or three, and then moves on to second-run theaters, bargain theaters and subsequently electronic outlets.”

In 2011, theater chains threatened to boycott Universal when it tried to release one of its films in certain locations three weeks after its theater debut. Universal caved.

In 2014, all four major theater chains in the U.S. and major Canadian and European theater chains announced plans to boycott “Crouching Tiger, Hidden Dragon: The Green Legend” which is slated to be available on Netflix the same day it appears in theaters in 2015. 

But movie theaters have seen the writing on the wall for some time and in recent years have been devising strategies to make money from everything else besides the actual movies they show:  expensive concessions, sophisticated foods, alcohol, a luxury theater experience.   So many have adapted that IBISWorld predicts industry profit margins to rise dramatically this year, from 5 percent five years ago to 11.4 percent. 

Enter Paramount’s attempt to meet two of the nation’s major theater chains halfway.  The deal applies to two horror films, “Paranormal Activity: The Ghost Dimension” and “Scout’s Guide to the Zombie Apocalypse.”  Once the films’ presence in movie theaters nationwide in the U.S. and Canada drops to 300 locations, Paramount will wait 17 days and then release the films for purchase online (not streaming).  The theaters would share in revenue based on their own market share. 

“There are 40,000 screens in the US,” Pachter says.  “The typical wide release film gets between 2,500 and 5,000 screens at release, so 300 is a tiny number.  It means most people have seen it and don’t care anymore — either because it’s really done well at the box office and has run its course, or because it sucks and nobody wants to see it.”  Pachter believes this will satisfy more theater chains in the near future. 

Oberleitner sees the deal as one struck between giants that leaves smaller players with little benefit to show.

“The revenue sharing is based on market share, so theaters located in large metropolitan areas will get some benefit from it,” he says, but not smaller ones.  “The small-town movie theater that was at one time a mainstay in the business, the neighborhood second-run movie theater that was as much a cultural and social center for a lot of communities as much as it was a business center, have been vanishing and that will continue.” 

Darryle Ulama, an analyst with IBISWorld, says studios may have an extra something to gain from the last stretch of window shrinkage.  

“It’s not just shortening the distribution time so it’s more flexible for consumers and studios can capture a wider audience,” he says. It also lowers studios’ marketing and advertising costs.  “Traditionally if you have a film that’s showing in movie theaters then disappears for a 90-day period, you have to remind consumers when you release it on digital, so when you have a shorter distribution time you can carry over some of your advertising costs.”

One thing that many analysts agree on is that the results of Paramount’s experiment may usher in a new era of movie viewing, where windows are even smaller or perhaps don’t exist at all.   

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