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March 12, 2008

Watching Movie Windows

For 2008, I have treated myself to a subscription to SNL Kagan. Kagan is a long-time research firm focusing on media with a great reputation. They don’t care if I mention their research, in fact they encourage it.

This week in their Media Money newsletter, Kagan looks at the windows between movies in theatres and their release to home video and pay-per-view or video on demand. In general, the time between each of these events has been shrinking for the past ten years with acceleration in the past few years. The timing of windows impacts financial results for the studios that make the movies, the theatres that show them, and the cable and satellite companies that show them via PPV or VOD. Now these windows also impact the digital download business which is at its inception but expected to be a game-changer.

According to Kagan, the window between a movie being in theatres and appearing on DVD was 132 days last year. This figure has trended down steadily since 2001 when it was 176 days. The shorter window is due to the explosive growth experienced in the DVD business. Studios wanted to get DVDs on store shelves when their marketing of the film was still fresh in consumers' minds.

The shrinking window to DVD has also been accompanied by a shrinking window from DVD to PPV/VOD. Last year the DVD to PPV/VOD window was 34 days, down from 58 days in 2000. With cable companies especially wanting to press their VOD advantage vs. satellite, studios are happy to shorten the window to VOD as long as it doesn't cannibalize the DVD sale and rental business. Lots of commentary and study has been made of this issue and over the past year, and conventional wisdom has settled on the fact that DVDs are not hurt by shorter VOD windows. And even if they are, the impact is small relative to the risk of missing a consumer transition toward VOD and digital downloads. The trend is clearly toward day and date release where a movie goes to DVD, VOD, PPV, and digital download on the same date.....

....For studios, the transition to shorter windows is mostly defensive. The goal is to preserve the revenue from the home video window. If VOD and digital downloads eventually become the dominate technology then studios won’t be behind the curve like the music companies were.

For theatres, there is small risk to a shorter theatrical to DVD window. Some people may skip the theatre knowing they won’t have to wait long to buy or rent the film and watch it on their HDTV in their home. However, studios know where their bread is buttered and the marketing push behind a film in its theatrical release is what sets up the revue streams form the later windows – not just DVD, VOD, PPV, and digital download but also pay and broadcast TV domestically and aboard and merchandising. The theatres are the beneficiary of the studio model, a model unlikely to change materially in the near future.

Cable companies win from a shorter window because their networks can deliver VOD while satellite can not.

Keep in mind the benefits and risks I discuss are marginal in terms of financial impact for the next few years. On the other hand, the long-term risk of cheap digital HD downloads could be devastating for the entire chain. Experiments now and gradual shortening of windows as technology develops is probably about the best anyone long studios and theatres could hope for.

Posted by Steve Birenberg at March 12, 2008 08:51 AM in Media