Opening Night at the Movies… at Home?

Who doesn’t like going to the local theater every once in a while to take in the latest and greatest movie blockbuster? It’s a pastime that’s been tried and true since motion pictures became entertainment in the early part of the 20th century – buy your tickets, get some popcorn, pick out your seat, and settle in for two hours of escapism and relaxation with the latest studio releases. Tried and true until now, that is.

In May of 2007, Comcast Corporation announced their plan to release blockbuster films via video-on-demand (VOD) at the same time movies are made available in theaters. Termed “simultaneous release” by the film industry, this initiative would allow people to view the latest films in the comfort of their own home for a yet to be determined “premium” price, technically eliminating the need to go to the theater. That premium price has been estimated to be anywhere from $30-60 per view.

The emergence of VOD and digital video recorder functionality means that viewers are more likely to watch TV/Movies outside of scheduled times, and to avoid commercials in increasing numbers. In fact, the number of heavy on-demand media consumers has doubled between 2005 and 2006. VOD marketing rose from $282 million in 2005 to $451 million in 2006, an increase of 60%, and it is expected to rise even further in 2007 and beyond.

31% of US residents have watched VOD, and of those who have not tried video-on-demand, 29% are “very” or “somewhat” interested in utilizing it in the future. Many cable operators are now trying to take advantage of this increased interest and offer VOD to their viewers.

Against It

The industry itself is clearly divided on the issue. Major theater chains like Regal Entertainment Group and National Amusements are vehemently against simultaneous release, and for good reason.

“We’re not interested in playing anything that makes its debut in the home and at the theater at the same time,” said Michael L. Campbell, Regal’s Chief Executive (LA Times, May 12, 2007).

Box office revenues have been limited for movie theaters ever since they became independent from the major studios in the 1950s, making theater owners extremely dependent on a high volume of customers in order to turn a profit. For some background, theater chains earn an average of only 10-20% of the box office for the first 2-3 weeks of a films release, while 80-90% goes to the studios. If a film has “legs” and can still draw a significant amount of people after the first 3 weeks, the box office split changes to around 60-40 in favor of the studio. This is why concessions cost so much at the movies – the chains don’t make a significant profit on the box office, so they sell Junior Mints at a 300% markup to try and make up for it. Bottom line- the theater chains need people to come to the movies and come often, video-on-demand poses a significant threat to their existence.

All For It

Along with the cable operators who are carrying the films, the studios themselves would definitely be a large beneficiary of this type of arrangement. Yes, less people might go to the theater to see the film, but there would probably be little to no revenue loss based on the premium costs for viewing the films on VOD. The studios themselves have been very quiet on this issue to date, but it’s clear that the possibility would not have progressed to this point if they were not truly interested.

According to Adage.com on May 14th, Comcast Chief Operating Officer Steve Burke feels that simultaneous release would also help to bring new films to those that have grown tired of the movie theater experience (cellphones ringing, talkers, lousy prints) and the overwhelmed (the millions of parents of young kids who can’t possibly get to the movies on a Friday night).

In the end, customers will still be viewing films with simultaneous release VOD – they will just have the option to view new films in a different, profitable way. And the studios definitely like the sound of increasing revenues.

Affect on Advertising

Should simultaneous release come to fruition, it will certainly have a significant effect on in-cinema advertising as a whole. That being said, there is good news and bad news that comes with simultaneous release.

Let’s start with the good news. First and foremost, it is safe to assume that there will be significant demand for simultaneous release VOD among cable TV viewers. Even at the price point of $30-60 for a single viewing, people will be tempted to get the latest Hollywood release right in their homes out of convenience. They might even invite their friends over to watch to help fray the costs, hence even more impressions.

It is also safe to assume that this will be a captive, audience for messaging. Consumers ordering VOD will be enthused about the newly released film they purchased and excited to watch it. Hence, as long as the pre-show advertising is a forced exposure and can’t be fast-forwarded, it will be that much more effective than regular television advertising. Not as effective as movie theater advertising, of which Arbitron’s 2007 study claims that two-thirds of adults 18 to 34 say they don’t mind cinema ads. But probably not that far off, either.

The bad news is the hit that in-cinema advertising will take as an effective medium for engaging the consumer. Although the in-cinema audience will likely remain captive, there will simply be less of an audience to talk to. Costs for on-screen advertising will certainly be reduced, but so will the relevance of the medium.

Cable companies are taking advantage of VOD by offering advertisers a shorter lead-time for ad changes, which can ultimately provide direct feedback from consumers. One successful example is Cablevision. Cablevision signed automobile makers in the beginning, but now has signed close to two dozen national advertisers, including Sony Bravia and US Navy. Even though online videos are very popular, they’re meant to be viewed by one or two people. For a family, watching a video at the time they want without running to the video store is a great incentive for them to choose video-on-demand.

Where does the Industry Go from Here?

It appears that Comcast might have been a bit ambitious announcing its plan for simultaneous release so early on in the game. The major theater chains have dug in their heels against it, and the movie studios do not appear ready to fight the battle just yet.

If one were to venture a guess as to the outcome, I would say that eventually some sort of deal gets worked out to cut the theater chains in on the revenue generated from VOD. In reality, this is the only way that the new model becomes palatable for everyone.

With implications for consumers, advertisers, and obviously to the entire movie industry, this will be a great story to follow over the next few years – with no clear-cut resolution.


Jed Michaelson, Account Supervisor Brand Strategy
&
Ted Kim, Media Investment Strategist
Cheil Communications New Jersey