MCN Commentary & Analysis

Entertainment Delivery History: Episode One – Back To The Future

You’ve seen stories on resetting the brain. The brain gets stuck on an idea or image or perception and the only way to reset? A serious shock to the system. Seems dangerous. The study of this phenomenon has continued in people who get these shocks randomly and see change. In recent years, more controlled electroshock, hallucinogens, and other tools have been used to create the reset without harming the patient.

Dr. David (not a physician or even a PhD) hopes to do the same with windows and revenue streams and theatrical and streaming. I’ve been damaging my head, smashing it against walls, trying to explain this to folks who just insist that they are forward-thinking and that references to history are for Luddites.

So here I am again, at the end of the worst year for much of the world since the end of Vietnam, taking another shot. Explaining this may seem counterintuitive, but I’m not trying to trick anyone into a reset. I’m just trying to make it as simple as possible…. and to let you make the decisions as to what is real.

Why is theatrical release an important part of the filmed entertainment ecosystem?And why have distributors hoped to shorten the window for a couple decades?

The 1985 release of Back To The Future played at over $1 million a weekend for 22 consecutive weekends and then did another five million-dollar+ weekends in second-run.

Then in 1989, Batman, which was a box office record-breaker, became the first smash hit to ostentatiously have its theatrical window shortened after release when the studio announced that the movie would be available for holiday gift-giving on VHS o November 15 at a sell-through price. They got a then-small fourteen $1 million+ weekends out of the film, which announced the VHS date in August. Cutting into your theatrical was just not done! But the revenue possibilities of sell-through VHS in the era of Blockbuster Video was too much to wait for… how many more would they sell for holiday presents than had they released it in February?

By 1996, VHS sell-thru was normal for big movies (and many not-so-big) and the year’s biggest hit, Independence Day, played at over $1 million for only 12 weekends before seamlessly blending into second run with grosses over $1 million for another seven weekends. And the studio was happy.

But that was just the start of shortening the window to catch the second major revenue stream within a quarter or two. Because even with some big hits on VHS sell-through, DVD arrived in 1997 – Twister was first – and the industry had decided that this format would be 100% sell-through.

The growth of DVD sell-through was slowed by the need for customers to go out and buy DVD players. 1997 saw an estimated 5.5 million units shipped in the U.S., generating roughly $110 million. By 1999, that doubled. By 2001, it was a $7.3 billion business while theatrical exhibition generated $8.1 billion domestically.

In 2002, domestic theatrical grew by over 10% with the arrival of Spider-Man. A record $9.2 billion. But the DVD market? More than $13.5 billion.

A true phenom (first $100m opening), Spider-Man stopped producing $1 million weekends in just 10 weeks. Then the DVD came out November 9.

Movies were now making more gross revenue in DVD than theatrical exhibition. Distributors continued to do whatever they could to shrink the theatrical window, as the bigger money was in the next phase. But with all that money at stake, another phenomenon started to happen… marketing budgets for DVD releases were rivaling and sometimes passing the budgets for theatrical. And the guys running the Home Entertainment divisions were flexing their muscles, which made the movie bosses that much more unhappy.

2003, $20 billion. 2004, $30 billion.

And you know what distributors thought they could do to shrug off the 45% or so movie theaters were taking out of their pockets? They thought people would pay “fight prices” to see movies on opening weekends of movies in their homes. $40. $50. Maybe more! Who needs a theatrical window?!?!

Unfortunately for them, no one was interested in paying fight prices to watch a movie on their TV at home. Every test flopped.

Two other things happened. One, Netflix had launched in 2002 and their subscription model was chafing Blockbuster and the industry. Two, bigger and bigger chunks of the growing revenue stream were not new movies being sold, but every library in town being dumped, TV and film alike, into the market, creating more and more intense competition and a glut of product that would lead to downward price competition.

The End (for DVD).

Of course, I am simplifying. But only a bit.

Home Entertainment settled into being a consistent $18 billion a year business by 2010. In that year, Netflix was $2 billion of that number. They had launched streaming in 2007, but it wasn’t very good. But 2010, it was getting better. And over the following decade, Netflix became a bigger percentage of that overall Home Entertainment number and the last couple years passed the $18 billion itself, pushing the overall number up.

Meanwhile, domestic theatrical grew modestly, from $8 billion to $11 billion. But another phenom was happening in theatrical. Throughout the new millennium, international box office was growing and surpassing domestic. There was a time when the international numbers were not (or barely) reported to the industry.

By 2008, theatrical, even with a lower return to studios than DVDs, became the dominant revenue source for “films” again. And it remains so today.

Still, the memory of the high-flying DVD era stuck in the heads of executives, who were thrilled with the notion of a shorter window so movies wouldn’t have to be marketed twice.

And you know what distributors thought they could do to eliminate that window that movie theaters were torturing them with? People paid $20 for a DVD. They surely will pay “fight prices” to see movies on opening weekends of movies in their homes. Who needs a theatrical window?!?!

Unfortunately for them, no one was interested in paying fight prices to watch a movie on their TV at home. Every test flopped.

In 2011, international doubled domestic for the first time. Another reason to be enraged at domestic theatrical. International was not only a huge growth market, but “those people” would watch all of Hollywood’s crap, so long as it was branded and loud.

But streaming was not yet the paradigm shift that it is today. It was hard and it wasn’t of the quality of cable or satellite. So guess what got exciting again? Video On Demand!!!

By then, people were buying digital movies from iTunes and Amazon. Rentals for $4 or $5, buying movies on digital only for $19.99.

But yet again, no one was actually interested in paying fight prices to watch a movie on their TV at home. And selling movies at $20 was ok, but in the theatrical window, each individual was paying $10 – $15. Theatrical was stable domestically and growing overseas, while VOD pretty much peaked in 2011 with Bridesmaids, which had grossed $169 million domestically, which is surely a driver in making it the long-time VOD champ.

Netflix grossed over $5 billion for the first time in 2015. $10 billion in 2017. $15 billion in 2018.

And here come the studios/distributors/big corporations.

And do you know what distributors leapt to… again? DTC is the new thing… so it will surely eat theatrical and all those brick and mortar fuddy duddies for breakfast and crap them out later, providing only event screens for our movies that will go directly to the consumer in exchange for a monthly subscription or maybe even were can charge them a premium on top of their subscription – fight pricing – to see it first and get paid both ways.

And here comes COVID… that must be an accelerant!!!

But the best that’s been done in a year of a half-dozen or so experiments is… mediocrity. You can’t say that they failed when the world is messed up and they re just trying to see if these ideas can take hold.

The question at this end of this segment of this discussion is… why exactly should movie theaters die or be greatly diminished in the name of streaming?

More people have seen movies on their TV than in theaters for decades now. It’s not a new phenomenon.

The amount of content that is always available to consumers has changed. And theatrical will soon become the secondary revenue stream to streaming. No one is really challenging that notion.

And streaming is not a short-term paradigm, as DVD was, because whatever technical changes come, streamers can adjust to keep their subscribers. If Virtual Reality ever really becomes The Thing, you can be sure Netflix will be there. No one is arguing that.

But there is an argument for theatrical exhibition as a primary window. Arguments, in fact. And none of them have to be “artists are so precious that they want the ego boost of a theatrical experience.” That may be true, but money doesn’t really care how Christopher Nolan or anyone else feels. Sorry.

But I have overstayed my welcome at this point. More to come. Arguments about money and marketing and what we are looking at in the future, not just this week on deadline. See you soon.

8 Responses to “Entertainment Delivery History: Episode One – Back To The Future”

  1. amblinman says:

    @Leah: We gotta talk about WW84. Woof. Jenkins remade the worst possible version of Superman 2. What the fuck does someone need to do to get WB/DC to stop directors from taking this material and cranking out a “comic book movie” vs a movie movie. I didn’t love WW but it was a movie, and the No Man’s Land sequence is pretty great. WW84 is a Batman and Robin-esque shitfest in which you can imagine everyone associated is told to act more/less like Gene Hackman from Superman 4. Jenkins staging WW’s first big set piece in a mall against goofs in 80’s pastel couldn’t have made the character smaller. It looked like it was shot like a TV movie. I’m kinda cackling watching this set piece unfold cause yeah, THIS totally needed and deserved a giant movie theater screen.

    Hollywood should be thrilled this and Tenet didn’t hit theatrical post-covid as the big WELCOME BACK TO MOVIES movies. It would have killed theaters quicker than streaming.

  2. Bradley Laing says:

    Ricky Gervais gave a speech at the Golden Globes earlier this year. What I remember him saying was “Shut up! You know nothing about the real world.” As an insult to cut-off-from-reality film makers, it sounds believable. But it implied that a major studio would put up at the least, 70 million dollars, for a movie made by a director, writer, and executive producer who knows a lot about the real world. For an audience that *wants to see* movies about the real world.

    But I cannot find an article saying that the reaction to Gervais was to do just that: find directors to make movies about the real world.

    Any ideas, Mr. Poland?

  3. Bradley Laing says:

    Box Office Mojo lists “Joker” as costing between $55 and $70 million to make, and that seems cheap compared to many of the popular Marvel Comics based films. that is why I chose the $70 million number, above.

  4. Bradley Laing says:

    https://chicago.suntimes.com/entertainment-and-culture/2020/12/28/22197499/covid-rescue-bill-save-our-stages-lifeline-for-chicago-music-venues-theaters-museums

    Chicago theaters, music stages welcome ‘crucial’ funding in COVID-19 bill
    $15 billion in Save Our Stages funding is allocated in Congress’ latest COVID-19 relief bill, which was signed into law Sunday night by President Trump.

    By Selena Fragassi – For the Sun-Times Dec 28, 2020, 4:23pm CST

    The $15 billion is intended to provide grants to, according to the legislation, “eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theater operators, or talent representatives who demonstrate at least a 25% reduction in revenues.”

    “It’s heartening to see Congress recognize the incredible value of arts in our country. I am grateful that so many venues may be qualifying for a lifeline during this devastating time, and it is thanks to the advocacy of our community that we have this package on the table,” said Markie Gray, managing director of Raven Theatre.

    As part of the relief bill, the Small Business Administration will have a 21-day window to offer specific guidelines and applications for grants. The funding will be open to live entertainment venues, agents and cultural institutions such as theaters and museums with 500 or fewer full-time employees, with $2 billion allocated for venues with 50 or fewer full-time employees

  5. cadavra says:

    People don’t go to the movies to see the real world. They can watch it for free on news channels. They go to the movies TO GET AWAY FROM the real world. Thus has it ever been, thus will it always be.

  6. Bradley Laing says:

    From a different time zone, I say Happy New Year 2021!

  7. Bradley Laing says:

    “The Academy and ABC announced on June 15th that the 2021 Oscars, which were originally scheduled for February 28th, would move to April 25th—the latest date ever since the show was first broadcast on TV in 1953.”

    —by Susan Wloszczyna October 12, 2020.

    —Thought: my memories of the Oscar TV show have always been against a background of winter conditions outside of where I was watching it. If the ratings, in April of 2021 are *higher* than in the winter of 2020, it means that the audience is going out of its way to watch event television?

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"Midnight Cowboy shattered many barriers. Men like these—hungry, hollow outcasts—had never been depicted with such honesty and directness in a mainstream American movie. Neither had this vision of New York—cold, bleak, corrupted. The acting is superb—not just Voight and Hoffman, but a small troupe of brilliant supporting actors—the screenplay terse and powerful, the camerawork fluid, the music poignant and engaging. Even the costumes are memorable. Still, no one expected the movie to make a dime. On the way to their first screening before the executives at United Artists, the chronically anxious Schlesinger turned to Hellman, his producing partner, and asked, 'Really, Jerry, do you think anyone in their right mind will pay good money to see this rubbish?'"
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Rushfield: “The exhibition industry, even post-apocalypse, remains what it has been for a long time now: an industry dominated by bottom-feeding venture capitalists looking to squeeze as much money out of it as they can in as short a time as possible before they dump their companies or liquidate them. But what they certainly don't do is invest in anything that won't pay for itself in six weeks. In most businesses, that pattern is what's known as The Death Spiral or The Doom Loop. And that's why the whole windows/theatrical vs. streaming debate is completely screwed up and hopeless. As much as in my heart I would like to be team theatrical until I die, you look at on the one side, you've got a company like Netflix whose lightning rise has been driven at every moment by a fanatical, no-detail-is-too-granular obsession with customer experience and improving that pixel by pixel. On the other side, you've got a company like AMC still making bullying noises about the windows and not budging in putting their gouged customers through an experience that rivals a major airport hub. Its visionary CEO (self-described), after a year of his company being dead in the water and having to discharge most of its employees and having agitated and fumed for a government bailout, awards himself a $3 million bonus.”

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