A $10 Billion Dollar Year Allows Exhibitors To Play Hardball

You would think that after two record breaking weekends at the boxoffice and the holiday season upon us, peace and good will would be the order of the day with the studios and the exhibition community. But business is never as good as it seems or as bad as it seems. With distributors and exhibitors there is always a level of angst of what lies around the corner. For the studios, perhaps more than anything else, it's the dramatic fall off in DVD sales that has cast a dark shadow over profits. The studios have taken a big hit and they realize some kind of change has to happen. For exhibitors, it's the growing experimentation by the studios that threatens to shorten the exlusive window theatres enjoy. The latest example is with Sony, the only major studio with a hardware component, which is making their animated hit, "Cloudy With A Chance of Meatballs" available through their own internet enabled televisions, Bravia, free of charge a full month ahead of the DVD release. That's less than three months since its theatrical release and that follows Paramount's DVD release of "G.I. Joe" which also had a similar shortened time frame. Theatre owners monitor each DVD release closely and protest loudly when they see any departure from the slightly over four month industry average currently in place. Exhibitors know full well that shorter windows can start affecting their business. With the domestic boxoffice poised to pass $10 billion for the first time in history, theatre owners are adept at playing hard ball with the studios. This is the nitty gritty nature of the business, part of the inherent checks and balances, the tug of war where two large powerful forces are on different sides of the table but still depend on each other deeply.

It's timely that theatres are generating so much revenue this year, if that starts slipping, watch out, because that would give the studios reason to tweak things even more, similar to what we're seeing in the home market. When DVD sales were so strong for about a 10 year period between 1997 and 2007, studios would never have thought to upset Walmart, their most important customer, but now they are moving up Video on Demand dates and testing out other technology which directly impacts the big box retailers. Those retailers are losing some of their clout not only because they're selling fewer DVDs, but also because of their decisions to decrease the aisle space afforded to DVDs. This has given the studios an opening to go ahead and make some changes that affect the exclusivity of the DVD window. When your customers start contracting, they have less reason to push back. The opposite is happening with movie theatres where the major circuits have spent hundreds of millions of dollars upgrading their theatres, continuing to add digital, 3D, ultra screens, restaurants and other upscale amentities which have played a huge part in keeping moviegoers in the habit of spending an evening outside the home watching movies in theatres. Those powerhouse grosses the studios are enjoying are happening for a reason. The studios have asked for improvements in theatres and the theatres have delivered, betraying that trust at this time would not be acceptable. Studios have always been respectful and protective of their relationship with theatres, sometimes even to their own detriment. When I started in the business in the early 1970's, new patterns of distribution and exhibition were needed so movies could be delivered more quickly to audiences in a more convenient manner closer to where they lived in the suburbs. Downtown theatres still existed and they still needed product and the circuits operating these theatres controlled many of the top grossing theatres in the country. They wielded enough power and clout to have a say where pictures opened and the circuits had to protect their large investments in prime downtown real estate by insuring that enough of the top movies opened in them, including films like "The Godfather" and "Towering Inferno." Change was inevitable and by the mid-70's, downtown theatres started closing, never to be a force again. The point here is that exhibition has always had its needs and distribution often has worked along with them to preserve important relationsships forged over many decades of working together. Change eventually happened but it took its own course.

But something different seems to be in the air now. The big, lumbering studios seem to be moving more nimbly now, led by studio heads like Robert Iger of Disney, who would like to move into the digital age sooner than later and has shown a willingness to alter existing windows to accomodate a younger consumer audience who wants access to their entertainment in a more immediate fashion. Add to that this week's announcement of Comcast buying NBC/Universal and suddenly the movie business is looking at a potential new world order. A new set of dynamics enters the picture when the largest cable provider in the country buys one of the six major studios, an announcement no theatre owner was cheering. All of a sudden, the probability of a more aggressive VOD policy takes on a whole new meaning and urgency. It's a certainty that Comcast will be squeezing the theatres with shorter exclusivity and they have already indicated they would like to see a higher priced VOD tier in the neighborhood of $25.95 while movies are still playing in theatres. Anyone who thinks theatres would allow that to happen and be willing to play movies at the same time they're available inside the home is drinking some spiked kool-aid. That's not going to happen. It's weird sometimes that as more things change, the more they stay the same. There is a strange deja vu quality to this. In 1983, Universal attempted a day and date release with "Pirates of Penzance" in theatres and on pay-per-view. That was very radical back then and needless to say all of the major theatre circuits boycotted the movie and refused to play the picture and it proceeded to disappear rather quickly. There wasn't much interest in the pay-per-view showings either. A strange movie to attempt a day and date release on well before its time; I guess you can it "The Bubble" of its day. One thing that hasn't changed 26 years later is the cold hard fact that theatres will not be participating in anything that could lead to their demise. Remember, Universal is only one of six major studios, not the only major studio, so there will always be other movies to play.

It seems like Comcast is ready to start calling the shots over at NBC/Universal even as the acquisition faces tough anti-trust scrutiny and has to be approved by federal regulators. That can take up to six months to a year. It's been that long since regulators have been looking over the merger of Live Nation and Ticketmaster and there hasn't been a verdict on that one yet. The Obama administration came into office with a reputation of being against big media mergers. I thought there was no way Live Nation and Ticketmaster would be allowed to merge because the elimination of competition could lead to some serious ticket price increases for the public. I wonder what's taking so long to make a decision. President Obama also was elected on an antiwar platform and he's now sending 30,000 more troops into Afghanistan so I guess anything is possible with the eventual decision on the Comcast deal.

Getting back to the current situation on the screens, the marketplace is ready for another of its breathers. There are points in the year when moviegoing levels drop off and the first week of December is one of those weeks. 30 to 40 years ago some smaller theatres actually closed their doors in early December because there was nothing to play and there was so little business. It was a dumping ground for orphan films and movies that were considered losers by their distributors that just had to get played off. When you think of it, it's a long three weeks until Christmas and the whole idea of Christmas playtime is for a distributor to have his film in as strong a position as possible playing between Christmas Day and New Years Day, the absolute best moviegoing week of the year. Why risk jeopordizing your December movie with an early knockout when you can place it on December 18th or 25th instead. The first film to buck this trend was when Paramount opened the first Star Trek movie on December 7, 1979 and grossed $17 million in its first three days, a strong gross at the time. Universal tried to duplicate the feat the following year on the same week with "Flash Gordon" and got burned. The movie was off the screens by Christmas. It's much better than it used to be but the three national releases this week reflect the diminished expectations that early December offers. Miramax is opening "Everybody's Fine," a modest holiday offering starring Robert DeNiro as a father who decides to visit his four adult children scattered around the country after they couldn't find time to come see him. It has a chance to make it to Christmas if it's able to establish itself on the first weekend, but since Disney is downsizing Miramax I wonder if there is going to enough advertising support for it to make any kind of impact. Lionsgate's strategy to open "Brothers," their gritty wartime drama, wide on 2,000 screens is definitely risky and could be looked upon as an acknowledgment that the film will be a tough sell for audiences. They could have decided to use a platform release but instead they are rolling the dice and taking the screens and seeing how far they can go. The difference between now and 30 years ago are the megaplexes with all their screens. That gives a film like "Brothers" a fighting chance to stay on some important screens during Christmas, but if anyone really wants to see the film, they should probably see it in the next couple weeks. The third movie is Sony's action movie "Armored" which might be considered the old dump and run and getting the picture played off before the big heavy hitters open later in the month. Look for business to start perking up again next week as we move closer to Christmas when I'll also take a look at the Oscar caliber films opening in December. One of the top front runners for end of the year awards is Paramount's "The Air Up There" which is opening on exclusive runs this weekend and will be playing wide around the country by Christmas Day. Much more next weekend on the challenges and strategies Paramount is facing with "The Air Up There" and how some of the other acclaimed films are being handled by their distributors during this final stretch of 2009.

Finally, I would be remiss if I didn't mention the incredible performance of Warner's "The Blind Side" after only two weekends in release. In a 4th quarter where there have already been several sleeper hits, this inspirational football film has accomplished some pretty impressive things of its own. With an 18% rise in ticket sales, it became the first wide release of the year which saw its gross grow in the second weekend. On the other hand, "New Moon" opened on the same weekend and saw its grosses fall by 70%. For grosses to rise in later weeks, superb word of mouth is needed and exit polls proved that out. It was only the second film all year, along with "UP," which received an A+ grade from market research firm CinemaScore. Generally, big grosses are driven by big grossing theatres in the largest cities but "The Blind Side" is performing just the opposite. The smaller the theatre, the bigger the gross. Theatres in Texas, Alabama, Tennessee and Indiana are leading the way and proving once again different movies perform in different ways and that the theatrical marketplace continues to be full of surprises. Warner Brothers is enjoying the success of the film but they would be enjoying it a lot more if they actually financed "The Blind Side." As the studios continue to lay off risk and allow independent production companies to totally finance some of their releases, studios are often content to take just their distribution fees. This is the case here where Acon Entertainment financed the movie at a cost of $35 million. Warners will still make a tidy profit on the film with all their distribution fees, but it's nothing compared to what they would have reaped if it was actually a Warner's in-house production.
2009 Copyright David Sikich. Video clip provided by First Business LLC.