Wednesday, November 4, 2009

Technology and The Collapse of Distribution Windows

An article in today's Variety details efforts by the MPAA to help its members gain the ability to broadcast first-run movies directly to consumer's homes. The article raises a few issues:

1. Apparently, approval from the FCC is needed for the MPAA members to use DRM protection on the broadcasts. Not surprisingly, the studios would be unwilling to give consumers access to broadcasts of first-run features without technology that prevents copying of the content.

2. Exhibitors are opposing the MPAA's efforts because there is a strong suspicion that the films would be broadcast during the first-run exhibition window. Exhibitors view this as a huge threat to their business. Logic dictates they are probably right.

3. A point not really addressed by the article is the impact of this action on the other distribution windows. Doesn't an early broadcast of the film essentially eliminate (or at least substantially devalue) the VOD, Cable and DVD windows?

It would seem that the studios are attempting to set up a model that eliminates as many middlemen as possible. Essentially, this goes back to the old days where the studios actually owned the theaters. They would make a movie and then have consumers pay the studio directly for the right to watch it.

The direct studio broadcast model being pursued by the MPAA is the digital-age version of studio-owned theaters. The studios can make a film and deliver it directly to consumers. However now consumers don't even have to leave their favorite chair to watch the film.

Here are some arguments on the studio side. Many knowledgeable people in our industry say that home viewing is not competitive with the theater experience. The superior size and quality of theater exhibition, together with the opportunity to get out of the house to do something fun, make going to the movies an "event." Plus, the social aspect of watching the film in a group of people definitely provides an energy that is impossible to duplicate in your living room. Bottom line -- many people will still go to theaters to see films, even if they can get the same film in their home.

Further, showing a film simultaneously to theater audiences and home audiences allows for a consolidation of marketing dollars. This means that the overall spend on advertising can be less, making it easier for the filmmakers and studios to make a profit. This ultimately should allow studios to release more pictures, giving consumers a wider range of attractive choices.

Further still, if studios can lower distribution costs by eliminating middlemen, this ultimately serves consumers. The essence of our economic system is to encourage business models which drive prices towards their natural bottom -- the real value of the product or service being provided.

However, when a single company controls the entire chain of a product or service, from development to delivery, it might have the ability to lower prices to consumers, but it has no economic motivation to do so. When it is not competing at any point in the process, it can charge whatever it wants. This is called a vertical monopoly and it is technically illegal. The argument could be made that direct delivery of content by studios is a violation of antitrust laws. (I'm not sure this is a winning argument, but it is an argument nonetheless.)

Certainly, if studios broadcast first-run features directly to consumers day-and-date with the theatrical release, it will have a huge impact on the current "windows" which are the essence of modern-day film distribution. I'm normally a proponent of change because I believe it often creates new opportunities as the old model dies. However, I'm not sure that's true in this case. Giving studios even more control over the delivery of film content does not seem to serve consumer interests. There are no new opportunities which will arise as a result -- unless someone has a really good idea for a way to use a bunch of empty movie theaters.


Brian Newman said...

More importantly, their scheme uses DRM that let's them control what you can do on your tv - it disables all other devices. Check out for more details

Roger Goff said...

Thanks, Brian. I'll tweet the info.

The Future of Movies said...

Hi Roger,

Great post. I was abut to leave a comment, but it got long enough that I was inspired to write a follow up post. You can see it here.

-The Future of Movies