June 30, 2005

FORWARD TO THE PAST
Part II

Part I, Part II, Part III, Part IV

As promised yesterday, here are some headlines and some details on the issues we are facing in the next 10 years…

Exhibition Is A Different Business Than Home Entertainment

It seems like an obvious point, but it's not always so obvious. These two businesses are often talked about as though they were easily interchangeable. The most popular line is, "It seems like exhibition is just a loss leader on the way to DVD sales… that's where all the money is."

But one business is about causing a purchase of moderately priced piece of entertainment that can be used (or not used) at will. It is a part of your home. And you (and your family members) will only ever (except for major shifts is delivery systems) pay for this piece of entertainment once.

The other is about getting people to leave their homes, give up 3 or 4 or more hours of their busy lives, and to have an experience that is beyond their control. The cost is significantly higher than the for-home purchase if more than one person goes to the film and there are many natural attendant opportunities to spend. On top of that, part of the marketing effort hopes that you will spend this greater amount of money more than once for at least a few films a year.

The difference is as significant as the difference between a supermarket and a restaurant. You are eating food in a restaurant that you could buy in a supermarket. Prepared food has grown in popularity at markets in the last decade, so it's not just the effort of preparation. Just as in the movie business, it is a lot more expensive (measured by the individual customer) to run a restaurant than a grocery store. It's true that watching a DVD in your house is a lot more fun than cleaning up after a meal, a service you pay for at a restaurant. But you get my point.

Restaurants sell the experience. Supermarkets sell product.

"The Food Business" could certainly live without restaurants. They make more on sales direct to consumer than selling to restaurants and if they were lucky, people forced to feed themselves at home every day might buy more and they might have a lot more spoilage. It could be a bonanza.

But on the flip side, higher end items that sell in restaurants might not sell to home consumers. (How often do you do good shellfish at home?) People might tighten their belts and get used to a simpler pallet of items. And, aware of costs, they might well find ways to economize.

Exhibition lasted a long time without television and without video and without DVD. And those media could survive without exhibition. Who knows how would it affect the content?

But these are two different experiences, even if the material on display is different. Museums don't throw out original paintings because they have made lithographs and posters. A museum may generate a great deal of money by selling these spin-offs of the art in the gift shop. But the museum experience is about the experience of the originals.

In the music business, even before the fall, the big money for the artists was always in touring, not selling records (though that was very profitable as well). Why do people go to concerts? The experience on the CD is so much clearer… it's always perfect… it's so much cheaper… so much more convenient.

It's different.

Established Price Points Do Not Go Up

This is a big one for me. The price point for Home Entertainment, with the exception of some special editions, is no greater than $20. Like in the record business, the most popular sellers are usually discounted, so the top is $15 there.

Will anyone pay more than $20 for a single filmed entertainment experience in their homes? Ever?

Of course, incremental rises in prices are possible. But when you can own a DVD for 20 bucks, will you ever consider paying $20 or more for a one-time viewing opportunity, even if there is the added value of opening night access?

Some of you - and some of me - would say "yes." But with a huge number of viewing opportunities available, is "opening weekend" as valued an experience as it once was? And how many movies draw that opening weekend lust?

The argument for day & date release of films via pay-per-view cable or satellite tends to lean on the idea that the price point can be raised. After all, going to a movie theater can not only be inconvenient, but it can cost, for one couple, $20 for tickets, $2 for parking, $18 for concessions, and often $30 for a babysitter, $40 for a dinner out you might not have had and gosh knows what else.

But how would a $30 price tag feel… not intellectualized, but the gut feeling?

People were willing to pay more for CDs when there was a novelty to the new medium and a brand new convenience. But when time passed and the "it costs more" argument made by record companies became a non-issue and prices didn't drop - not even to the cost of tapes or LPs from back a year or two when CDs went wide in the marketplace - that is when piracy took hold… because people felt they were being taken advantage of.

DVD has been driven, to a great extent, by an increased value without a significantly raised price point. Buying DVDs and videos has always been right around the same price point established by the Batman sell-through in 1989.

Cell phones became ubiquitous when the cost came down into line with what "regular" people's incomes could withstand.

When gas goes up 50 cents here, people go nuts… even though the U.S. has the cheapest gas outside of the oil producing nations of the Middle East.

For soda prices in automated dispensers to rise, the size of the bottles they sold had to rise. Yes, there is more money for Coke in a 20 oz bottle for $1.25 than a 12 oz can for $.75. But that 75 cent can was not going up over a buck, no how, no way.

I honestly have been trying to think of any consumer item that made a price leap. It's usually the opposite.

And while DVD may be set and $20 and under, the exhibition marketplace (in which studios and theater owners are partners) might have to consider bringing down prices a bit. My personal take has been that re-igniting second run theater would create a price point that would allow choice while still encouraging in-theater viewing.

But I don't see an option in a more than incremental rise in prices in either market as we move into the future.

The Music Model

I already wrote about how the excessive pricing on CDs helped drive the theft of music via Napster and other online outlets. But let's look at the new model.

The digitization of music, very much driven for the wide public by the iPod and similar technologies, represents a fundamental difference in the notion of delivery systems. The idea of owning your entertainment without having to possess a physical disc or tape is revolutionary. You may remember when CDs were packaged in boxes that doubled the physical space of the disc box because the idea of something that small at that cost seemed like it would not be accepted by the public.

As dominant as iPod is now, the future tools for listening to digitized music have a lot of room to evolve. But iPod will forever be the launching pad.

The DVR, launched by Tivo, is the digital gatekeeper in audio/visual entertainment. A wall of videotapes was once a status symbol… then the wall of DVDs. But the 500-hour, $200 Tivo is right around the corner. And suddenly, that wall of DVDs fits in a small box next to your DVD and you don't have to get up and choose one again. And Tivo has already announced a soon-to-be-released system to transfer anything on any DVR in your home to any other DVR.

The good thing about this for the industry is that obsessives abhor a vacuum and filling that DVR with titles will be a mission for some people. Like iPod owners, one can easily imagine people seeing A Star Is Born on the "Tivo Store" list and to buy it and stick it in their personal 500 hour universe and not watch it for months. They might throw it onto the laptop, figuring they'll watch it on the place or in the hotel room while traveling.

The ease of iPod access encourages buying… especially catalog and new release buying. But it is worth noting that the price point has not gone up. Buying music at the iTunes Store tends to be a bargain compared to buying in stores. And individual songs for a buck is a great deal.

But the price point hasn't gone up. And musicians still make most of their money by going on the road and touring.

Why Do People Go To The Movies?

I would argue that seeing a specific movie is only one part of the equation.

People go to the movies to get out of their houses… to get away from their families… to be with their families…to spend time with the opposite sex… to avoid having to talk to the opposite sex… to share the experience of a movie… to laugh out loud, buoyed by the crowd and hidden inside of them… to cry… to scream… to see, as Miranda July pointed out in a radio interview about seeing her film on a big screen for the first time, details that you only really see in wide screen projection…

We go to movies to dream.

Roger Ebert, in fighting against digital and for 30-frame projection, talked about "the reverie state of film" and how it is scientifically different than watching something on TV. But I think it is more than science. In a world of endless distraction, the movie theater is a temple of singular focus.

But on a more raw level, it is a lot easier to have sex on your couch in your living room watching a DVD. But it is a lot easier to get laid after going to the movies.

Perceived Value Vs Real Value

I touched on this above. If you add up all the costs of going to the movies, it isn't a really efficient expenditure of dollars. But that's not really the point.

People determine value based on all kinds of emotional valuations, often counterintuitive to black and white calculations.

The notion that quality is as easily maintained as the expenditure of effort has always been a great critic's insult to the people who put their hearts and souls into making films. Besides, since when has popularity and quality been clearly connected?

So what is the difference between two hours of The Sopranos and Kingdom of Heaven? There are lots and lots of answers to that rhetorical question. But they come down to perception. Many would prefer the TV show hours, which cost no more than 1/40th the cost of the Ridley Scott epic.

Would anyone pay to see The Sopranos in a theater? Probably not. That's one of the reasons why "straight" drama is so rare at the movies these days. But the bigger question for the movie business is, would anyone pay extra to see Kingdom of Heaven on their home entertainment system if it was up against The Sopranos, which is part of a $10 a month premium package, not to mention the hundreds of other cable/satellite options that are waiting for you as part of an already committed $75 - $125 a month?

How long could you wait to see Bewitched? Dark Water? The Dukes of Hazzard?

And consider this… how many HBO shows are "water cooler shows" that you have to watch over the weekend so you can chat about it on Monday? How long has Showtime tried to create even one true water cooler show? Has Bravo been able to find another one after Queer Eye For The Straight Guy? Is there one left on NBC? And even on CBS, is #1 ranked CSI a water cooler show the way, say, Seinfeld used to be?

The film industry has come close to perfecting marketing of their product in their theatrical runs. The value of that skill accrues to Home Entertainment, but the magic is about theatrical right now.

Can the industry afford to reduce theatrical to 10 water cooler movies a year?

I don't think so. Perception is that going to the movies might have become a bit too pricey… but people are still going in large numbers. People want to go. They are willing to spend. They perceive great value.

Tomorrow - Part 3: The Other Five Headlines

Delivery Systems Vs Content

The Next Commercial Step... Content Variation

Why Hasn't PPV Worked? Why Don't People Go To Theaters To See TV Events?

How Do People Feel About Spending On Entertainment... It's More Than Numbers.

Does Simplification/Ease Of Access Actually Help Anyone… Even The Consumer?

 

READER OF THE DAY: SHE ROLLS ALONG writes: "I would pay a small premium to see a few, very select films on opening night, but except for the rare film, it's not a Hot Button issue for me. I'm usually happy enough to see a film, in the theater or at home [if made available] within the opening week or two.

I go see films in the theater because they have generated real interest. I also enjoy seeing BIG films on the big screen, so I can enjoy the impact and total immersion. Sometimes, I enjoy watching with an audience, to feel and share their reactions. For example, when I saw The Cinderella Man, the audience was so into it, they were weaving and bobbing with the punches, expressing displeasure and dismay with ooohs and ahhhs, cheering the victories, groaning at defeats and then, the film audience applauded at the end. It was like being at a live performance. I love that sort of experience when it happens.

There are downsides to attending films in the theater. There are talkers and cell phone calls... there are misbehaving teens and kids, there are loud interminable vulgar ads and inappropriate previews to sit through and of course, inflated prices for popcorn and snacks. Since ticket prices are high, I am offended by all the ads.

To get me back into the theater to watch more films [rather than wait for the DVD?] I would hope that there are more indie, foreign, adult films at the multi-plex. I can't force manners on people, but at least in the "olden" days, there were ushers who would keep talkers and misbehaving people under some sort of control."

And this from JJ goes long and deep: "While I'll face certain wrath just for mentioning it, here are some radical decisions Hollywood could make to reshape the industry. I propose a 1-2 year trial period.

1. No longer report Box Office grosses. Report attendance figures for first 4 weeks instead.
2. No more advance screenings for critics. Everyone sees the movie on opening day.
3. Expand the DVD window to 10-12 months.
4. Help re-establish the 2nd run movie theater business.
5. Less films. More quality.

Bonus:
6. Adjust the cost of overpriced talent.

1. Box office grosses have now become the main topic of conversation about EVERY FILM. Films are no longer judged by quality, but instead on what it grosses on its opening weekend. Since there is no law saying that box office grosses must be reported, all Hollywood studios should stop reporting. Sure, bragging rights will be lost, but after several months, it will force conversation to shift and instead of reporting grosses on Monday morning, the studios instead could report THEATER ATTENDANCE, which will track how many people saw the film, a far more interesting conversation than just money, which will inevitably turn into "I wonder what it grossed". After a film has been out for 1-2 months, or when it is leaving it's theatrical run, then run the box office report. And be sure to include Domestic and International.

2. At risk of facing rage from critics everywhere, all films should be released without any advanced critic screenings. No more "dumped on Friday without a critics screening must mean it's bad". Sure, some good reviews can help a film, but those same good reviews don't always guarantee people will flock to the theater. By making critics watch films with audiences, they too can participate in the same theatrical experience as the audience they are writing for. Instead of a review the day the film opens, there can be articles on the making of the film, articles ABOUT the film. Then on Saturday or Monday, run the review. Over a period of time, this will result in people becoming more reliant on their own decisions and discoveries. Plus good word of mouth always travels. This method also will help bring rise to the 2nd Weekend, when all the people waiting for reviews can now go to the movies. Also, this method will! help put back some mystery into the opening weekend of any film. Is that so bad?

3. Sure DVD sales are saving the industry, but with a window of only 4 months and box office tickets rising to the same price as a DVD - an imbalance has been created in the industry that is going to eventually explode. If the audience knows that the film will not be on DVD for another 10-12 months, will that change their decision about seeing it in the theaters? (You bet it will) And sure, having the recent memory of the movie in theaters is helpful for the DVD sales (a double dip for advertising) but in the long haul, the extra money made from theatrical and word of mouth (plus a want to own factor) will balance out this business. Plus, with so many media outlets reporting on DVD releases, public awareness will not be a problem. Since it already once worked before in the age of VHS, it can work again. Hollywood has got to make us want to go to the theater, and holding back product for DVD is a sure fire way to do it.

4. Second run movies houses need to return. Better yet, let's just rope off a few extra screens at the megaplex and make those a $5.00 at all times ticket. A low cost ticket ($3 - $5) will also bring back people to theaters in a big way. Let's face it, over the last 10 years, theater owners have spent a fortune updating to the latest in theater design, demolishing all the older, less advanced theaters along the way. After a film has been out for 4 weeks, the price could drop at the same theater. If theaters are willing to charge less to see a film during the day than at night, then there is no reason this new model should provoke concern. There is plenty of coin to be reaped here, enough to pay for any additional DVD advertising. Plus, once the print is made, you might as well get as much out of it as possible. The new digital projection age would also help in this area as well.

5. There are just too many films being made to keep up with. When 4-5 films are released every weekend, plenty are going to loose. With so many modern distractions (TV, video games, internet) people are choosing carefully what they want to see in a theater. Less choices can also help people narrow down decisions and take action.

Bonus:
6. What if all the studios got together and agreed that they would not pay any actor more than $5 million a film. Adjusting for dollars, this same realignment can be made all the way down the production line. If all the studios agreed, then what would the $20 million actors do? Not work? There is nowhere else for them to earn that cash, so they will either choose to work, or not to work. Costs need to come down on films, and this is the first best place to cut. Sure, not having "stars" will effect some projects, but new stars can (and will) be created. And at the same time, after a year of not earning, those same overpriced stars will be happy to get back in the work line. Hollywood must learn to say "No" just as easily to the known talent, as well as they know how to say it to unknown talent. They own the whole business, they can make whatever rules they want. (Also, this "price lock" could als! o be applied to almost any major sporting team. Where else will the players go and play? The owners have them in a vice lock, and yet, they still let the talent rule the day and rape the bank.) Of course, getting every studio to agree to the same terms is almost a fictional as the films they spew out. But one can always dream."

E-ME. Phew! And again... how much would you pay to watch a movie in your house on opening night? And why do you leave your house to go to the movies? And if you have stopped, what could bring you back?