December 7, 2005

You go, I!

Bob Iger chatted with the Wall Street Journal's Merissa Marr and some of the conversation was published on Monday. And the catchiest part, movie-wise, was:

"WSJ: You've previously suggested that the gap should be narrowed between a movie's theatrical release and its availability on DVD. Can you unilaterally change the DVD window?

Mr. Iger: We'd be better off as a company and an industry if we compressed that window. We could spend less money pushing the box office and get to the next window sooner where a movie has more perceived value to the consumer because it's more fresh. The problem is the theater owners threaten that if you do that, then you're not going to run your film on as many screens.

WSJ: Isn't there a way to work with the theater owners?

Mr. Iger: There are some that are interested but as you find with any industry, there are others that just want to do anything they possibly can to fight change. ... No movie studio really wants to be first because it's like going over the hill first in battle. They don't want to take the most bullets. We'll have a conversation with theater owners to see whether we can move them more peacefully. But I think in the end, it's going to have to be more by force than through negotiation or diplomacy.
One idea was to sell "Chicken Little" DVDs in the theater. So you've seen the movie and just as when you go to a play on Broadway or a concert, you can buy the DVD, that's when people are feeling best about it, and you cut the theater owner in to the video sale. But there's so much fear now about change that no one wants to sit down and have a frank discussion.

WSJ: How do you maintain the value of your content if such windows are collapsed? It seems there's every chance the overall pie will shrink.

Mr. Iger: I think there will be a lot of trial and error. ... The system right now feels like it's under stress and the consumer is definitely changing from a behavior perspective, and technology is allowing more change to occur either in distribution or consumption patterns. I think it behooves us to test the marketplace a fair amount and see what it will tolerate."

As anyone who reads this column on a regular basis can tell you, I think Mr. Iger is way off the mark. It is certainly interesting to experiment with new delivery systems that will expand the base. But the ever-shortening window has been slowly changing the cash flow in the film business for more than 15 years now, ever since the first under-six-month sell-thru for a smash, Batman, then on videotape. And the movie business model has become more and more like the stock market model… focus on quarterlies… risk your core for the perception of growth… this is not a business, it's a stock price.

Ms. Marr, who is part of a Wall Street Journal team that consistently shows an understanding of this business better than either of the Times or the trades, asks the right question: "How do you maintain the value of your content if such windows are collapsed? It seems there's every chance the overall pie will shrink."

And on this question, Iger's answer is squirmy and exposes just how dangerous Hollywood's latest obsession is. The system "feels like it's under stress." Yes, but as evidence continues to pile up to suggest that it has little to do with the delivery systems and everything to do with overspending on production and marketing - both a direct result of an overemphasis on opening weekend, intensified by the shortening window - the leaders in the industry continue the tradition of looking desperately for expansion opportunities instead of focusing primarily on shoring up the basics of their business.

Regardless, I am now excited about the possibility of Iger taking this leap and taking it soon, because the "experiment," like the prick of a needle, is better just done quickly and not thought about too much. And this is why… If the industry continues to move slowly, as it has for 16 years, towards day and date release, by the time we get close enough to it happening to understand what the result will be, there will be no going back. Exhibitors will be bankrupted. And the national screen count will drop significantly. And there will be no going back. "They" can scream "Harry Potter!" and "Spider-Man!" all they want. But the established franchises won't last forever and the sooner the industry experiences an attempted launch of a new franchise that is challenging, the sooner we will know how well it works and if it can be done for a price.

I am ready to find out if Annapolis can open via your cable/satellite, DVD and some theaters and make as much as it might have been projected to make via traditional distribution.

I really want to see Bob Iger sell copies of Pirates of The Caribbean II in the lobby after the opening weekend shows, generate another $150 million in flash, and then see how much opening weekend business is affected and whether the repeat business is reduced by 20%, 50% or 80%.

Of course, don't forget the current reality that studios are knowingly dumping tens of millions of dollars in theatrical box office already in the current structure. Movies that could make a lot more are being dumped off screens for the latest highly-advertised product. So know that Bob Iger and the many other closet day-and-daters are aware of this and willing to take the hit in one part of the pocketbook to save in another.

$100 million returns more money to the studio via DVD or home delivery than in box office grosses. If they could get the world to spend exactly the same amount of money without going into the theaters, the margins would shift 15% to 25% in favor of the studios.

On the other hand, as we have learned (or not) via the DVD sell-thru revolution, costs tend to increase to match (suck out) any new profitability. Talent demands on DVD revenues have increased and you can be sure that demands on V.O.D. revenues will increase with all the speed of an agent Blackberrying a love letter to Brad Gray.

Steve Jobs is in such a rush to go down this road with Iger? Let's see Cars as the guinea pig! Day and date! Let's do it!

Because if the experiment succeeds, God bless the gods of revenue and we can start the discussion about whether seeing a movie on a big screen is a human right worth persevering. More importantly, if it fails, the exhibition infrastructure will not be decimated in the process, unable to recover.

The combination of ultimate cynicism and ultimate faith in the product that all of this suggests is pretty stunning. I mean, you have to think you have a problem to be pushing for this kind of extreme change in a delivery system where no one is really demanding changes. (See: Iraq) And at the same time, you have to have a great deal of blind faith in your product to think that you are going to get people who are not spending money on your product now to spend it if you give them other ways of getting the product.

It's not a play to try to give away product. This is all about increasing profits by, theoretically, reducing costs with new delivery systems. But the win that the heavy pushers of this shift are looking for is getting more people to spend their dollars on this product. And that is where my faith ends. With a four month window with DVD and a ten month window with "Pay Cable," both of which cost money already, I believe that most people are being served satisfactorily. There is no doubt that there is a percentage of people who if given more options will take more options. But I truly feel that the greatest demand for these new options are in the elite class that people in this industry represent. And we have never been our own target market.

Of course, none of this really matters if the primary goal is not growth so much as safety. Lower risk, lower reward potential… but hey, if the papers aren't writing about your box office disasters, your stock price at you multinational conglomerate - and every studio is owned by one - doesn't get hurt.

And hey… the television business isn't that bad. Except when it is.

Every time I read someone explaining that the market is demanding quicker delivery, I can't decide whether to laugh at the speaker, accuse them of gross disingenuousness, or to puke to think that this industry is in the hands of the utterly self-delusional. Audiences are not demanding movies on iPods. All they demand is something they want to see. And it doesn't matter whether it is genius or crap. Year after year, people in this business try to figure out how to play the percentage game of hits and misses that is pretty much avoidable instead of just accepting the reality and handling risk smartly.

It's the second greatest power source in the business after money… ego. Let it rip!!!

E-ME.