For years, the entertainment industry has lamented the lack of sales in the Pay-Per-View/VOD/EST transactional markets. And it’s true, the sales numbers are anemic, with blockbuster films generating in the general neighborhood of $10 million in studio revenues across all these markets, and lesser films generating far less.
These markets are the only near-term hope to replace the falling DVD markets. While advertiser and subscription based business models are and will remain critical components of the entertainment value chain, the underlying components do not tie revenues to consumer demand. Over time, these models support two or three national players at most, and the resulting concentration of buying power depresses the prices obtainable from these distribution channels, and transfers enormous wealth to the shareholders of these distributors, rather than down the production chain to the entities that take the production risk. One has only to look at the intrinsic worth of HBO, Showtime, BSkyB and Netflix for compelling evidence that this is the case.
What is worrying about current trends is that there is almost no evidence that the studios are doing much to support the transactional markets with marketing dollars, and thereby creating a self-fullfilling prophecy. As they retreat from the DVD market and fail to support the transactional markets, consumers become less inclined to spend their discretionary income buying or renting movies, and a death spiral results.
Consider this: Studios spend $40 to $50 million domestically in marketing and distribution costs on average across their theatrical film slates. The typical film spends perhaps two to three weeks in theaters, and then disappear from public view until the transactional markets become available some four months later. With so many alternative entertainment choices available via the internet and DVRs, consumers increasingly decide to “wait until the film comes out on video” to see all but the most compelling films. However, by the time that film becomes available, the five major studios alone (not counting MGM, Lions Gate and Summit) have spent more $1 billion dollars in the US marketing and distributing 25 new releases (5 films released per studio in 4 months times 5 studios times $40 million). It’s no wonder that consumers have forgotten about the movie that they were going to rent “when it comes out on video.” Further consumption of and revenue streams from those films becomes accidental. The dollar loss is staggering, and incredibly, largely unnoticed.
The situation is made worse by the fact that effective transactional consumption via the internet is for all practical purposes limited to Blockbuster-On-Demand (until recently in bankruptcy), iTunes (only available in the living room through Apple TV) and Vudu (who?); not only are films not being marketed, but effective distribution is almost non-existent. Couple this with difficult user interfaces and it’s no wonder the numbers are low.
In the late 1990’s, there was a concerted effort to develop the DVD market, led most notably by Warren Lieberfarb, then head of Warner Bros. Home Video, among others. A similar effort is needed now. Consumers are willing to pay to rent and buy quality entertainment. They have proven this over and over again. With a significant commitment of marketing dollars (to let consumers know that the films they missed in the theaters are now available to be rented or purchased over the internet) and a concerted effort to enable transactions in the living room (as well as on iPad’s, iPhones and laptops), consumers will open their pocketbooks. And it is quite possible that, with those buying habits established, films intended to premiere through transactional channels will become viable and significant, creating an infrastructure to support the production of movies that people aren’t willing to pay $50 (2 tickets, parking and babysitting) to see, but would be more than willing to pay $3.99.
The biggest risk to the well being of the industry is that such an effort does not materialize, the transactional markets (including DVD) continue to dwindle, and the effective business model eventually shifts to theatrical release followed by availability on subscription and advertiser supported channels.