What Is So Special About A Movie's Theatrical Release?

from the put-the-horse-in-front-of-the-cart dept

Tue, Apr 13th 2010 4:11pm — Michael Ho

The complexities of Hollywood economics are something of a mystery to most Hollywood outsiders who don't understand how the money flows from movie-goers to the producers, movie distributors and the studios behind major films. Despite a ton of reporting (and even some studies) focusing on ticket sales at the box office, Edward Jay Epstein points out that box office revenues are far from being the bread-and-butter of Hollywood:

Box office sales no longer play nearly as important a role. And yet newspapers, as if unable to comprehend the change, continue to breathlessly report these numbers every week, often on their front pages. With few exceptions, this anachronistic ritual is what passes for reporting on the business of Hollywood.

So what is the actual business model for Hollywood movies? Epstein notes that only about a tenth of the total revenues for the major movie studios comes from American theaters -- and the lion's share of revenue comes from licensing deals in the form of DVD sales, TV broadcasting rights and all sorts of other distribution deals. It's no wonder, then, that the industry is so anchored to intellectual property rights and so focused on doing anything to preserve its lucrative licensing business.

We've seen a lot of alternative proposals for making money from movies, but if the box office sales are really just a fraction of the movie industry's revenues, why are theatrical releases made out to be such a big deal? Perhaps instead of delaying the release of movies to home theaters, certain movies should be released to Netflix/RedBox/Blockbuster first -- and then only the titles that have enough demand for the big screen should make it to a theatrical release. Obviously, there's the argument that if an audience could watch a movie at home for ~$1, there would be no reason to pay $10 to see the same movie in the theater. But that assumes there is nothing special about seeing a movie on the big screen.

Given the example of how Paranormal Activity only screened in nationwide cities after fans demanded it, offering movies that people actually want to see in theaters may be a better way of filling seats. Or maybe there really is no reason to go to movie theaters anymore.

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Filed Under: economics, hollywood, movie industry, movies

33 Comments

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Anonymous Coward, 13 Apr 2010 @ 4:21pm

1/10 of billions is a lot of money...
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Anonymous Coward, 13 Apr 2010 @ 4:34pm

Because the content is the advertising. People are sold on the idea that a movie must be great if it has huge box office draw. That allows the studio's to charge higher licensing fees later on. It is mostly the short term licensing deals (about the first 5 years)that make the large amount of money.
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- Michael Ho (profile), 13 Apr 2010 @ 4:58pm
  
  ... but the current way may not be optimal?
  Sure. I think we agree that content is advertising (and vice versa)....
  
  My point here is that theatrical releases might not be the best way to advertise a movie. Is buying a superbowl ad for a movie the best way to promote a movie? Sometimes. Sometimes not. (or oftentimes not.) Sometimes the best promotion for a movie is a more viral/grassroots campaign.
  
  The costs of distributing film to movie theaters is almost like buying a superbowl ad -- if that's how you're promoting a movie. I'm suggesting that some movies (or more movies) can be effectively promoted by distributing them over the internet to people's homes.
  
  Maybe Avatar wouldn't have been as big a hit if it were made available on Blu-Ray first and then distributed on the big screen. But there might be other movies that fit a "home first, theater later" approach.
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  - Reason2Bitch (profile), 13 Apr 2010 @ 5:32pm
    
    Re: ... but the current way may not be optimal?
    Although only a tenth of a film's revenue comes from theaters I think there is definitely a strong correlation between theater earnings and total earning of a movie (it would be interesting to validate disvalidate this claim through hard data though).
    
    Earning 1/10th of a money in a few weeks is not bad thoughh especially since recovering the other 90% might take years.
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  - whejas (profile), 13 Apr 2010 @ 8:43pm
    
    Re: ... but the current way may not be optimal?
    You mean like "Hurt Locker"? The flaw in your plan is the assumption that Hollywood makes films people would HAVE to see instead of want to see. That is what worked for Avatar. People got the word of mouth that they HAD to see it. Hurt Locker was released to DVD first, and then went to theaters to gain Oscar cred. However, no one went to see it, even after it won.
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    - PaulT (profile), 14 Apr 2010 @ 1:59am
      
      Re: Re: ... but the current way may not be optimal?
      "Hurt Locker was released to DVD first, and then went to theaters to gain Oscar cred."
      
      Erm, no it wasn't. It was released theatrically in June 2009, and then released on DVD in January 2010. There was talk of releasing it straight to DVD, but the studio eventually relented and allowed a theatrical run. it was re-released theatrically to try and wring some extra cash from its Oscar win, but this wasn't its debut.
      
      "However, no one went to see it, even after it won."
      
      It actually did OK for a movie with difficult subject matter that was totally uncommercial. For the first 2 weeks of its release, it actually had the highest per-screen revenue in the country.
      
      Having said that, if attendance was disappointing, even the studio admitted that it had no clue about how to market it. That's why it never received a wide release in the US - in other words, the studio didn't give it a fair chance at cinemas (its widest run was 535 screens). The movie has grossed over $40 million (nearly 3 times its production budget) at cinemas internationally.
      
      So, it's a successful film as it went into profit on its theatrical run (until Hollywood accounting comes into play, of course). Not every film has to be an Avatar sized hit to be termed a success, and not every "blockbuster" makes money - many lose tens of millions for the studios.
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      - Anonymous Coward, 14 Apr 2010 @ 11:00am
        
        Re: Re: Re: ... but the current way may not be optimal?
        Thanks, PaulT!
        
        Great info on the Hurt Locker... indeed not every film has to follow Avatar's footsteps.
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Ben S (profile), 13 Apr 2010 @ 4:38pm

you're not thinking paranoid enough
You guys aren't thinking cynically/paranoid enough. Clearly box office sales hype is a marketing tool used to boost DVD sales. There are a lot of people that don't bother going to the box office but that still look at how well a movie did there when deciding whether to buy it on DVD.
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- McBeese, 13 Apr 2010 @ 5:30pm
  
  Re: you're not thinking paranoid enough
  Yes, I agree. All of the downstream promotion is based on how well a movie does in cinemas, with a little award stuff thrown in too.
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- lux (profile), 13 Apr 2010 @ 9:55pm
  
  Re: you're not thinking paranoid enough
  worst. comment. ever.
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Chris Pratt, 13 Apr 2010 @ 4:42pm

I very, very rarely ever go to a theater anymore. 99% of movies simply don't benefit from the big screen, and the price of tickets is ridiculous. That said, there are certain movies that just should be seen on a big screen. I went to theaters for Avatar, for instance.
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- ECA (profile), 13 Apr 2010 @ 6:30pm
  
  Re:
  Its the idea of,
  Whats so great about theaters..
  Whats changed in the last 60 years??
  Sound.
  Thats all. And even that STILL isnt the greatest.
  They have been using 70mm WIDE screeen(which still TV/TFT hasnt done) for ALONG time.
  If you really want to know, the SEATS havnt gotten any better.
  I can sit at home, drink a beer, and have dinner, snacks, and even make out with a girl/boy IF I WANT(and continue after the movie), and NOT=
  leave my home
  Sit in a room with 200+ others
  Worry about my car being ROBBED, in an unpatrolled lot.
  Walking home in the dark
  Fighting to get OUT of the parking
  PAYING to park
  I can pay 1 time for a DVD and watch it MORE THEN 1 time..
  PEE BREAKS.
  BABY breaks..
  PHONE BREAKS..
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- Anonymous Coward, 13 Apr 2010 @ 7:43pm
  
  Re:
  And only in 3D at an Imax or Gold Class theatre.
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Beta, 13 Apr 2010 @ 4:54pm

predictors
Years ago I heard that studios had become obsessed with big opening numbers because distributors used those numbers to predict how well a movie would do in later distribution (DVD, cable, rental); the bigger the numbers, the better the deals the studio could get for those rights. At about the same time, some savvy movie-goers began using advertising campaigns as predictors: a studio with a bad movie on their hands will pour money into advertising to get the big opening weekend, knowing they have only one chance to draw people in before word gets around, so the bigger the advertising blitz the worse the movie will turn out to be.

"Pearl Harbor" was the canonical example.
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- Michael Ho (profile), 13 Apr 2010 @ 5:02pm
  
  Re: predictors
  I think we'll see more and more "Netflix recommendation" services that replace the box office metrics. If you released a movie to a bunch of Netflix subscribers who were specially-picked beta testers -- their ratings could be more effective at predicting the popularity of a movie than spending millions on distributing film to theaters.
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- Michael (profile), 13 Apr 2010 @ 5:09pm
  
  Re: predictors
  As I consumer I can vouch for the later half of this.
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Raleigh Mann, 13 Apr 2010 @ 5:02pm

Box office sets the pace
The article seems to miss the mark in one very big regard: while the boxoffice receipts only account for ~10% of total revenue - the larger the box office the more demand the distributor can make for the other licensing revenue streams. If a TV/Cable operator wants to show it 'first' and it was killer box office -they have to pony up much more money to get first broadcast rights. Same goes for DVD distribution - box office will guide the initial price of the disc and which regions to release it in (remember regional encoding exists solely for controlling distribution and profit).
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- Michael Ho (profile), 13 Apr 2010 @ 5:33pm
  
  Re: Box office sets the pace
  But as I mention above in other comments -- what if there were other metrics besides box office numbers? Netflix-like ratings could be a cheaper way to obtain a "box office" measure. There could still be release windows, too....
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  - Ben S (profile), 13 Apr 2010 @ 5:59pm
    
    Re: Re: Box office sets the pace
    That's probably true, but it doesn't mean that Hollywood realizes it yet (much less acts on it). Things are changing so fast that big media producers are trying desperately to cling to every one of their distribution channels because they don't know which ones are going to dry up sooner or more quickly.
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Anonymous Coward, 13 Apr 2010 @ 5:16pm

I only go to the movies if I'm trying to get laid.
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McBeese, 13 Apr 2010 @ 5:43pm

I find that I'm going to cinemas less frequently these days, even though the quality of the video display and the seats, etc. is going up.

Why?

1. Because the quality of my experience at home is also going way up.

2. Because sometimes young teenage girls with cellphones are allowed into the same movie. It ruins it and I'm not going to pay for that experience. "Like, really, no way."

3. Because of the pre-roll ads. I like the previews, but I didn't pay to watch ads. You know why the cinemas serve such large portions of food now? So that a few people MIGHT have something left when the movie starts.

But getting back to the main point, I usually only watch a movie once. If I watch it again, it's at least years later. If I watch a movie at home first, there is zero chance I will pay to see it on a larger cinema screen within 5-10 years.
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Chad, 13 Apr 2010 @ 6:45pm

There's money to be made
It's not surprising if DVD sales account for much more than box office revenue. Another aspect is the video game industry which ALSO funds Hollywood (via the fact that every movie in the last 10 years has been made into a terrible game that for some unknown reason still manages to sell thousands and thousands of copies).

So with all of the revenue coming in from licensing deals all over the place, who cares if people watch the movies at home even for free? I mean those people will STILL watch the movies on TV, they will STILL buy the video games, they may even still buy the DVD to have a good quality version at their fingertips without the need of a computer.

Even if movies were never screened, they would still produce quite a bit of revenue.

On the other hand, movies today (Dark Knight, Avatar, etc) seem to make a killing on opening box office weekends which is far too good to pass up (because it's millions they otherwise wouldn't have).
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Anonymous Coward, 13 Apr 2010 @ 6:46pm

Box Office is a good judge of popularity
From a movie goer's (I like the popcorn) point of view -- the box office sales is a good quick judge if people thought it was worth seeing. It's not the best review but a gauge if it word of mouth allowed the second week to continue strong -- so it will suggest weather for the masses or not it is ok to do more research on a movie.
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Anonymous Coward, 13 Apr 2010 @ 7:02pm

exceptions dont make rules. paranormal activity is not the entire film industry thankfully.
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- Anonymous Coward, 13 Apr 2010 @ 10:00pm
  
  Re:
  Rules don't make rules. Especially in Hollywood.
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Hephaestus (profile), 13 Apr 2010 @ 7:17pm

Michael, who are you and what did you do with mike???

Simply put the studios are spending to much money. They out source CGI, have layers of payments, legal agreements, various trade unions (writers, etc), and tons of deal making management. At each level someone takes a cut of the profits. All this is wasteful and the reason why in the end efficient garage studios that do everything in house will prevail. No writer guild to deal with, no lawyers writing contracts, no rental of cameras, etc.

There is nothing Special About A Movie's Theatrical Release. It is all hype and marketing of movies that were created after spending way to much money on production.
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- Michael Ho (profile), 13 Apr 2010 @ 8:45pm
  
  There is nothing Special About A Movie's Theatrical Release.
  Hi Hephaestus,
  
  I've been a lurker in these parts for quite some time. And I didn't do anything with Mike....
  
  If there's nothing special about a theatrical release, then it seems like there should be a lot more experimentation with the business model behind distributing movies. I think Netflix has the potential to become its own studio of sorts. And maybe HBO will be able to expand into theaters someday?
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Jupiter (profile), 13 Apr 2010 @ 7:44pm

Every time I think about going to see a movie in the theatre, I look over at the stack of really awesome classic DVDs I haven't seen yet. Rarely is a movie at the theatres as good as something I have waiting in my Netflix queue. Hollywood only makes a dozen or so movies each year that are really worth seeing. New isn't the same as good. So I usually stay home and watch movies, and if I want to go out, I see a play.

That said, today the theatrical run of a film is nothing more than a giant commercial for the DVD release and whatever products are featured in the film. Look at what's popular on DVD (newspapers print that too) and it's pretty much the same as what was popular in theatres. What's popular in theatres? Whatever movie got the most promotion.
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catullusrl, 14 Apr 2010 @ 4:18am

Late again
Perhaps instead of delaying the release of movies to home theaters, certain movies should be released to Netflix/RedBox/Blockbuster first -- and then only the titles that have enough demand for the big screen should make it to a theatrical release.

Mark Cuban & Magnolia Pictures are already doing this eg Eclipse
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Tyanna, 14 Apr 2010 @ 7:20am

I don't think that distrubitng the movies to Netflix/RedBox/Blockbuster first would be the best idea. But instead, I think that huge blockbusters should be released via these services withing a week of the theater release. That way, people can choose the way they want to see it.

Instead of blocking Netflix and RedBox from providing new releases, they should strike up a new licensing agreement for providing the movies while they are still in the theater.
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Joel (profile), 14 Apr 2010 @ 9:10am

No one knows...
Now a theatrical release is over-rated and is over-commercialized, all the movies that are coming out now create a big bang the first week they come out and perhaps the second week they still have a good draw, but by the third week it is almost unheard of. Companies need to stop worrying so much of creating that first week draw as big as they want it to be because it is a lie, to themselves and to the people. The only reason they do this is because they know that people are going to start spreading the information that others want to know and if they can get you in the theater before that information is out then they got their moneys worth.
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Monkeyboy (profile), 14 Apr 2010 @ 9:35am

That's an interesting idea to release movies on DVD first and then if they have a big enough following to release them in theaters. In the past couple years, I've paid good money to see both WarGame and Raiders of the Lost Ark in a movie theater experience. First of all, you know you're only seeing the movie with people who already love that movie, and that makes the experience even better than seeing it with people who don't know if they will like it or not. Plus, if it really gains cult status, you can do something with it like the Rocky Horror Picture Show and have audience participation!

Look how well some re-releases have done, such as the original Star Wars movies. There are plenty of movies that I would love to watch on the big screen that I never got a chance to like The Godfather, Die Hard, or Back to the Future. I did get excited over talk a couple years ago of re-releasing Back to the Future on the big screen this year for it's 25th anniversary, but that seems to have fizzled out. Each of these movies I own on DVD or can watch on TV all the time, but I'd pay some money to go see them with other fans in the theater.
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Michael, 14 Apr 2010 @ 11:59am

Leverage on the deals?
Are the box office numbers used as leverage in the deals they then make with networks, DVD distributors, etc.? I would expect the movie studios to wait for the box office numbers and then use them to help set the price points on the other deals.

That may not be the case, but it would seem logical to me. It may be really hard to price streaming distribution of a film without getting some kind of "opening weekend" number first.

It may be a better business model for them to offload some of the risk onto these other companies, but we know how much they like changing business models.
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