The New Movie Distribution Paradigm

Laying down with the lions

Movie studios and distributors are beginning to respond to a market hungry for more content - the online variety. But how do you feed a hungry lion without being eaten yourself?

Producers have put movies on small Web movie streaming Web sites for years - not that profitably. More recently there was the YouTube made for streaming trial - deemed successful - it will have ad based revenue. NETFLIX® commissioned Kevin Spacey's new show, House of Cards, to dip their toes in the water of original content. Eisner was coaxed by AOL® to make long-form videos dedicated to the AOL® market. Disney has a group dedicated to bringing children's programming online. And most of the major studios are thought to have new departments dedicated to streaming and download video. The trend is solidly in the direction of streaming, even if with fear and trepidation in the market.

Is bringing new movies online as a first release a viable business model for producers... or second release in the case of Hollywood style movies? Here at MSP, we believe it is a very viable business model. Following is what we see as the new distribution paradigm. Will it displace Hollywood theater or TV - should everyone be spooked? Nah.

Whether anyone likes it or not, the production, advertising, and distribution of movies, has to get paid for or movie production stops. That's just the way it is under any system. A profitable movie finances the next movie. It's no longer a question "if" or even "when" Hollywood movies will be released straight to streaming/download, or directly after theatrical release. The question is the profit model. The model should support the vitality of the entire industry. Distributors need to survive. Theaters need to survive. DVD vendors need to survive. Video on demand over the Internet, cable, or teleco needs to survive. Each player addresses a specific market need.

The product that Hollywood style movie producers offer is very different from what might be offered by other market players. They need a different profit model, and have different issues than independents. According to a Hollywood Reporter article, 7 Key Questions Surrounding DirecTV's Premium VOD Service Controversy, studio offering of premium VOD content 60 days after theatrical release "...is designed to attract people who don't go to theaters, and they need a way to make up for the demise of the DVD business." According to Home Media Magazine, Magnolia is already offering titles before theatrical release. We support the call by Hollywood producers and directors to be wary of going straight to streaming. Streaming has a very different profit model which is much more suited to independents.

The Wrap article: Could Margin Call Upend the Hollywood Business Model?

Next page: Market Drivers.

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Market Drivers

The Internet has turned the world upside down, but the more things change the more they stay the same. The company that is nimble and can react to market needs, survives and thrives.

TV made a huge dent in the entertainment market, bringing it into the home. TV movies made a larger dent, but TV didn't eliminate movie theaters or books. Neither did home video and DVDs. Cable TV didn't destroy TV broadcast networks, and video on demand didn't destroy TV and cable programming. Each time the market produced a new innovation, market players reacted by adopting to a new nitch. The biggest difference in over 60 years of TV broadcast is, TV movies are scarce, and made for TV movies, like the miniseries, are very scarce.

Similar market forces shaped the live theater industry. Broadway now produces big budget productions that are spectacles... extravaganzas. More common live theater has moved to Off Broadway, which used to be more experimental. The more experimental type of live theater has moved to Off-off Broadway.

The closest parallel to what is happening in the movie world, is what happened in the book world. Opportunities in the book world for most authors was very limited. Most book publishing companies settled on the "blockbuster" model. If the company thought the book would become a blockbuster hit, they would publish it. If not... forget it. It was a very economically justified move. Most new books sold less than 5000 copies, especially if the author wasn't known, and that didn't cover the cost of publishing. So for any new author, the publishing world was taking a financial risk.

The Internet turned publishing upside down. People can self-publish if they want to make their own opportunities. This is great if you are publishing a niche market book that will have a limited number of sales. You can distribute electronically, rather than in print, and both Amazon.com® and Barnes and Noble will list the book in their marketplace. Amazon.com® sells more electronic books than print. The new marketplace has provided opportunity where there really should be opportunity, and where the big guys couldn't provide opportunity.

The result in the publishing world is that thousands of brick and mortar book stores closed, and the national chain Borders, was driven into bankruptcy. Amazon.com®, which began as an Internet store and readily adopted new media, was nimble enough to ride the wave and thrive.

In the movie world, the major Hollywood studios and the theater chains adopted the same model as publishing: blockbuster hits... very expensive extravaganzas like Broadway. It pays the bills. The thing is, this is what Hollywood does well - no one wants to put an end to that. It makes enough money for the theaters for them to do well, or at least survive. But as in the publishing world, it creates limited opportunities for other producers, writers, actors, and crews. And it doesn't satisfy the hunger of the market.

Next page: The coming six tiers of entertainment.

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The coming six tiers of entertainment

The six tiers below are channel or viewing tiers, not value tiers, and meet specific market needs. At some level, all of these compete with each other, but not in a major way.

1

Premium
First Release
Big Budget
Venue: Theater

Product: Hollywood style big budget extravaganzas. Best seen on the big screen. These involve major studios, big stars, big stunts, major special effects, and expensive sets. Movies rated 7 to 10, out of 10.

Market need: "Evening out" entertainment.

Distribution channels and cycle: First release: Theater. Second release (after 60 - 90 days): DVD. Third release: Internet and cable VOD. Fourth release (28 days after release to DVD): NETFLIX® mail distribution. Fifth release: NETFLIX® streaming.

Viewing frequency: ~21% of potential viewers view a movie once a month.

Budget: Over $5 million.

Competitors: "Evening out" entertainment - live theater, comedy club, sports, concerts, races, dance clubs, recreational venues, and events.

Viewing price range: $5 - 12.00 per person

A brief history of film distribution models.

The traditional Hollywood distribution windows, Wikipedia article: Film distribution.

2

Broadband Premium
First Release
New Media
Venue: Internet

Product: Home theater experience. Movies rated 6 to 10, out of 10.

Market need: Home viewing market, and other markets. Three fourths of adults prefer to view movies at home.

Distribution channels and cycle: Internet, secondary markets such as DVD, online supermarket download sites, TV VOD, foreign rights

Viewing frequency: One or two per week.

Budget: Under $.3 to 5 million - undetermined.

Competitors: VOD/download of recently released premium movies

Viewing price range: $4 - 30.00 per device (home audience). Commercial: $3 - 5.00 per seat. Theater: Standard theater contract.

3

Sub-premium
First Release
Made for Media
Cable VOD
AOL® media
NETFLIX® media
Venue: Cable, Internet

Product: Regular evening entertainment.

Market need: Home viewing limited market, and other markets. Movies rated 6 to 7, out of 10.

Distribution channels and cycle: Internet first release VOD, Cable first release VOD, NETFLIX® first release VOD

Viewing frequency: Nightly to weekly.

Budget:

Competitors: VOD/download recently released premium movies

Viewing price range: Free / unknown / subscription plan

4

TV/Cable Premium
First Release
New Programming
TV

Product: Programs rated 7 to 9, out of 10.

Market need: High value evening entertainment. Examples: Gunsmoke, House, Bones, American Idol.

Distribution channels and cycle: First release: TV. Second release: HULU® type channels. Third release: NETFLIX®.

Viewing frequency: Nightly to weekly.

Competitors: VOD/download recently released premium movies.

Budget: $5 to 15 million

Viewing price range: Free/ commercial advertising

5

Standard viewing
Repeat
Second Release
NETFLIX®
Theater
Venue: Internet Streaming, VOD vendors

Product: Standard viewing of TV programs rated 5 to 7 out of 10, and old movie repeats.

Market need: Consumption. Often it's the only thing on.

Distribution channels and cycle: TV, cable, Internet YouTube.

Viewing frequency: Daily.

Viewing price range: Free/ commercial advertising / subscription plan

6

Experimental
First Release
New Media
Venue: Internet

Product: Hollywood style big budget extravaganzas. Best seen on the big screen.

Market need: Market testing, new producer development, cult

Distribution channels and cycle:

Viewing frequency:

Viewing price range:

Amazon.com® is a Registered Trademark of Amazon.com, Inc.
AOL® is a Registered Trademark of AOL Inc.
BOXEE® is a Registered Word Mark of Boxee Inc.
BLOCKBUSTER® is Registered Trademark of Blockbuster L.L.C.
iTunes® is a Registered Trademark of Apple®
CINEMANOW™ is a trademark of BBY Solutions, Inc.
Comcast® is a Registered Trademark of Comcast Corporation
Disney is a business name of Disney Enterprises, Inc.
Fandango℠ is a proprietary service mark of Fandango, Inc.
FIos® is a Registered Trademark of Verizon Trademark Service
HBO® is Registered Trademark of Home Box Office, Inc.
HULU® is Registered Trademark of HULU®, LLC.
Moviefone® and Moviefone.com® are Registered Service Marks of AOL Inc.
MOVIES.COM® is a Registered Trademark of Fandango, Inc.
MOVIEWEB® is a Registered Service Mark of MovieWeb, Inc.
NETFLIX® is a Registered Trademark of NETFLIX®, INC.
REDBOX® is a Registered Trademark of Redbox Automated Retail, LLC
ROKU® is a Registered Word Mark of Roku, Inc.
Sony® is a Registered Word Mark of Sony Corporation
Sundance Institute is not trademarked, but is used since 1981 by Sundance Institute, which hosts the Sundance Film Festival
Sundance Channel® is a Registered trademark of Sundance Enterprises, Inc.
TiVo® is a Registered trademarks of TiVo Inc.
VUDU™ is a trademark of VUDU, Inc.
XBOX® is Registered Trademark of Microsoft Corporation.
YouTube® is a Registered Trademark and Service Mark of Google, Inc.
Any trademark not listed out of oversight is a Trademark or Registered Trademark of it's respective owner.

Mention of any business in this article is not intended to endorse, disparage, or favor any business.

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Reference

You might also like to read:

LA Times story: NETFLIX®'s days without competition may be numbered.

4 Filmmaking article: How to make money from your film / a brief history of film distribution models.

NETFLIX® is a Registered Trademark of NETFLIX®, INC.
Disney is a business name of Disney Enterprises, Inc.
HULU® is Registered Trademark of HULU®, LLC.
AOL® is a Registered Trademark of AOL Inc.
Amazon.com® is a Registered Trademark of Amazon.com, Inc.
Barnes & Noble® is a Registered Trademark of Barnes & Noble, Inc.
Any trademark not listed out of oversight is a Trademark or Registered Trademark of it's respective owner.

Mention of any business or movie in this article is not intended to endorse, disparage, or favor any business.

Movie names that are mentioned are not given reference citations. This is because numerous studios are involved in production, and they then assign distribution rights to multiple distributors, and these rights can be sold to other distributors. For production and distribution information on any movie mentioned, consult the Internet Movie Database, or other authoritative listing.

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