The Big Picture

Patrick Goldstein and James Rainey
on entertainment and media

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How much would you pay to watch the new 'Shrek' at home ... right now?

May 25, 2010 | 12:56 pm

Shrek_foreverThe most compelling story in Hollywood right now is the fumbling and stumbling and almost entirely top-secret wheeling and dealing going on inside today's movie studios as they try to figure out a replacement for their dying business model. In the old days -- meaning up until yesterday -- studios prospered by having an orderly sequence of windows-style releases for their product. First movies hit the theaters, then four to six months later they arrived on DVD, then on to pay TV and cable and network and all sorts of other ancillary areas.

But now the studios see disaster lurking on the horizon. Even though theatrical box office is up, largely thanks to sky-high 3-D ticket prices, DVD revenues are plunging, having dropped as much as 25% at some studios. People are renting movies for a couple of bucks or, as is the case with tons of young moviegoers, watching them in various, not entirely legal fashions, on the Internet.

That's why, as this fascinating Wall Street Journal story revealed over the weekend, the Hollywood studios are in discussions with executives from Time Warner Cable about a premium video-on-demand proposal that would allow consumers to watch movies at home just 30 days after their theatrical release for $20 to $30 per film. No one has officially signed on to the deal, but with Comcast taking over the reins at Universal, with Disney clearly moving ahead with significant window-smashing experiments and with Warners looking to exploit its cable muscle, it's a plan whose time is a coming.

Frankly, with the studio's DVD-fueled profit margins quickly melting away, the only people standing in the way are movie theater owners. You know them -- they're the people who have been resistant to nearly every trend in the history of the business, starting with the arrival of sound. Whenever a studio tried to cut its DVD window, exhibitors raise a hue and cry, beat their chests and threaten to pull the studio's product from their theaters.

What to do? Here's my own modest proposal. I think its time for an even more radical experiment, but one that could work if the studios were willing to make exhibitors their partners. Why not let us see a movie right away, not just 30 days down the line, but the same weekend that it opens in the theaters, and pay an even bigger premium to watch it at home in our living rooms, the same rooms millions of people have spent thousands of dollars outfitting with flat-screen TVs and fancy sound systems? Studios routinely spend $50 million marketing big new theatrical releases. Why not get even more bang for your buck right away, instead of waiting to ramp up the campaign again months later when the DVD arrives?

The perfect opportunity would have been with a film like DreamWorks' "Shrek Forever After." The fourth film in the long-running "Shrek" series, it stumbled to a disappointingly soft $71 million at the box office, either because "Shrek"-mania had abated or, as some experts theorize, because families were put off by the higher 3-D prices and either stayed home or paid $4 less to see it in 2-D. It wasn't a bad movie, since it earned an impressive A from CinemaScore. It just wasn't a must-see in a theater movie, at least not at today's high prices.

If you're a studio with a top-of-the-line film, like "Iron Man 2" or the upcoming "Toy Story 3," there's no way you'd want to discourage anyone from paying full freight to see it in a theater. But if you have a tired franchise, or a modest romantic comedy, why not experiment with a day and date release -- and make the experiment palatable to exhibitors by cutting them in on the action? Once you factor in popcorn, sodas and parking, a family of four could easily have spent more than $100 to see "Shrek" at their local multiplex this last weekend. So why wouldn't they be just as happy to pay $50 to stay at home, invite over a few friends and watch it on a big TV, especially since 3-D clearly wasn't a drawing card for the film?

To overcome exhibitor objections, DreamWorks could have made the theater owners their partners, splitting the proceeds or allowing for some sort of sliding scale of shared income, depending on different potential models for potential loss of theater ticket sales. It wouldn't necessarily be a goldmine for the studio who breaks the ice, since they would have to offer a sweet deal to theater owners in order to overcome their resistance. But on the other hand, it would allow everyone to see some real-life results that might open some eyes. 

There's a legitimate debate about whether day-and-date releases would cannibalize the potential viewing audience or significantly expand the potential viewing audience. On the other hand, I'd argue that you would still get plenty of DVD sales down the road, since a $50 day and date release would simply be creating another window of opportunity for moviegoers who want the instant fix of seeing a movie, but prefer to watch it at home.

Either way, it's time someone started doing some serious experimentation. I hardly need to remind anyone of what happened to the music business when it tried to hold on to its old business model until it was too late to salvage anything. It seems all too obvious that the movie business' most loyal customers are voting with their wallets, abandoning DVDs for cheap movie rentals and illegal downloads.

When it comes to new technology, there's no stopping change. All you can do is co-opt it. And if movie studios are going to make the leap into the brave new world, they'll have to find a way to drag stodgy theater owners along with them. So it's time someone hammered out a formula that could allow for a few visionary experiments to unfold. It's pretty obvious "Shrek Forever After" didn't have the goods to drag enough families out of the house this last weekend. But what if the movie could've come to them instead? My bet is that the audience would have expanded, not contracted, but it's long overdue for someone to test that theory out in the marketplace.

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Photo: Fiona tries to knock some sense into Shrek in this scene from "Shrek Forever After."Credit: Dreamworks Animation