A Hollywood movie will stay in the theaters anywhere from
two weeks to 12 months. Of the revenues generated at the box office, the studio
ultimately will take home 50-55 percent, leaving the balance to the
theater-owners. During the early weeks of a film's release, the
studio's cut can be as high as 90 percent in some cases; at the end of a long
run, that can flip entirely, leaving 90 percent to the theater-owners and only
10 percent to the studios. This may be one of the reasons the length of the
theatrical window has declined in recent years, as studios have determined that
it may be friendlier to the bottom line to move their films more quickly to the
home-video market.
While the theatrical release is considered the most important stage in the
lifecycle of a film -- how well it does in the theaters has a great impact on
how it does in all of the other ancillary markets -- it is by no means the most
profitable window. According to a September 2000 research report by the
international investment bank ABN Amro, global box office accounts for only 26
percent of the total wholesale revenues for a film released today. Worldwide
video rentals and sales, in contrast, now account for 46 percent.
Globally, Hollywood studios still dominate the theaters. (Hollywood films are
released internationally anywhere from within a couple of days to as long as
six months following the domestic release.) ABN Amro reports that U.S. studios
control three-quarters of the distribution market outside the U.S. And in
dollar terms, moviegoers in the U.S. are still able to account for 44 percent
of global box office.
Home video has a protected window of approximately six
weeks, meaning that the only place consumers can rent or buy the film is on
video or DVD. Now that pay-per-view has become more popular -- and broadband
video-on-demand is becoming a reality -- some in the home-video industry have
argued that the "window of exclusivity" is too short and doesn't give stores
enough time to turn a profit. Consumer demand for most rentals historically
peaks in the first three weeks of availability and then drops off
precipitously, which could be why distributors rely on an unorthodox revenue
stream -- late fees -- to help boost earnings. "One of the dirty little secrets
of the home-video business," writes Larry Gerbrandt, a senior analyst at
Paul Kagan Associates, "is that their largest profit generator is actually late
fees."
Still, the statistics bear out the fact that the home-video market is booming
business. According to figures compiled by Ernst & Young for the DVD
Entertainment Group, 182 million movies and music videos were shipped last
year, a 90 percent increase over 1999. Consumer spending on video in 2000 was
approximately $20 billion, while movie ticket sales were only slightly more
than one-third that amount, at $7.5 billion. In fact, the top video title of
2000 -- Buena Vista's "Tarzan" -- grossed $268 million in video sales and
rentals alone. That's $15 million more than the top movie of the year,
Universal's "The Grinch," took home at the box office.
DVDs in some cases account for 30 percent of a studio's retail revenue from sales and rentals. DVDs wholesale for only $10-$15 each (compared to $45-$65 apiece for video cassettes) and are sold to consumers at $18-$30. Viacom's Blockbuster chain -- which boasts a 40-percent market share for all home-video rental revenues and has expanded to 7,700 stores worldwide -- has argued that there should be an exclusive window for DVD rentals and sales. A "DVD rental window" would mean that video stores would have an opportunity to offer the discs to customers exclusively, preventing discount retailers like Wal-Mart Stores -- which accounted for 18 percent of consumer spending on video
purchases in 1999 -- from grabbing a piece of that market until the exclusive
rental window expired.
When the exclusive home-video window closes,
studio films are then made available on pay-per-view venues, on both cable and
satellite TV systems. At this stage, the movie is available exclusively for two
to six weeks on PPV. (Note that the film will always be available on video
after its initial availability, so subsequent discussions of "exclusivity" do
not take into account the home-video window.)
Generally, studios will get anywhere from 45-55 percent of the revenues
generated from PPV, depending on the individual movie and the number of PPV
channels on which it can be exhibited. If News Corporation had been able to purchase DirecTV, the leading satellite
operator would have been paired with one of the seven major studios (Twentieth
Century Fox is owned by News Corp.) under one roof. As it is, however, AOL Time
Warner is the only media conglomerate that owns both a cable operator and a
studio, one of the many instances of vertical integration in the global media
conglomerates.
[Note: Learn more about the media conglomerates' major holdings on FRONTLINE's "Merchants of Cool" website.]
After the exclusive PPV window
expires, the movie can then be shown on premium cable channels such as
Showtime, HBO, and Starz. The movie is shown concurrently on both the premium
cable channels and PPV for approximately six weeks. Then the PPV window closes,
leaving an exclusive window for the premium cable channels that lasts for
approximately 18 months.
HBO, Showtime, and Starz each have exclusive deals with the individual studios
in which they agree to pay the studio for all of the movies it produces in a
given year. The amount that the premium channel pays per film is based on
domestic box-office gross, and can go as high as $20 million to $25 million for
a blockbuster. The average is approximately $6 million to $8 million per
picture.
After premium cable (pay TV), the movie appears
on network (free) television for one to two runs; this interval lasts for 12-18
months. Increasingly, the top-rated cable channels -- USA Network, TBS, TNT --
have been able to outbid the networks to obtain rights to broadcast movies. In
some cases, the network or cable channel may even buy future runs at 5- or
10-year intervals.
The network/cable channel negotiates with the studio for each movie. Generally,
the network will pay the studio a fixed amount ranging from $3 million to $15
million, depending on the movie and the number of runs.
While network TV has often been a movie's penultimate revenue stream, it was
infused with a certain amount of cachet when George Lucas agreed to a television
premiere of his "Star Wars" prequel, "The Phantom Menace," on Fox TV, directly
after the video window had closed. Lucas's film was not the only film to bypass
both the PPV and premium cable windows. Disney decided to do the same with "Toy
Story" by broadcasting the movie on its own network, ABC.
Following the broadcast premiere and second run (or
however many runs the network/cable channel has bought the rights to
broadcast), the movie then goes into syndication, again either on network
television or a cable network, or even both. This period lasts for about five
years.
Movies are licensed to the highest bidder on a title-by-title basis. Studios
can exhibit the movies for as long as they own the copyright or the right to
distribute the film. The price that a network pays for each film is negotiated
on a case-by-case basis; there is no formula for what the studios take home.
The larger the market, the larger the studio's cut. In the largest television
markets, studios may charge up to $5 million.
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