April 16, 2012
Richard Greenfield and Brandon Ross of BTIG explain why windows need to collapse in 2012.
Photo credit: Flickr
In a rapidly evolving media world, where HDTV penetration now exceeds 70% and the average US living room TV sold is 44″, the concept of forcing consumers to attend/pay for a movie in a theater for the first three-four months of a film’s lifespan feels increasingly archaic. The overwhelming majority of multichannel video homes are capable of utilizing video-on-demand, with the exponential growth of IP-enabled TVs (directly or via third-party devices); not to mention the growth of web-enabled iPads that have a sharper screen than any TV set. The stage is set for the “home” to become the new “theater.”
Why Buy When You Can Rent?
Falling DVD sales and consumers’ lack of interest in buying movies digitally (Electronic Sell-Through, EST) has received most of the blame for Hollywood’s financial problems. Hollywood is hoping that expanding the functionality of digital content, meaning a cross-device, cloud-based storage system for movies (Ultraviolet), will invigorate interest in buying movies. Unfortunately, the fundamental issue is that consumers no longer need to own content.
Movie Attendance in Secular Decline
Hollywood’s problems go beyond declining interest in buying movies—consumers are also less interested in going out to the movies. The annual number of movies attended per capita has dropped from 5.1 to 3.9 over the past decade. Simply put, consumers are watching fewer movies in their initial release window. While movie going has rebounded in the early part of 2012, we believe this is an exception to a secular trend. Attendance declines have been masked by pricing increases, especially from 3D pricing. With 3D no longer a growth vehicle, we believe the secular attendance trends will be increasingly troublesome.
The Problem: Technology is “Raising the Entertainment Bar”
The downward trend in movie attendance and DVD purchases are really the result of one, simple catch-all word: “technology.” Technological advances in home theater, especially since 2005 have shrunk the difference between watching movies in the home and watching in the theater. Average television size growth hit a huge inflection point with the flat panel revolution, with the average television purchased for a US living room now a 44″ HDTV screen.
Broadband has also created competition for a viewer’s time and enabled new ways to experience media. Netflix streaming has brought large quantities of content to consumers at low prices, while creating competition between first-run “fresh” content and long-tail, catalog content. Netflix has also enabled the rise of the serial drama, creating even more competition for movies. Netflix not only gives consumers a way to watch hours and hours of high quality serial dramas that they have never seen before, but it provides a syndication outlet for serial dramas, allowing networks and studios to invest more in the production of quality content. Add to Netflix, online content options such as Hulu, iTunes, Amazon Prime Instant Video, Vudu, etc.
While video-on-demand (VOD) via a multichannel video programming distributor (MVPD) has become nearly ubiquitous over the past decade, navigational interfaces, depth of content and video quality have only recently begun to take a step-function forward. The HBOGO experience is night and day compared to HBO-on-Demand and Xfinity-on-Demand via the XBox with Kinect enables you to use your voice and hand gestures to navigate deep menus of content versus a clunky, remote control with arrow keys and color coded buttons to navigate a Comcast set-top box.
The confluence of these technology catalysts has “raised the bar” for consumers to either leave their home and buy a movie ticket or to buy a movie on DVD or digitally. We expect the bar to move notably higher over the next few years as an increasing percentage of TVs become IP-enabled. Studios need to understand the “new” consumer and technological paradigms and work with them, not against them.
Academy Awards Crystallizes Hollywood’s Windowing Problem
On February 27, 2012, the night after The Oscars, we received an e-mail blast from Vudu highlighting the Academy Award-winning films available on Vudu. While films such as Hugo and The Help were available immediately, films such as The Descendants, The Muppets, The Girl with the Dragon Tattoo, The Iron Lady and The Artist would not be available for rental or purchase until mid-March to late-April.