February 8, 2012

On VOD and Beyond the Infinite

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Written by: Mitch Salem
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The homevideo divisions of movie studios are notoriously reticent about giving out specific sales information regarding their titles beyond Week 1 boasts, but today Universal made a point of disclosing to Deadline that BRIDESMAIDS had accumulated $40M in revenue from 7 million transactions through VOD, pay-per-view, hotel viewings and online electronic-sell-through (EST), which it claims is the highest earned by any movie to date.  This includes 4.8 million VOD transactions, which make up $24M of the total.  (These numbers use calculations of $5 per transaction for VOD and about $7 for the other non-disc viewings, which means that they reflect total gross rather than revenue back to the studio–an amount, depending on the splits with cable, satellite and online services, that’s probably more like $24-30M.)

To give this some perspective, the Numbers website estimates that Bridesmaids has sold 4.1M DVDs, meaning about $56M in revenue at a wholesale cost of $14 each.  In addition, if the ratio of DVD to blu-ray sales for the title’s first week in release continued to hold, Bridesmaids probably sold about 2 million blu-rays, which would mean something like $40M  in revenue.
So comparatively speaking, as of now the VOD revenue is still relatively limited compared to traditional homevideo, something like 25-30%.  And we can’t know, absent detailed research, whether VOD and other non-disc availability cannibalized the DVD/blu-ray sales for Bridesmaids in any meaningful way.  Nevertheless, this is significant money, particularly in a market where fewer discs are being sold and TVs, disc players, gaming consoles and of course home computing devices now routinely offer access to non-disc viewings of movies. 
The elephant in the room on this subject, of course, is the timing of non-disc availability, and the increased pricing that studios could charge for VOD releases if they were at the same time as distribution in theatres (not to mention the marketing savings if films were released in multiple media at the same time, rather than staggered over a period of months).  “True” independent movies (i.e., the ones not from divisions of major studios like Fox Searchlight, Focus and Sony Classics) are now routinely released to VOD day-and-date with a small theatrical release.  Margin Call, famously, has reported VOD revenues essentially equal to the total amount earned by the movie in theatres.  Quite a few films acquired at Sundance this year were explicitly done so for day-and-date release, including such high-profile films as Arbitrage (starring Richard Gere, Susan Sarandon and Brit Marling), Lay the Favorite (with Bruce Willis, Vince Vaughn, Catherine Zeta-Jones and Rebecca Hall) and Bachelorette (with Kirsten Dunst, Isla Fisher and Lizzie Caplan).  The latter 2 are being released by divisions of The Weinstein Company, which isn’t known for leaving money on the table. 
Because these movies have limited theatrical distribution in the first place, and they tend to be released to smaller theatre chains with less leverage, there hasn’t been much trouble about the day-and-date releases.  The major theatre chains, however, have been adamant that they will do everything in their power to keep a major studio from experimenting with day-and-date release–or even with any VOD release accelerated beyond the current norms.  Last year Universal wanted to try a very limited test of Tower Heist (at the probably doomed price of $59.99) a few weeks into its theatrical run in a small geographic area, and the chains made it clear that they would boycott the movie (at the very least) rather than allow that to happen.  Proposals have been made about allowing theatres to share in some portion of day-and-date revenue in consideration for ticket sales they might be losing, but those ideas have gone nowhere.
One can’t blame the theatres, which see the combination of increasingly high-level home theatre systems and potential simultaneous availability of product as a death knell for their business.  Record stores simply don’t exist anymore, and bookstores are becoming downright nostalgic; they don’t want to be next.  There are also those who passionately believe that any decrease in theatrical attendance will ultimately cost the studios more than any momentary gain, because of the stability (and high cost) of theatre ticket prices compared to what they believe can realistically be charged for VOD, even on a day-and-date basis.  (The model for this disaster, of course, is the music business.)  The question is whether audiences will continue to flock to theatres if they can’t watch new movies at home, or just do something else with their time.  The data so far is meager, ambiguous and open to many interpretations (usually slanted by vested interests, financial or otherwise).  Attendance was down last year in the US, including for what were supposed to be “sure-thing” franchise titles, but so far 2012 has been healthy, with some huge tentpole extravaganzas (Dark Knight Rises, Amazing Spider-Man, etc) due this summer. 
The one thing that’s certain, in the vacuum that’s been created by the theatre chains and their refusal to allow traditional distribution to be touched, is that this is an issue that’s not going away.  The studios feel that they’re losing out on revenue and spending more on marketing than they should be, and in a low-margin business like film production, those are precious commodities.  It’s no accident that Universal wants people to know how strong the VOD market is becoming.  Push, in the next several years, will come to shove.

About the Author

Mitch Salem
MITCH SALEM has worked on the business side of the entertainment industry for 20 years, as a senior business affairs executive and attorney for such companies as NBC, ABC, USA, Syfy, Bravo, and BermanBraun Productions, and before that, at the NY law firm of Weil, Gotshal & Manges. During all that, he has more or less constantly been going to the movies and watching TV, and writing about both since the 1980s. His film reviews also currently appear on and In addition, he is co-writer of an episode of the television series "Felicity."