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All You Need to Know About 'Theatrical Windows' and Why it is Shortening?

Co-Founder & Head of Business, Transfin.
Sep 8, 2018 6:50 AM 6 min read
Editorial

Theatrical Windows and its gradual shortening over the years has been a subject of extensive debate across the film industry. One wonders if studios and exhibitors will embrace this shifting dynamic or try and fight it.  

 

‘Theatrical Windows’ – an integral component of the film value chain

 

“Theatrical window’ represents the time between a movie’s theatrical release and its first availability on an alternate distribution channel such as DVD, Electronic Sell Through (EST) – one time transaction allowing a consumer to digitally rent or own a title, Subscriber Video-On-Demand platforms or a television network, whichever comes first.

Said another way, it is the time period during which the only way to legally consume a movie is by going to a theatre -  typically around 90 days but could vary significantly by title and geography.

 

Within the entire film distribution value chain, the principle of ‘theatrical windows’ is a fundamental underlying pivot. It’s an age-old principle, but one that has been garnering an increasing level of scrutiny from wide-ranging industry participants. The existence of theatrical windows has far-reaching impact on not just film economics but also in swaying consumption behaviour. After the theatrical window collapses, the title cascades through various digital delivery platforms and television broadcast networks over a period of time, all depending on individual title-by-title agreements. The chart below depicts a typical flow-through of a film title across various windows beginning from theatres and ending at free television.

Typical flow-through of a film title across various windows beginning from theatres and ending at free television
Source: Lionsgate Company Reports

 

Rattling Windows

 

In Hollywood and across the world to a certain extent, theatrical windows have been a contentious subject of discussion for various industry participants (studios, distributors, exhibitors, artists, digital delivery networks, television networks etc). Discussions range from identifying the appropriate length of typical window to questioning their outright existence. On one hand, windows offer a protected ring-fenced revenue generating edge for exhibitors, on the other hand, studios increasingly perhaps feel shorter windows could potentially boost earnings from non-theatrical avenues. It is clearly a subject where motivations and incentives are not entirely aligned. However, which way the industry appears to be heading at least directionally is evidently seen in the chart below – a decline in the length of theatrical windows over the years, albeit modest.

Decline in the length of theatrical windows over the years
Source: National Association of Theatre Owners

 

In my view, there are a few reasons for the downward sloping trend in the above chart. First, due to choppy attendance at theatres, studios perhaps increasingly see shorter window as a catalyst for increased revenue generation. This can be achieved by either renting out a digital copy of the title directly to consumers (via EST, TVOD) or selling a title’s first window rights to an SVOD platform such as Amazon Prime Video or Netflix.

 

The potential downtick in theatrical revenues from such a strategy could perhaps be more than offset by higher revenues from these new outlets. In fact, the sooner it is sold on alternate channels, the higher price studios can possibly claim. For example, as per industry grapevine, North American film studios are making a case for a $50 digital rental for a movie for home-viewing for 48 hours merely 17 days after its theatrical release. It hasn’t really materialized, but it clearly endorses the potential economic benefit of such strategies and a 17 day theatrical-window is literally unheard of. Recall, a film typically makes close to 80-90% of its theatrical revenue in the first couple of weeks, before sharply falling off. In that context, it’s probably economically prudent for studios to switch over from theatres soon after the initial spike and explore other modes.

 

Second, the massive marketing efforts undertaken by distributors and studios for a movie’s theatrical release can seamlessly spill over and be reused to market the title on the subsequent window as well if the window is fairly short. The longer is the window the more will there be a need to deploy another round of marketing spend as the initial marketing for theatrical window becomes somewhat stale.

 

Third, quicker legitimate ways of viewing a movie in a non-theatrical set up allows some sort of defence to revenue leakage due to piracy.

How 'Theatrical Windows' Change the Way We Watch Movies 

Exhibitors Will Bear the Ultimate Brunt from Shortening of Windows

 

The ultimate losers from shortening theatrical windows are, in my view, the exhibitors. They have historically milked untouched exclusivity for the duration of the window and have leveraged it to monetize movies under a per patron pricing model. Per patron pricing is unique to exhibitors unlike a Netflix, Amazon Prime Video or Television wherein one subscription or even one rental can serve many eyeballs. Exhibitors typically collect around 50% of box office receipts (passing on the remaining to distributors) and the fact that the movie is available exclusively only at theatres is a nice source of competitive advantage. So a collapsing theatrical window certainly does not bode well for them.

 

Furthermore, the big question for exhibitors is - does early availability of a title on alternate platform cannibalize theatrical revenues for the first couple of weeks or will the core enthusiast movie watcher still end up going to the theatre in those weeks. It is a question that can only be answered in hindsight in my view – but is it worth experimenting? I suspect, exhibitors find it a risk worth not taking and something that could set a dangerous precedent. And exhibitors have not left their feelings unheard. A great example from Hollywood is Crouching Tiger, Hidden Dragon: Sword of Destiny which released on Netflix day-and-date in North America. Day and date refers to a movie title being released on alternate forms the same day as its theatrical release and in this case the alternate form was Netflix. It was in effect a zero day theatrical window. This prompted North America exhibitors to collectively boycott the movie entirely on theatres. While an isolated example, it clearly underlines the intent from exhibitors.

 

Declining Windows Even in India, Netflix and Amazon Prime Video are Key Drivers

 

Even in the Indian context, theatrical windows are clearly seeing some sort of a downward trend. Amazon Prime Video’s deal with Salman Khan last year allowing exclusive rights for a title after the theatrical release but two months before any television premier is clear undercut to the traditional window by at least two months. Even on an ad-hoc basis, there are several other individual titles ranging from indie titles to tent-poles which have found their way on SVOD platforms fairly early on. Films such as Newton, Toilet: Ek Prem Katha, Raazi etc were available on SVOD platforms in around a month or so. There are many such examples which clearly underline the trend of declining theatrical windows in India as well. However, I suspect, the role played by SVOD platforms is heightened in the Indian film eco-system. Furthermore, I believe, a ubiquitous piracy market in India makes shortening of the window a much easier business decision for the industry.

Rise of Video: How 'Theatrical Windows' Change the Way We Watch Movies 

While we are still in early days and I suspect a zero theatrical window is not the future, I believe we will see a heightened degree of variability from title-to-title in the actual theatrical window length. That being said, exhibitors should brace for change and continue to evolve their business diversifying away from just core box office. An excellent example from the Canadian circuit is Cineplex, an exhibitor with near 80% market-share but has gradually built out robust alternate revenue lines ranging from e-sports, digital signage, location based entertainment solutions among others. This has seen their box office revenue share decrease gradually over the years to under 50% now. I suspect, over time we will see domestic exhibitors also increasingly embrace alternate revenue lines to hedge their box office exposure. Its an industry at the periphery of tech but has seen a somewhat low level of innovation and evolution compared to other players in the larger tech ecosystem.

 

This will be a recurring column published every Saturday, under the title: “Rise of Video.