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The Windows of Hollywood

25 Apr, 2010 By: Thomas K. Arnold

The move by studios to impose rental windows on their DVDs and Blu-ray Discs in the hopes of getting consumers to buy more discs shouldn’t surprise anyone familiar with the workings of Hollywood.

This industry has always been about windows, and managing those windows to make the highest possible amount of money.

Since the origins of the motion picture industry in the early 1900s, theater owners have always had first crack at movies, because until DVD overtook it in the early 2000s studios made the bulk of their money from theatrical exhibition. Only after theater owners squeezed every possible drop out of a certain picture could it be shown elsewhere.

Now, in the golden days of Hollywood there was no “elsewhere,” but with the advent of television in the late 1940s studios suddenly became alarmed. Not only could this newfangled invention compete against theaters for consumer eyeballs, it could do so with their movies. So up went a window.

Television wound up becoming the first of several profitable Hollywood aftermarkets, bringing in incremental revenues from movies that were no longer viable in theaters. As more aftermarkets emerged, a window strategy was developed to maximize revenues from each platform.

Today, theatrical is still No. 1. Home video is next on the food chain, although the average window between a film’s theatrical opening and its video debut has been cut in half over the last decade simply because DVD sales soared and studios decided it was better to ride the wave of awareness generated by theatrical campaigns into the home market instead of giving a film an additional six weeks of steadily diminishing theatrical returns.

Pay-per-view has traditionally been next, nipping at home video’s heels—although studios are toying with windows on pay-per-view as well as various digital distribution platforms to see if they can spur the market.

Digital distribution is a very attractive model to studios, since they don’t have to go through the hassles of physically creating, packaging and distributing a product—not to mention the hassle of returns.

Windows, you see, is not just about total revenue, but also about margins. And that is precisely why rental, at $6.5 billion as of calendar 2009, is now being treated as the red-headed stepchild of the still-lucrative home video market.

Studios see the rise of kiosks and subscription rental services as a direct assault on sales — and an impediment to the natural growth of digital distribution. So up goes another window.

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