11.12.09

Meet the Movie Theater of the Future

Forget waiting in line—studios are exploring new systems to deliver films whenever you want, on whatever device you choose. Kim Masters on Hollywood's biggest gamble.

Let's say you were dying to see New Moon but you didn't want to spring for a babysitter, tickets, and overpriced popcorn. What would you have paid to watch it at home on the same day it opened in theaters? Or say you’re crazy about Harry Potter. What would it be worth to watch the next installment even before it’s in theaters?

These are the questions being asked by Hollywood executives every day now—and they are not hypothetical. Because the studios are poised to make revolutionary changes in the way we watch movies.

The studios are gathered on the edge of the new-technology pool, trying to figure out how to dive in without breaking their necks.

The signs are everywhere. If you couldn’t wait to buy your own copy of G.I. Joe: The Rise of the Cobra, then surely you were thrilled to find it on Wal-Mart shelves earlier this month—about four weeks sooner than a studio would normally release a DVD.

But even if you wouldn’t watch G.I. Joe for free on a cross-country flight, Paramount’s decision to speed up its release date was a dramatic move—perceived by theater owners as an act of naked aggression, since they expect the studios to protect their interests by waiting the usual four months before releasing movies on DVD. Thus G.I. Joe became a foot soldier in an escalating battle over the future of the business.

Literally every day seems to bring another announcement about studios hastening the release of major films, on DVD and on-demand. Last week, the studios filed a petition asking the federal government for permission to disable certain outputs on your television so that they will be enabled to stream movies to you on-demand with less risk of piracy. And when will they make those on-demand movies available? Sony just announced that for $24.95, it will stream its animated hit, Cloudy With a Chance of Meatballs, to customers with Internet-enabled televisions and certain Blu-ray players on December 8—less than three months after it was released in theaters and well before it makes the movie available on DVD.

The studios are scrambling for a new approach because DVD sales—for years now, the life blood of the business—have started to dry up. (Retailers are slashing prices; Wal-Mart, for example, will offer this summer’s big movies, including Star Trek and the latest Harry Potter, for less than $10 this holiday season.) After all, why buy DVDs when they can be rented cheaply through Netflix and Redbox? So the studios are looking to replace that critical lost income through on-demand viewing and other new approaches. What’s not clear is whether these new strategies will generate enough money to support their business. You might say the studios are gathered on the edge of the new-technology pool, trying to figure out how to dive in without breaking their necks.

And some Hollywood veterans fear these game-changing ideas are fraught with tremendous risk. “You’ve got people at the top of these companies that don’t understand how the business works,” says producer Bill Mechanic, former head of the Fox studio (and producer of the upcoming Academy Awards telecast). “They’re going to end up in a place that may not be good for them.”

What worries Mechanic and many others is the possibility that studios will destroy the model that has made them rich for decades. The movie business has always relied on the concept of “windows.” This simply means that studios release movies in an orderly succession—first in theaters, then on video or DVD, then on pay television and so on. Each innovation has added a new window, allowing the studios another opportunity to sell the same movie.

The studios say they recognize that preserving the first window—the theatrical run—is essential. “That theatrical window is what’s made movies special,” says one former studio chairman. “Other than that—what are they? Television programs?”

“It’s not like the sky is falling,” Bill Mechanic says. “There’s no reason to be panicking—but people are.”

But the period between theatrical release and DVD sale has gotten shorter over the years. At this point, the studios still generally wait a respectful four months after a movie opens in theaters before releasing it on DVD. But the whole, previously sacred concept of windows is being re-evaluated. The studios are hurrying out movies on DVD and on-demand faster and they’re exploring new systems though which you will pay one price to watch a film whenever you want, on whatever device you choose. Some are convinced that this is the inevitable future. Others—including, of course, theater owners—say it could destroy the business.

John Fithian, head of the National Association of Theater Owners, says that movies require that exclusive run in theaters or they’ll simply turn into “commodities.” And if the studios destroy the theatrical window, he warns, they risk sacrificing theaters on “the altar of untested business models.”

At this point, studio executives are still nervous that if they push too hard, theater chains might retaliate. “We can’t be kamikazes out there,” says the head of one studio. “We can’t be the first ones to experiment and find out that the theaters won’t carry our movies.”

But fear is giving way to temptation. And at most studios, the top executives answer to corporate bosses who have no real experience in the movie business but who are eager to embrace the digital future. “Every studio will try to do it—a little bit differently, but everyone will try,” says a top theater-chain executive. And he says that inevitably, theaters will close by the score.

Some expect Comcast to lead the charge if it acquires control of NBC Universal, which seems likely. That’s because Comcast has already been hammering away on the windows system, releasing movies on-demand on the same day that they’ve been released on DVD. In 2007, it offered nine movies that way; this year, the number will leap to 100. So if Comcast becomes a cable operator that also owns a major studio, it will have lots of power to shatter windows.

And if not Comcast, what about Disney? Disney CEO Robert Iger has put Rich Ross—a talented television executive with no film experience—in charge of its studio. And on Wednesday, the company announced a major restructuring designed to “find innovative ways to provide quality entertainment that is readily available." You know what that means.

For the customer, this new movie model may sound great, but the question of how much you'd pay for access to movies whenever and wherever you want to see them is still a bit unclear. As is the question of whether the studios can calibrate expedited releases without demolishing theaters and, possibly, themselves. The windowing practices that are now in effect “were not brought down by Moses from the mountain,” says Jonathan Dolgen, former chairman of the Viacom Entertainment Group. So there might be room to tinker with the system, he says, but “you have to be really careful” not to destroy it.

Mechanic thinks studio executives in the trenches—the ones who really understand their business—need to summon the courage to tell their corporate bosses at Disney and Sony of the risks of this rush to reinvention. “Nobody’s fighting this stuff, which is crazy,” he says, adding that while DVD sales are down, they’re still far from dead. “It’s not like the sky is falling,” he says. “There’s no reason to be panicking—but people are.”

Appealing as it may be to imagine streaming a brand-new movie on your television or some little screen that you hold in your hand, it’s hard not to feel some anxiety about how theaters will fare as the future arrives. They may not be all that they should be and in some cases, perhaps, they are downright disgusting. But going to the movies is more than just a (relatively) cheap date. It can be fun; sometimes it can even be magical. And it’s a drop of cultural glue left in a pot that seems to be getting emptier by the day.

Kim Masters covers the entertainment business for The Daily Beast. She is also the host of The Business, public radio's weekly program about the business of show business. She is also the author of The Keys to the Kingdom: The Rise of Michael Eisner and the Fall of Everybody Else.