Hollywood and DirecTV Are Changing The Cinema Game

by Tony D'Altorio

Hollywood and DirecTV Are Changing The Cinema Game

by Tony D'Altorio, Investment U Research

Thursday, April 21, 2011

A showdown is happening in Hollywood... though not the kind seen in a Western.

  • On one side of the corral stand Hollywood movie studios.
  • On the other, the largest cinema chains in the United States.

And like what happened at the O.K. Corral, it could change history.

The problem started several weeks ago with a few major Hollywood movie studios: Warner Brothers, Sony Pictures Entertainment, Universal Studios and 20th Century Fox.

Those four agreed to release their films on a premium video-on-demand basis with satellite company DirecTV (Nasdaq: DTV). More specifically, they agreed to offer them just a month or two after their theatrical releases.

This marks a big change, since studios currently wait up to four months before doing this. But they expect it to pay off all the same, at least for them...

Hollywood's DVD Revenue Fades Out

DVD sales used to generate Hollywood's real money. But those numbers keep falling dramatically, thanks to shifting consumer behavior and online streaming services.

The same goes for U.S. movie ticket sales. Revenues remain largely steady due to price increases, but fewer people actually show up to the theaters these days.

Hollywood.com reports the number of paying cinema customers fell nearly 10 percent last year. This has all forced studios to search for new sources of revenue.

Movie studios are talking with Netflix (Nasdaq: NFLX) and other web streaming operators about increasing online content. Warner Brothers, for one, announced a test allowing The Dark Knight and a few other movies to stream on Facebook.

Studios have also created the shorter premium video-on-demand release window to further squeeze money from each movie title.

If that succeeds, it could potentially change the economics of the film business. In essence, it creates a new revenue stream between a movie's theatrical and DVD release.

That prospect, however, does not excite everybody...

Angry Cinema Chains Disagree with On-Demand Scheme

The National Association of Theater Owners recently released a very terse statement. This group includes AMC Entertainment, Regal Entertainment (NYSE: RGC) and Cinemark Holdings (NYSE: CNK).

Apparently, it "repeatedly, publicly and privately raised concerns and questions about the wisdom of shortening the theatrical release window to address the studios' difficulties in the home market."

The Association adds: "They risk accelerating the already intense need to maximize revenues on every screen opening weekend and driving out films that need time to develop - like many of the recent Academy Award-nominated pictures."

Since nothing changed since then, movie theatres are ready to take the battle up a notch. They threaten to withhold movies from screens if studios proceed with their current plans.

John Fithian, the Association's CEO, says his members would allocate more screens to summer movies released by studios not involved in the on-demand scheme.

This may be bad news for Time Warner (NYSE: TWX), Sony ADR (NYSE: SNE), General Electric (NYSE: GE) and News Corporation (Nasdaq: NWSA), which own Warner, Sony Pictures, Universal and Fox, respectively.

But Viacom (NYSE: VIA.B), which owns Paramount Pictures, may win out. Its summer releases - Captain America and Super 8 - are likely to get better slots than rival films such as X-Men: First Class and even the final Harry Potter.

Theater owners have already begun to scale back the number of promotional trailers they screen, based on whether the studios are involved in the video-on-demand plan.

All said, one thing is clear: This summer will be an interesting one for moviegoers. Hopefully the movies will be interesting as well.

Good investing,

Tony D'Altorio

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