Major Hollywood studios and one of the country's largest cable operators are in discussions to send movies to people's living-room TVs just weeks after films hit the multiplex, a step that would shake up film distribution.
During a cable industry convention last week, executives from Time Warner Cable Inc. made the first formal pitch to the Hollywood studios for what is known as "home theater on demand." The cable company presented a variety of scenarios. But the main one, which has received early support from some studio executives, would allow consumers to watch a movie at home just 30 days after its theatrical release—far earlier than the usual four months—for roughly $20 to $30 a pop.
That proposal is still being debated and talks are fluid. People close to the matter say that several studios could sign on to a version of it as soon as the fall, making the first movies available on such a system by the end of the year or early 2011.
While the plan could be a boon for consumers, it stands to be highly disruptive for the movie business, particularly theater owners. Hollywood would essentially be overhauling the "windowing" system which has sustained the industry for years.
Studios now maximize revenue by staggering a movie's theatrical release date and the window, or time period, when it is released later on DVD or cable TV. DVD sales don't diminish a movie's box-office take, since the discs are sold long after a theatrical run.
But maintaining windows has grown more difficult as consumers have grown accustomed to an array of devices that make it easier watch movies whenever and wherever they want.
For years, theater owners have closely guarded the theatrical window to preserve revenues. But as Hollywood's own fortunes have declined recently, studios have become more willing to challenge that system. Though box-office receipts were up by 10% last year, based almost entirely on the success of higher-priced 3-D movies, that hasn't been enough to compensate for the sharp decline in DVD revenues, which have dropped by 27% since their 2004 peak of $12 billion, according to Adams Media Research.
Early this year, Disney Chief Executive Robert Iger caused a furor among theater owners when he announced that the company would release the DVD of "Alice in Wonderland" roughly four weeks earlier than usual, shortening the exclusive theatrical window to three months from the traditional four.
Premium video on demand offerings would only create incremental revenue at first, according to industry experts, who say that an average studio, which releases roughly 20 movies annually, would initially stand to bring in just $100 million in additional revenue a year. However, the studios believe they must aggressively respond to rapidly changing consumer habits in order to retain control of their business models.
Many studio executives remark that the music industry was slow to adapt to consumer demands and was powerless when new technologies upended their industry.
Time Warner Inc. Chief Executive Jeff Bewkes highlighted the balancing act at an investor conference in March, saying: "We have every interest in maintaining the strength and the resources of our theatrical distributors to make the film in a theater experience, a live experience. It's also true that people demand the films earlier in their home." (Time Warner spun off its cable operations into a freestanding company in early 2009.)
Theater owners argue that early home-viewing options would eat into ticket sales.
Tony Kerasotes, chief executive of Kerasotes Showplace Theatres LLC, said that an offering like Time Warner Cable's "would be very destructive to our business," noting that plenty of films continue to do big business in their fifth or sixth week at the box office.
"A lot of theater owners would be resistant," he said. He described a possible scenario in which exhibitors might refuse to show films that were offered too soon on video on demand. "I would hate to see things to come to that, but I could see it happening if things get bad enough."
Despite concerns over theater owners, some studios could decide to test a Time Warner Cable's proposal with smaller movies—what one media executive called a "trial balloon." That would give other studios a chance to gauge the level of theater owners' opposition, along with the damage the offering would do to DVD sales.
There are other obstacles. Premium cable channels like HBO have pre-existing deals with movie studios. A new V.O.D. offering could complicate those arrangements, which are based on pre-established release windows. Companies such as Netflix Inc., which offer movie rentals, would be less affected because they make movies available several months after they have run in theaters.
Not all the studios are eager to make their movies available at home while they're still in theaters. News Corp.'s Twentieth Century Fox Chairman and CEO Jim Gianopulos has told exhibitors that while his studio is exploring premium V.O.D. offerings, it is contemplating making movies available only during the period after they leave theaters.
Viacom Inc.'s Paramount Pictures doesn't appear likely to sign up initially, according to a person briefed on the proposal.
Other studios, however, have expressed strong interest in pursuing premium video on demand, especially in the wake of massive losses from declining DVD sales and a tough economic climate that has forced studios to make fewer films.
Sony Corp. has experimented with early release of its own studio's films to its Internet-enabled Bravia televisions. Last year, for instance, it offered Bravia owners the chance to watch "Cloudy With a Chance of Meatballs" for about $25 a month before it was released on DVD.
Sony has also explored licensing films from other studios, but has gotten little traction to date.
