The Screening Room Earns Mixed Reaction, Not Total Rejection

The Screening Room Earns Mixed Reaction, Not Total Rejection

The National Association of Theater Owners, which represents exhibitors and speaks for the top theatre chains, has finally weighed in on the much-debated The Screening Room, which offers day-and-date home delivery of first-run movies. Their statement is more about who initiates discussions about changes to the status quo than the clear rejection from The Art House Convergence, which organizes independent (specialty) theaters.

Both organizations raised concerns that hint at the chance to negotiate. (Read full NATO and AHC statements below.)

READ  MORE: The Screening Room Home Viewing Platform Gets Peter Jackson’s Support

The Screening Room concept involves consumers buying a $150 device that will attach to their home entertainment system so that they can pay $50 to watch first-run movies in a 48-hour window at the same time as initial theater play. The plan attempts to include from the start exhibitor participation (unspecified revenue sharing, two admissions for each purchase to theaters where concessions would be bought), recognizing that without theater incentives and approval NAPSTER-founder Sean Parker’s proposal would have no chance to get studios, much less the theater owners, on board.

Way back in 1979, when I was a young film buyer working for Chicago’s top locally-owned theater chain (back then, most theaters were based in one compact region), studios announced that they were going to start releasing their films a half year or more after their premiere on the new videocassette format, sending shock waves through the industry.

The reaction from most theaters owners, who are by nature resistant to change as retailers in a system that gave them the sole viewing option for at least a year (16 mm in schools and other institutions came next, then network TV two-three years later, with individual ownership of a copy not an option) was overwhelmingly negative.

The owners of my company had a different reaction. My boss contacted the heads of distribution with a proposal: ‘Why not talk to theaters about their becoming your retail outlet when they go on sale?’ (Rentals were an afterthought.) No infrastructure then existed for this beyond regular retail outlets (for both music and wider wares) and there was no precedent for the public to purchase movies to own. But had theaters nationally bought into this early, they might have controlled the sale and rental of videos and enhanced their own business and made themselves even more integral to future developments.

The idea went nowhere as theaters dug in their heels and hoped it would all just go away. So videos went forward, an entirely new industry was created and thrived, and theaters lost a chance to be involved on the ground floor as partners as the industry shifted. 

READ MORE: Author Tom Roston Interviews Tarantino, Smith and More for ‘I Lost It at the Video Store’

The vast income videos brought to the studios helped finance movie production, in turn buttressing theaters with product. The model remained theatrical-driven (as the credibility of video releases was built from their success at theaters). But it also introduced for all time the alternative of seeing movies at home, uncut and without commercials at the viewers’ own pace.

Flash forward nearly four decades, and although home viewing has evolved — DVDs, Blu-rays, Video on Demand (first-run in limited cases), cable movie stations, far larger international markets— the core model of top studio releases shown initially in theaters has stayed the same (although with a shorter three-month window).

Now that we have both NATO and AHC on record, we get a sense of where this evolutionary process could be headed. Theaters both operate from a position of strength and weakness. Studios at this point have little alternative with the expense of their movies and the bounty that comes from the present model—reconfirmed above all by the huge showing of "Star Wars: The Force Awakens"— to risk total exhibitor rejection.

But their current distribution paradigm is threatened by non-studios with deep pockets like Netflix and Amazon starting to initiate significant projects (both traditional movies and longer-form programming) that have the option of totally bypassing theaters. So the trajectory is moving toward coexistence and finding a model that maintains as much of the status quo as possible while adapting to new paradigms.

NATO’s statement should be seen in the context of its complex internal politics. Second-biggest circuit AMC, which is trying to merge with fourth-ranked Carmike (transforming them into the biggest exhibitor), is reported to be an active participant with The Screening Room. This makes sense: they are the only big chain to play films day and date with Video on Demand (although with the subterfuge of renting auditoriums to distributors, thus not violating NATO policy) and they played Paramount’s two horror films last fall that had pre-announced VOD availability early in their release.

The NATO statement takes note of the surprisingly strong support from directors of The Screening Room (a shrewd move to build credibility, although influential techno-futurist James Cameron and celluloid defender Christopher Nolan are opposed) and recognizes the need for potential change release models while still keeping theatrical play first and foremost. It states that initiatives should come out of exhibitor/studio discussion, rather than from third-party outsiders. This doesn’t address what is proposed, but rather sounds like a consensus statement as they slow things down rather than totally reject the concept.

The AHC statement gives a much more detailed case to block the proposal. The articulate and detailed response comes from a group of theaters who have little chance of making or breaking the concept. That power lies with the Big Four chains (Regal and Cinemark along with AMC/Carmike, as well as a handful of powerful regional chains like Pacific and non-AHC participant Landmark). But their points deserve attention, because they reveal the shared concerns of all exhibitors.

Their reasons for asking studios not to participate revolves around four main concerns. First is the elevation of alternatives to the theatrical experience. Second is how piracy will increase with the ease of home viewers’ ability, even if there are anti-recording devices in the equipment, to film the movies (with better quality than similar illegal recording from movie screens). Third is uncertainty about revenue sharing and particularly how they with less clout than the bigger chains might fare in this. And fourth is no recognition of the need for changed film rental terms with increased competition.

The statement recognizes up front that AHC members have been among the most willing theaters to play VOD releases. AHC is in an awkward position as the group that pushed Sony a little over a year ago to make their North Korean pirated "The Interview" available for theaters after the studio announced a VOD rather than normal release. Both sides benefited; many AHC members, with less competition with most chains refusing to play the film, garnered great grosses and Sony earned added revenues while still having a strong VOD play.

No one seemed to be concerned with piracy then, or damage to the theatrical experience. Members couched playing "The Interview" in terms of freedom of expression and patriotism rather than a windfall, but the profit motive was a key factor.

No doubt if most or all movies had this availability, it would reshape the industry. But accepting it in some cases and then rejecting wider use puts members in the position of being half-pregnant and less credible in wholesale rejection.

The larger piracy issue—with more interest in higher profile movies and a $50 rather than $10 or lower charge current VOD fee as the alternative— is legitimate. It is hard to believe that The Screening Room’s backers haven’t thought this through, with some sort of identification of each individual purchase detectable by hi-tech investigators who doubtlessly would pursue offenders and make examples of them. But the risk is real.

The AHC statement also expresses concerns about lost income for bars, restaurants, hotels and others showing these movies. But that issue already exists for high expense, high profile events like boxing championships, and a solution has been found for that (no use without permission and payment, something theaters would want to make certain didn’t happen).

Their final point about the shared revenues hints at the main reason for the strong statement, apart from wanting a seat at the table. How they share in the proposed revenues is a concern for any theater participating; they are right to worry about getting the short shrift. But by raising the question of normal film rental, they also hint at a way studios could entice all exhibitors. Yes, they realize there will be lost revenues (particularly concessions, a much larger profit maker for theaters than their share of ticket prices). So in rejecting the idea, they add an area where if their financial concerns are addressed, perhaps the door isn’t totally closed.

My guess is that although the independents of AHC will have a small voice in whatever happens, their statement speaks for concerns of all exhibitors big and small. And it suggests, contrary to the initial exhibitor reaction to videos of just wishing them away and not getting on board early, exhibitors are aware enough of changing times and new models that they now think it is time to openly discuss options, and discuss which one works best, rather than totally rejecting discussion. The much more powerful NATO in its statement, that focuses more on who originates future delivery patterns rather than rejecting consideration outright, reiterates how much they’ve learned since 1979.

NATO STATEMENT:

 
(Washington, D.C. and North Hollywood, California) Recently there have been various reports in the media regarding a proposed movie release model called “The Screening Room”. Within a few days of the first report, several different high profile movie directors publicly stated their support for the model, some claiming that the model is good for motion picture exhibitors. Movie theater operators, however, will individually decide what business models work for movie theater operators.
 
The owners and operators of movie theaters genuinely appreciate the vision and creativity brought to the big screen by motion picture directors. Nothing entertains movie fans better than a great movie exhibited in a modern movie cinema.
 
The exclusive theatrical release window makes new movies events.  Success there establishes brand value and bolsters revenue in downstream markets.
 
NATO has consistently called on movie distributors and exhibitors to discuss as partners release models that can grow the business for everyone. More sophisticated window modeling may be needed for the growing success of a modern movie industry. Those models should be developed by distributors and exhibitors in company-to-company discussions, not by a third party."

ART HOUSE CONVERGENCE STATEMENT:

An Open Letter from Art House Convergence regarding "Screening Room"

The Art House Convergence, a specialty cinema organization representing 600 theaters and allied cinema exhibition businesses, strongly opposes Screening Room, the start-up backed by Napster co-founder Sean Parker and Prem Akkaraju. The proposed model is incongruous with the movie exhibition sector by devaluing the in-theater experience and enabling increased piracy. Furthermore, we seriously question the economics of the proposed revenue-sharing model.
We are not debating the day-and-date aspect of this model, nor are we arguing for the decrease in home entertainment availability for customers – most independent theaters already play alongside VOD and Premium VOD, and as exhibitors, we are acutely aware of patrons who stay home to watch films instead of coming out to our theaters.

Rather, we are focused on the impact this particular model will have on the cinema market as a whole. We strongly believe if the studios, distributors, and major chains adopt this model, we will see a wildfire spread of pirated content, and consequently, a decline in overall film profitability through the cannibalization of theatrical revenue. The theatrical experience is unique and beneficial to maximizing profit for films. A theatrical release contributes to healthy ancillary revenue generation and thus cinema grosses must be protected from the potential erosion effect of piracy.

The exhibition community was required to subscribe to DCI-compliance in a very material way – either by financing through VPF integrators (and those contracts have not yet expired) or by turning to other models which necessitated substantial time and commitment. Those exhibitors who were unable to make the transition were punished by a loss of product. The digital conversion had a substantial cost per theater, upwards of $100,000 per screen, all in the name of piracy eradication and lowering print, storage and delivery costs to benefit the distributors. How will Screening Room prevent piracy? If studios are concerned enough with projectionists and patrons videotaping a film in theaters that they provide security with night-vision goggles for premieres and opening weekends, how do they reason that an at-home viewer won’t set up a $40 HD camera and capture a near-pristine version of the film for immediate upload to torrent sites?

This proposed model would negate DCI-compliance by making first-run titles available to anyone with the set-top device for an incredibly low fee – how will Screening Room prevent the sale of these devices to an apartment complex, a bar owner, or any other individual or company interested in creating their own pop-up exhibition space? We must consider how the existing structures for exhibition will be affected or enforced, including rights fees, VPFs and box office percentages.

A model like this will also have a local economic impact by encouraging traditional moviegoers to stay home, reducing in-theater revenue and making high-quality pirated content readily available. This loss of revenue through box office decline and piracy will result in a loss of jobs, both entry level and long-term, from part time concessions and ticket-takers to full time projectionists and programmers, and will negatively impact local establishments in the restaurant industry and other nearby businesses. How many of today’s filmmakers started their careers at their local moviehouse?

There are many unanswered questions as to how this business model will actually work. The proposed model, as we have read in countless articles, suggests exhibitors will receive $20 for each film purchased. At first glance, an exhibitor may think it represents a small, but potentially steady, additional revenue stream. But how will this actually be divided among the number of theaters playing the purchased title; will exhibitors who open the title receive more than an exhibitor who does not get the title until several weeks later (based on a distributor’s decision); who will audit the revenue to ensure exhibitors are being paid fairly; does this revenue come from Screening Room or from the distributor… these are just a few of the issues yet to be explained.

Similarly, Screening Room promises to give each subscriber two free cinema tickets with each film purchase. Yet to be disclosed is how an exhibitor will recoup the value of those tickets from Screening Room so they can then pay the percentage of box office revenue owed to the distributor of the film. Yet to be explained is who will manage the ticket program details such as location choice, method of purchase, and so on. Will all exhibitors be expected to honor Screening Room free tickets, or will some exhibitors receive preferential treatment over others?

We strongly urge the studios, filmmakers, and exhibitors to truly consider the impact this model could have on the exhibition industry. We as the Art House and independent community have serious concerns regarding the security of an at-home set-top box system as well as the transparency and effectiveness of the revenue-sharing model. Our exhibition sector has always welcomed innovation, disruption and forward-thinking ideas, most especially onscreen through independent film; however, we do not see Screening Room as innovative or forward-thinking in our favor, rather we see it as inviting piracy and significantly decreasing the overall profitability of film releases.

At this time and with the information available to us we strongly encourage all studios to deny all content to this service."

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Comments

rgm

Fascinating to realize that theater owners might have become involved in the marketing,
rental of films on video — even controlling their distribution.
Too bad–as it sounds so obvious in retrospect.

Dagobah

So this whole story is essentially based on an anecdote of your boss calling someone ("the heads of distribution"?) in 1979? Who knows if studios would have actually let theaters in on video rental revenue at that point?

My point being, yes, theaters are scared of things like TSR cannabilizing revenue, especially when 2015 broke box office records. However, they’re also not blind to the shift taking place in movie-going/movie watching. Look at what Alamo is doing. Exhibitors have absolutely not been blind to the new VOD/D&D world we live in (hell, many theaters might have played Beasts if it wasn’t exclusive to a certain "arthouse" chain).

It’s also very frustrating that the very places that have served to degrade the theater experience are the ones who are likely to reap the rewards of TSR.

Daniel

I do not sympathize at all with theatre owners and operators. They make too much money. Squeeze them.

Daniel

They are also visionless and tight in spending money where it’s needed.

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