Hower: Expansion of OTT services impacts motion picture windowing strategies

Glenn Hower

The exclusive theatrical window has served as a cornerstone of motion picture distribution strategy since the beginning of the modern film industry. According to a release by the National Association of Theatre Owners (NATO), the average time before a movie becomes available for home video (electronic sell-through or physical media) following a theatrical run fell from 138 days in 2005 to 91 days in 2015. This indicates a substantial reduction in the time period a motion picture exhibits exclusively in theaters. New market drivers and inhibitors have emerged in recent years impacting the industry’s windowing strategies overall.

As a result, theatrical windowing is evolving along with distribution strategy, including accelerated theatrical windowing and digital day-and-date distribution. Motion picture windowing trends have been impacted by the following drivers:

  • Box office revenue
  • Awards
  • Streaming services
  • Abundance of low-budget motion pictures

Despite stagnating somewhat in North America, the box office is still lucrative for both content companies and theaters, especially overseas. The box office is also a key measurement tool for the success of a motion picture. Worldwide, theatrical distribution is the primary way to distribute motion pictures to large audiences, especially in developing markets with low premium video service penetration and prevalence of physical media piracy. Since agreements tend to favor the studios on the front end, holding any exclusive theatrical window will pay dividends to the studio without the risk of digital revenues cannibalizing box office returns.

Aside from box office revenue, winning awards is an additional benchmark for the quality of a film, particularly within the production community itself. However, industry societies and groups have strict guidelines dictating the theatrical requirements of motion pictures in order to be considered for awards. As long as theatrical release remains a central criterion to award consideration, studios will continue to release their most coveted content in the initial theatrical window.

Markets with high broadband penetrations like North America and Western Europe have established services and networks in place to handle OTT video capacity, another disruptor for windowing strategies. Over a quarter of broadband households in Western Europe’s largest markets subscribe to an OTT video service compared to 59 percent of U.S. broadband households. In the high penetration economies where streaming services are readily available, consumer viewership of Internet video is increasing, even on television screens, which are traditionally the outlets for linear broadcast. Along with stagnated box office numbers in North America, the increase in digital video viewership in the home increases the opportunity for content providers to push fresh motion pictures to an eager digital audience.

With many independent films burning out on the festival circuit, digital day-and-date models through both theatrical and digital distribution open the opportunity for independent films to enjoy a brief theatrical run, distribute on a wide scale over the Internet, and be considered for awards.

While these drivers have emerged for motion picture windowing, the following inhibitors also exist:

  • Opposition from theater owners
  • Increasing ticket prices
  • Piracy and security

Theater owners express differing opinions on accelerated release, but by no means does a universal acceptance of the proposed model exist. Given the already shrinking theatrical window, theater owners see their business potentially diminishing. While theater owners greet accelerated windowing with resistance, they greet digital day-and-date windowing with near universal opposition.

The relationship between theater owners and potential disruptors like Netflix is contentious, with theaters largely refusing to exhibit Netflix’s motion picture originals. Given that a digital day-and-date release requires theaters to exhibit the motion picture, implementation of a widespread model is indeterminate.

Increasing ticket prices have also inhibited the market, with the average ticket price for a movie increasing each year since 2000. While higher value experiences like 3D cinema largely influence the increase, consumers are beginning to see less value in transactional content consumption in general when compared to the “all-you-can-eat” model of subscription streaming video. Additionally, the increase in the quality of televisions and home audio systems has created greater competition for theatrical experience from home systems.

With digital distribution to the home as a primary strategy, securing digital video files is essential. While digital video providers like Netflix have advanced security measures in place to mitigate content piracy, the rapid push to move assets into digital channels only increases the possibility that hackers can get a hold of digital copies.

In summary, OTT video providers have been disruptors to the traditional theatrical distribution model, incorporating accelerated theatrical exclusivity models and digital day-and-date release models. Theater owners have shown resistance to the acceleration of the exclusivity window, while showing near universal opposition to digital day-and-date releases.

However, the theatrical release model has maintained its relevance in the motion picture distribution space since box office revenues and awards serve as measuring sticks to gauge the success of a motion picture.

Glenn Hower is a Research Analyst for Parks Associates