It’s Friday night, and there’s a new comedy that’s gotten good reviews. But it’s not at the neighborhood multiplex and besides, who wants to spend $20 putting up with a noisy audience and rung-sprung seats? So instead, it’s a quick trip to the local Blockbuster where the same movie can be rented for $5 and seen on a flat-screen TV at home.

Preview of coming attractions? That’s what Walt Disney Co.’s incoming Chief Executive Robert Iger suggested earlier this month and what theater owners are livid about. No doubt the pairing of box office and DVD releases would upend Hollywood’s long-standing business model, but considering the industry’s changing economics and increased dependence on DVDs it might not be such a far-fetched notion.

Consider one feature, DreamWorks Animation SKG’s “Shrek 2.” The studio’s share of the domestic box office ran around $235 million based on a typical 54 percent return while DVD sales accounted for roughly $350 million, based on the studio getting $10 per unit.

“If you’re a studio, and you see DVD as the size of an elephant and the theater as the size of a horse, which one would you pick?” asked movie industry analyst Harold Vogel of Vogel Capital. “They’re not talking about killing the horse; they’d just prefer to ride the elephant.”

There are some obvious complications to the idea. Studios have come to rely on DVD releases, typically available five months after the movie comes out in theaters, as a second wave of revenues some of it coming from those who already saw the feature at the multiplex. But if the DVD is available when the movie is still in theaters, what happens to that box office revenue stream?

Changing world


John Fithian, president of the National Association of Theatre Owners, said Iger was leveling a “death threat” against his industry when the real problem is the product. “The movies are not as good,” he said. “They’re not terrible. They’re just not as good.”

Simultaneous release, Fithian added, would weaken the marketing potential of the theatrical release for ancillary markets. “Theaters would be forced to migrate to other forms of business with other types of products,” he said. “Hollywood movies have been our biggest business for a century. But in a hypothetical world, when movies are released on DVDs at the same time as theaters, the theater business would be severely impacted.”

Yet for all that, it’s easy to see why Iger and other Hollywood executives are casting around for better ways of distributing their product. “We can’t allow tradition to stand in the way of where the consumer can go or wants to go,” Iger told analysts on Aug. 9. “I don’t think it’s out of the question that a DVD can be released, in effect, in the same window as a theatrical release, although I’m sure we will get a fair amount of pushback on this from the industry.”

Iger’s comments have generally brought mixed, mostly muted reaction among studio executives. But there’s little denying this summer’s dismal numbers.

Box office attendance is down more than 10 percent this year compared with last year, and summer attendance is down 12 percent. Through August, revenues are more than $200 million shy of last year’s $6.5 billion.

Meanwhile, first-quarter DVD sales totaled $5.95 billion, while box office revenues came to $1.71 billion, according to the Motion Picture Association. While theater distribution only amounts to 14 percent of overall movie revenues, it represents up to 80 percent of a film’s marketing budget.

“Advertising for a theatrical release is an enormous expense, and you don’t make money in the release anymore you make most of your money on the DVD,” Vogel said. “Even a reasonably successful picture makes most of its real money on television and in DVD, as opposed to the theatrical release.”

If all the advertising geared for the opening weekend could spill into DVD sales, could studios lump theater and DVD revenues together and eliminate double advertising budgets?

“Older audiences are becoming a bigger and bigger part of the population who are renting and buying a lot of DVDs,” said Paul Dergarabedian, spokesman for Exhibitor Relations Inc., an industry research group. “And they might not go out to the movie theater on opening weekend, but would certainly enjoy having it on opening weekend.”

Question of cannibalizing


Tom Adams, founder of Adams Media Research, questions how much cost savings would be available by collapsing the two ad campaigns together and if it will offset the lost revenues from customers who buy the DVD instead of bringing their family of five to the movies. “The cost savings would not end up being as big as everyone thinks,” he said.

And entertainment analyst Matthew J. Harrigan of Janco Partners Inc. doubts whether the joining of DVD and box office would increase aggregate revenues. “Theatrical release is the only venue where you get to count the noses when they walk into the theater,” he said.

There’s also the question of whether simultaneous releases would cannibalize each other. Interest in a feature film often builds over time, creating additional revenue opportunities by the time it’s available on DVD several months later.

“It’s a terrible idea,” said Don Rosenberger, vice president of the home entertainment division of Questex Media Inc., publisher of the trade publication Video Store Magazine. “That probably sounds funny coming from the home video side.”

While Rosenberger acknowledges a simultaneous release would probably generate better cash flow on opening weekend, in the end there would be lost sales on both sides. “If you go to the movies on a Friday, unless you loved the movie, you’re not going to buy it on Saturday. And vice versa: who’s going to rent a movie, or buy it, and go back to see it in a theater?”

Adams Media Research studied revenues from DVD sales over the past three years to see what happened when they were released closer to the theater release, and the results were less than promising.

In 2003, movies that hit DVD sooner than the average five months did better than movies that waited, according to Adams. But by 2004, as more titles were released with shorter windows, the benefit went away. In many of the categories, titles with longer release windows did better last year.

While some who track the industry insist that all Hollywood needs is a better run of winners, there is persistent talk of a more fundamental shift in the way people spend their leisure time. “People are just beginning to wake up that what used to pass as summer excitement, isn’t that exciting,” Marc Shmuger, vice chairman of Universal Pictures told The New York Times. “This is vividly clear in terms of the other choices that consumers have.”

Many see change as inevitable, but not imminent. Movie theaters and studios are still too busy crunching the numbers. “I don’t think it’s likely for at least three years,” Harrigan said.