The tried and true “release windowing” strategy of theaters then paid cable television then DVD then commercial television could be on its way out. Instead, studios are contemplating shaking up their pricing strategy by offering new films on home pay-per-view, 30 days after release, for $20 to $30.
This is a shrewd strategy to better capitalize on new release marketing and earn higher profit from the significant demand of consumers who want to watch movies at-home. We all can agree that consumers are willing to pay more than $1 to watch a blockbuster Hollywood movie at home. However with the current windowing strategy, rental companies such as Netflix and Redbox purchase DVDs (target priced to consumers) and earn profits by renting them. Studios can, and should, do better in profiting from “watch at home” viewers.
$20 to $30 per view seems like a value-justified price. Watching at home results in hard dollar ($10 per ticket, refreshments, babysitter, and transportation costs) as well as soft dollars savings (convenience of watching at home, can watch any time, and no one talking or blocking your view). There is enhanced value for home viewers in seeing a new release when it is “in vogue” to watch (can join in water cooler discussions) as well as be a part of the hype (better relate to the marketing promotions such as the film stars appearing on talk shows).
The only question I have is whether a 30 day delay is too long to wait. $20-$30 seems like a reasonable value capturing price on the theatrical release date, but value to the consumer generally deteriorates the farther away from the release date.
The big question is will movie theaters lose?
This is uncertain – many customers highly value the social and big screen experience of going to the cinema. Even with an at-home option, these customers will continue visiting movie theaters. After all, bookstores peacefully co-exist with libraries. That said, if cannibalization occurs (instead of going to the cinema, moviegoers watch at home): (1) Studios may be able to increase the revenue split that cinemas keep, (2) Increased potential profits may motivate studios to spend more on marketing – which will increase movie theater and at home demand.
The bottom line: This new release strategy seems like a brilliant strategy for studios to better profit from a segment that enjoys and is willing to pay higher prices to watch a new release when it is released theatrically. If managed properly, this new strategy can be win-win for studios, movie theaters, and consumers.
