Weigh-in: Directors Upset with DirectTV’s VOD

You may have already heard about this by now, but here’s the scoop:

Four studios have cut deals with DirecTV to allow recent theatrical films to be rented on Video-on-Demand (VOD) services two months after their theatrical release. For a film like The Hangover: Part II which was released on May 26th, this means that by July 26th moviegoers could watch the latest adventures of “The Wolfpack” from the comfort of their own homes.

Naturally, a lot of directors (Todd Phillips, Quentin Tarantino, Christopher Nolan, etc.) are quite upset about this.

At first, I didn’t really understand their reasoning. Two months seems like a decent length of time for a film to be in theatres. One of the films that’s being considered a “game-changer” right now is Source Code, which is being released on VOD before its Blu-ray (generally VOD movies are released the same day as the Blu-ray/DVD). Source Code was released on April 1st, 2011 in Canada (or roughly two months ago). Out of a possible 24 theatres, it’s playing at 4 of them right now. So assuming that it played at 15 of the 24 theatres when it was initially released, in two months theatres showing Source Code have fallen 73%. Has the profits for Source Code fallen as well in two months?

Looking at BoxOfficeMojo for Source Code the total domestic gross of the film (as of May 31, 2011) is $53.5 million. From April 1 – May 5 (five weeks of its initial release) Source Code made $49.7 million, or 92.9% of total domestic gross. After that, the next month contributed 7% of its domestic box office total. So for the studios, a two-month window for a theatrical release seems like that’s a respectable (and rather generous, considering movies really make their money in the first month of being in theatres) length of time for a film before being released on Video-on-Demand.

At first, it seems like its not a bad plan. The films make money theatrically and the subscription-television branch of the studios gets a boost because subscribers get the movies they are interested in seeing earlier. Plus, it helps compete with Netflix and illegal Torrent sites. So why do directors have an issue with the proposed plan? The Sucker Effect.

The Sucker Effect is simple: no one wants to be a “sucker.” No one wants to pay full price for something when they could’ve gotten it for cheaper. It’s like going to a market in a foreign country and not realizing that you can bargain to get the price lower. You may have gotten a nice necklace for $20, but then a friend of yours gets it for $10. It really hampers the enjoyment you get out of your purchase. Which is why a lot of consumers do research before making big (and little) ticket purchases these days: we want to avoid being a sucker, and get the best possible deal.

With the Sucker Effect, the two-month window before a movie hits VOD could really hamper a film’s first month box office take. At some point the unconscious cost-benefit analysis within our minds will lean towards waiting for the film to come out on VOD. In the first two (and possibly three) weeks of an initial release, going to see the film in a theatre will outweigh waiting for it to come out on VOD. But after that period, it makes more sense to see a film that is in its first week of release and wait for the older film to come out on VOD.

This change could really hurt box office receipts.

Here’s what I propose though: experiment. Test this theory out with a modest (but eagerly awaited) release. Something in the $30 million budget area (which was around Source Code‘s budget and it made it back within two weeks of its release) and see what happens. If the film loses a lot of money, maybe this isn’t a good idea and it can just be scrapped. But if it makes a profit or its budget back, maybe this plan isn’t so bad.

I just think that its a good idea for exhibitors and distributors to begin experimenting with different ways to reach audiences. Sure, it could be a failure (*cough* 3D *cough*), but it could also help this ailing industry. Just a thought.

What’s your opinion – should films be released on VOD two months after their theatrical opening?

EDIT: I realize that I haven’t mentioned who gets hurt in this deal: the movie theatres. While this is regrettable, they do get screwed over by distributors already – something like 90% of the first weekend’s box office goes to the studio rather than the theatre. In the second week, it’s something like 80% before it falls to about 50% in the third or fourth week. Theatres really do make their money off the concession stand.

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