On Demand, On the Rise - Demand Week

By Meredith Schneider

In recent years, the viewing public’s “On Demand” options have increased exponentially. From Verizon, DirecTV, and HBO to companies like Netflix and now Blockbuster’s new On Demand options (all commonly referred to as “video on demand” or “VOD”), it seems like every entertainment outlet has an option to view the latest titles for free. But what does this actually mean, and how do these contracts come into existence for the program to have so many titles available before they are available elsewhere?

What has become even more noticeable over time is that being able to view a movie in-home at the same time you can go see it in-theatre quenches that ceaseless on-demand lust. Representatives from on-demand companies are recognizing this, and are shopping Hollywood Studios for the next big thing.

“Studios determine when and where their product is played,” explains the president of a United States theatre company, who has asked not to be named. “Currently movie theatres normally have a 90-100 day exclusive window for new movies. Theatre owners will not show a movie unless they have exclusivity. The only exception is some art houses will play day-and-date with On Demand.”

“Day-and-date” releases are when movies are made available on VOD and in theatres on the same day or during the same release week. When this happens, it decreases the chance that people will go to cinemas to watch the film. In-home television screens are getting bigger and better, which many view as the end of the theatre industry.

One main worry is that these On Demand programs may effect box office numbers in theatres, where the viewing experience is far superior but perhaps less in demand than it once was.

Our source assures us that “by the time the movies are shown on demand, they are normally no longer playing in theatres.” That was not an expected answer, since studios normally negotiate contracts to benefit their own profits. But it turns out day-and-date releases the same time, are not a trend that is catching on so swiftly with big screen hits.

“In 2011 Universal announced that they would open Tower Heist in theatres and on demand day-and-date,” says our source. “Theatres said that they would not play this film, so Universal backed down and delayed the on demand release date.”

As of right now, big theatre release dates are where the marketing and big media are at, so movies tend to lose their credibility if they aren’t getting the media attention that a theatre release brings them. But that might not always be the case.

According to an article in the LA Times, “Unlike box-office sales, which typically are divided 50-50 between the theater owners and the distributors, the VOD split usually gives distributors close to 70 %. The amount of VOD proceeds that flows back to a film’s creative team and investors is still imprecise.”

A lot of production companies are looking at options to increase VOD time but, as stated earlier, are finding it difficult to negotiate bigger marketing techniques than are available with movie theatre chains across the nation. It is catch-22s like this that industry leaders are now stuck in that continue to benefit locally owned businesses and movie theatre chains, deterring a monopoly of the movie release industry.

Another catch-22? The Redbox phenomenon.

“Studios lost a lot of revenue when their DVD releases starting being sold at Redbox and so they are now trying to keep more control of the revenue stream prior to the DVD release,” continues our source. “The studios have more legal control of an On Demand movie then they have over a DVD. Once a film hits DVD the studio loses control of their product as it can then be bought by Redbox and other discounted vendors who can price the movies to the general public for low prices. If a studio can charge a higher price for on demand prior to the DVD release they will increase their revenue stream.”

Independently made films that cannot catch the attention of cinemas and big movie studios often rely on these companies to release their films for profit. Companies such as Magnolia Pictures and even giants in the industry such as Weinstein Co. turn to these options for the smaller budget films they become involved with.

They might not experience as wide of a release or as much of a marketing advantage, but the revenue for the studios will stay at a higher rate for a longer amount of time and still has a fighting chance to earn the creators their investment back as long as buzz is generated around the film.

The lesson here? If you, as a consumer, want your hard-earned money to be distributed properly, in-theatre releases are your best bet. Explore the On Demand options with a fine-toothed comb and avoid big-name companies like RedBox at all costs. Their price cuts are reflected in the earnings of the artists and the thinkers behind some of your favorite films.

For additional reading, check out a sample VOD contract here.