The effect known as Moore’s Law projects the ability of silicon manufacturing technology to double the number of devices on a chip every two years. (Gordon Moore, co-founder of Intel, modestly takes credit for his observation made around 1970.) One doesn’t have to look any further than their iPhone to recognize the exponential growth in computing power that followed. As technology moves ever so quickly ahead, so must business models. In cinema, digital projection has been likened to the most sweeping change in the industry since the introduction of sound on film. But history is more likely to impose a more sweeping view: the introduction of digital technology has imposed the greatest challenge ever to the media industry. It is a call to action for further innovation.
The challenge to the cinema industry manifests in several ways: the costly transition to digital distribution in first release, the impact on studio revenues caused by the 1st sale doctrine and online digital distribution, and the steps taken by studios to fill the gaps. There is no need for this publication to wax further about the transition to digital projection. The impact to studio revenues is the subject of every rag in the industry, and beyond. But the steps taken to fill the gaps are perhaps the least discussed, yet contain the seed for positive impact. This includes not only the “experiments” with shortened release windows for video-on-demand (VOD), but the push for 3-D and the promise of newer high frame distributions.
A telling sign that the business is quickly changing came to light at CinemaCon. Backroom discussions of a shorter VOD window for 1st release movies were not new, but did not give hint to the stunning announcement at CinemaCon that such an “experiment” was soon to begin with the DirecTV satellite television service. To many, the timing of this announcement appeared as a rude and poorly calculated event, inviting a backlash that no motion picture executive at the event would have sensibly bestowed upon themselves. But the message was deep and strong that the movie distribution business is changing, exemplified by the evidence that motion picture executives weren’t steering the boat.
Motion picture studios have undergone major changes over time. They are no longer the stand-alone movie producing legends upon which their reputations were built. Stemming from a merger trend in the late 80’s, each of the six major studios are now part of a much larger media conglomerate. The conglomerate structure has proven to be a much stronger source of capital, helping to smooth the ups and downs of any one division. That, in turn, has provided the exhibition industry with a stable pipeline of product. But the benefit of the conglomerate quickly turned as digital media distribution proved to be difficult to control, negatively impacting the profits of every distribution vertical.
As a result, the major studios are left searching for improved business models, and a natural target is the 1st release window. Consumers, having demonstrated that they are willing to consume content on nearly every device available, gives fuel to the studios to search for new ways to maximize profit from the marketing of 1st release product. They will continue to explore this space regardless of the heavy push-back from exhibition against the recent VOD effort.
The exhibition industry faces other challenges, as well. There exists the loss of market prowess due to the potential of reduced screen count, thanks, in part, to the transition to digital cinema. While there is the unspoken expectation that the cost to convert to digital projection will push many small town operators out of business, these same cinema owners are also under attack from all of the other forms of content consumption now available to audiences. For exhibitors affected by this conundrum, sadly, digital cinema is just the icing on the cake of bad news.
Regardless of the challenges, there is something to celebrate. The attraction of cinema audiences to 3-D sends a healthy signal, but not necessarily that which one reads about in the press. Yes, the willingness of audiences to pay more for the experience has been a good sign, even though it may be over exploited. Yes, the bump in 3-D box office has kept revenues up, even if covering up a worrisome decline in attendance. For studios, 3-D has expedited the adoption of digital cinema around the world in an unexpected way, spawning new digital cinema deployment deals everywhere that will eventually lessen the cost of fulfillment. But where 3-D has been hugely successful yet under-appreciated is in demonstrating that audiences are attracted to exciting new forms of visual entertainment. In truth, audiences seek value, not 3-D religion. An exhibitor once told your author that “if everyone has a Rolls-Royce, it will no longer be special.” It follows that value must include differentiation.
Filmmakers intuitively understand differentiation. While technology opened the door to 3-D, it is filmmakers that embraced it. Just as it will be filmmakers that push additional audio channels, and it will be filmmakers that push for higher frame rates. It is no surprise that filmmakers such as Jim Cameron have stood up to push back on the shrinking window for VOD in support of the theatrical experience.
But just as the VOD shrinking windows “experiment” is a wake-up call to exhibitors and filmmakers, it is also a call to the manufacturing community. It is the manufacturers that must continually improve their products so that their customers can differentiate the cinema from other means of consuming media. Such improvements come in many forms: more light on screen for 3-D, higher frame rates to support the creativity of filmmakers, and more channels of sound to better immerse audiences.
Moore’s law affects everyone in the food chain: content producers, distributors, exhibitors, and manufacturers alike. There is no room for complacency if the cinema industry is to thrive.