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6:53 PM Wed, Nov. 14th

News Analysis: 'The Interview' opening may signal disturbing trend for theaters

James Franco (left) and Seth Rogan in “The Interview.” (Sony Pictures/Courtesy)

James Franco (left) and Seth Rogan in “The Interview.” (Sony Pictures/Courtesy)

KINGMAN - "The Interview" may only make $3 million over the Christmas weekend, but the film might have the clout to shake up how Hollywood distributes films in the future.

In a move that angered many theater owners, Sony Pictures elected to release "The Interview" via video-on-demand (VOD) on the same day and date as its theatrical release. The model is far more experimental than Hollywood's traditional "windowing" model, and consumers are responding. The film was the No. 1 streamed video on YouTube over Christmas, either as a rental or a purchase.

With those kind of numbers throwing a wrench in Hollywood's well-oiled machine, watching how the studios and theater owners react should be interesting for even the average moviegoer.

'Windowing'

Hollywood's model of a theatrical run followed up by DVD and VOD sales months later have benefited both theater owners and studios for many years. Theater owners benefit from the exclusivity, requiring anyone who wishes to see the film when it comes out to buy a ticket and come to their theater. Studios benefit by getting an indefinite extension on selling a film.

That equals big bucks for studios. For example, when "Toy Story 3" had its theatrical run back in 2010, it raked in $415 million in the domestic box office. That same year the film would sell $162 million in DVD/Blu-Ray/VOD sales. Films with passionate fan bases do very well under this model, with studios having the flexibility and demand for special box sets and re-releases that can extend the life of a film for many years.

"Windowing" on a consumer level has been met with some pushback. Analysts have long accused the model for creating the foundation for online piracy. Would-be customers who want to watch a film but missed the theatrical run have to wait months for its DVD release. Rather than purchasing it months down the road, some consumers turn to piracy to get content when they want it.

Ultimately, what modern day moviegoers want is access to entertainment on their schedule, and Hollywood's windowing model has become more cumbersome for those looking to watch a film when they are ready to see one.

Why VOD hurts theater owners

Theater owners aren't in the movie business; they are in the concessions and advertising business. Depending on the film, the studio and the length of a run, a theater may only get 30-50 percent of ticket sales during the run of a film. To make up for that abysmal profit margin, theaters sell concessions and advertisements onscreen before a movie.

Popcorn and soda have often been credited for saving the movie theater. The products have a 90 percent markup and that profit doesn't get shared with the studios. They don't need every person walking into the theater to buy concessions because the profit margins on these products are so high that even a fraction of moviegoers buying their products will make up for what they are missing out on from ticket sales. Combine that profit with ads on the screen that have exceptional visibility, and the movie theater can now operate in the green.

Their business, however, requires people in seats. That's why the way "The Interview" was released isn't welcoming to theater owners.

"It (day and date VOD release) directly cuts into our business," said Tom Daugherty, co-owner of Brenden Theaterss here in Kingman, on Friday.

"I thought that the bigger chains would take 'The Interview,' but that didn't actually happen. The bigger chains might have fought with the day and date video on demand."

On Saturday, sources were reporting that although the film was available for theater chains to pick up, bigger chains such as AMC and Regal were refusing because Sony released the film online.

That's not hard to believe because, just like Daugherty put it, VOD directly cuts into a theater's profit. Not only do their box office numbers suffer, they lose money on those critical concession and ad sales.

It's hard to say if Sony has set a precedent here or simply did what it needed to do to survive. Regardless, it's a very interesting experiment that all of Hollywood is watching. Of course, Sony's hacking fiasco gave "The Interview" the needed marketing to make such an experiment profitable, and when the numbers finally do come out, analysts will take that into account.

The theater owners who are now competing with affordable home theaterss, streaming services that are now delivering 4K content, and a consumer base used to on-demand service, are the ones who have the most to lose here. For the price of two movie tickets, I can purchase a film and watch it whenever I want in my pajamas at home. Theater owners like Daugherty understand this, and they have consistently offered this caveat:

"It's the theater experience. You get to sit with an audience. You get to interact. It's a night out."

Even a small theater such as Kingman's offers that, and after watching "The Interview" at home I realized why films like this are great for the big screen. You can't put a price on an entire theater laughing or crying together. It's a bonding experience, one that will be hard to replace. That's why theaters are safe for the time being.

Their fight with VOD is just beginning, and depending on the numbers from this release, theater owners may have to look at how they can adjust if Hollywood decides to shake up their long standing release model.

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