October 18, 2007

Releasing DVDs Early Means Studios Make More Money

Research by Dr. Mark Houston

Research by Neeley Marketing Professor Mark Houston and colleagues, reported in Variety, Hollywood Reporter and The Washington Post , says that movie studios could boost their U.S., German and Japan distribution revenues by 16 percent if they released their movies simultaneously in cinemas, for DVD rental and video-on-demand. But movie theaters would suffer the consequences.

The study, "The Last Picture Show? Timing and Order of Movie Distribution Channels," was published in the October 2007 issue of the Journal of Marketing. The study was conducted by Houston, Associate Professor of Marketing and the Eunice and James L. West Chair of American Enterprise at the Neeley School of Business at TCU, along with Thorsten Hennig-Thurau of Bauhaus-University of Weimar and Cass Business School, London; Victor Hennig of Bauhaus; and Henrick Sattler and Felix Eggers, both of the University of Hamburg.

The group investigated revenue generation across cinemas, DVD retail, DVD rental and video-on-demand.

 "We found that the current distribution chain does not maximize revenues for studios, which produce the movies," says Houston. "Major studios can achieve the greatest boost to their revenues in the U.S. by releasing to DVD rental and Video-On-Demand at the same time as theatrical, with DVD retail following three months later."

In addition to their 16% increase in revenues, DVD retailer revenues would go up 49.6%. But movie theater revenues would take a loss at 40.1%, and DVD rental chains would lose 14.9%.

"Movie theaters would still have the premium viewing situation - large screens and state-of-the-art sound systems - plus they could provide a one-stop shopping experience where movie watchers could rent or purchase the movie after watching it in the theater," says Houston, adding that theaters most certainly will not show their "last picture show" any time soon, but theater owners and movie audiences are almost certain to face significant changes to the movie-watching experience in the near future. 

"Our results also imply that an exclusive 'Wal-Mart premier' is not the best option for studios," says Houston. "All of the research implied that theaters were the best venue to start a movie campaign. In fact, we found that DVDs tend to be purchased after consumers view the movie in the theater or via rental."

A compromise scenario, with a three-month window to DVD retail and a six-month window to DVD rental and VOD, would give everyone a boost in revenues: 7.3% to the studios, 0.4% to theaters, 4.5% for DVD renters and 11.1% for DVD retailers.

In Germany, the studios could see a 14.2% gain with a three-month window for DVD retail and a 12-month window to rental and VOD. That would also increase revenues for theaters by 14.6% and DVD retailers by 28.3%, but would cause a 30.9% loss for DVD rental stores.

Another compromise, with a six-month window to DVD rental, would ensure that all the participants would enjoy revenue gains, but on a smaller scale.

No compromise could be found for Japan, where the studios could maximize their revenue gain with a three-month window to DVD retail and a 12-month window to rental and VOD. This would boost studio revenues by 11.6%, theater revenues by 5.7% and DVD retailer revenues by 65.8%. But DVD rental stores would lose out by 21.1%.

Houston also notes that none of these scenarios takes into account one of the movie industries greatest threats: piracy.