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The Case Against Sean Parker’s Controversial VOD Service The Screening Room

Posted on the 15 March 2016 by Weminoredinfilm.com @WeMinoredInFilm

Last week, I dismissed Sean Parker's Screening Room idea as just the latest in a long line of doomed challenges to the traditional theatrical release window. Then Steven Spielberg, Ron Howard, Brian Grazer, Martin Scorsese, Taylor Hackford, Frank Marshall, Peter Jackson and J.J. Abrams all emerged as early advocates/shareholders of Parker's start-up venture. AMC Theaters has reportedly signed a letter of intent, and several of the studios have already listened to his pitch.

Well shut my mouth. Maybe the Screening Room has some legs after all. That led me to re-evaluate what exactly about his idea would be so compelling. I wrote about it elsewhere on the site.

But let's get real here - the theaters are never going to sign off on this, at least not nearly enough of them. Here are the mostly obvious reasons why:

The Idea

Parker's pitch is to create a new set-top box which will use an anti-piracy technology to provide movie-lovers access to a constantly updated library of the current theatrical releases from every major film studio. The set-top box alone will cost $125-$150, and each movie on the service will cost $50 for a 48-hour rental. Each rental also comes with two tickets to see that same movie in a theater of your choice. Even if those tickets go un-redeemed, theaters will receive a 40% of the profits from the $50 rental fee.

Why It Might Not Appeal to Studios

The Screening Room could be the answer to many of the studios' current problems, or at least a welcomed source of temporary relief. However, as Pepperdine University Business professor Nelson Granados wrote in Forbes, the studios face a " common dilemma for suppliers across industries during digital transformations, known as channel conflict: They want to introduce products and services in digital channels but fear that brick-and-mortar distributors will retaliate."

That's exactly what's happened in the past. Paramount bent over backwards to appease the theaters with its experimental approach to distributing Paranormal Activity: The Marked Ones and Scout's Guide to the Zombie Apocalypse last year, and most of the major theater chains still revolted. Netflix and Cinemax made no such concessions for its IMAX release of Crouching Tiger Hidden Dragon II, and the theaters similarly revolted.

On this point, the major theater chains have been consistent - the traditional theatrical release window is here to stay. Only art-house theaters, indie chains and AMC have displayed any flexibility. The release window used to be six months instead of three. The studios whittled that down over time. They might be better off trying to whittle it down even further instead of eliminating it altogether via the Screening Room. Why piss off the theaters? You still need them, right?

Plus, how exactly would you measure Screening Room rentals as part of a movie's opening weekend? A bad opening weekend can have a huge impact on a studio's Wall Street valuation, and a really good one is something they won't stop bragging about. How would Screening Room rentals play into that delicate dynamic?

Why It Doesn't Appeal to Theaters

In its year-end evaluation of movie theaters as reliable anchor tenant in community shopping centers, Auction.com warned:

Theaters must maintain their monopoly on first-run distribution of blockbusters and marquee titles, known as the "theatrical window". This theatrical window has been pressured recently, as Disney Studios in 2010, allowed Tim Burton's Alice in Wonderland to be available in DVD format twelve weeks after movie theater opening, versus the industry standard of 17-weeks (at the time). Any further change in favorable distribution mechanisms towards the home entertainment market (VOD, DVD, streaming services) could be a death blow to the industry, and cracks continue to show. Netflix won the rights to stream Star Wars: The Force Awakens in Canada months after it leaves theaters, and this lag time between first-run theater and home entertainment distribution will likely shrink going forward, lessening the leverage and profitability of movie theater operators, along with its relevancy as an anchor retail tenant.

As such, it's not surprising that most theaters have publicly rejected Screening Room. It's not just the major retail chains, though. Earlier today, the Art House Convergence - representing 600 cinema owners - released an open letter to Screening Room, reading in part (from):

The proposed model is incongruous with the movie exhibition sector by devaluing the in-theater experience and enabling increased piracy. Furthermore, we seriously question the economics of the proposed revenue-sharing model [...] We are not debating the day-and-date aspect of this model, nor are we arguing for the decrease in home entertainment availability for customers - most independent theaters already play alongside VOD and Premium VOD, and as exhibitors, we are acutely aware of patrons who stay home to watch films instead of coming out to our theaters [...] [Should this go forward] we will see a wildfire spread of pirated content, and consequently, a decline in overall film profitability through the cannibalization of theatrical revenue. The theatrical experience is unique and beneficial to maximizing profit for films. A theatrical release contributes to healthy ancillary revenue generation and thus cinema grosses must be protected from the potential erosion effect of piracy.

Oh, yeah, also that $20 fee the theaters will receive from every $50 rental doesn't actually pass the smell test:

There are many unanswered questions as to how this business model will actually work. The proposed model, as we have read in countless articles, suggests exhibitors will receive $20 for each film purchased. At first glance, an exhibitor may think it represents a small, but potentially steady, additional revenue stream. But how will this actually be divided among the number of theaters playing the purchased title; will exhibitors who open the title receive more than an exhibitor who does not get the title until several weeks later (based on a distributor's decision); who will audit the revenue to ensure exhibitors are being paid fairly; does this revenue come from Screening Room or from the distributor... these are just a few of the issues yet to be explained.

Why It Might Not Appeal to Consumers

If you have enough discretionary income to pay $125-$150 just for the set-top box and then $50 for every movie you want to rent then you kick ass at business.

If you don't have that kind of money to burn, though, this all sounds insanely expensive. If you have kids, the $50 rental fee might be cheaper than going to the theater with the family and buying concessions, but that doesn't mean you actually have the money for that, not when there are still so many movies and TV shows you've yet to watch on Netflix. If you're already not going to the theater due to cost you've probably already settled on cheaper at-home entertainment options at this point.

If you don't have kids or a wider network of family/friends who would kick in to the $50 rental fee with you then this is all ludicrously out of your budget.

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