Social Media and the New Hollywood

As America's movie theater chains begin to fight the inexorable demands of cable operators to offer newly-released movies in the home just four weeks after their theatrical release, there are fears that the industry may be "trading a quarter for a dime," in the words of Ellis Jacob, CEO of Canada's Cineplex Entertainment.

The relationship between movie exhibitors such as AMC and film studios has traditionally been symbiotic: A movie can't be big if it's not a hit in theaters, and theaters need hit movies to drive revenue from ticket sales. If the window of exclusivity enjoyed by theaters begins to close, with cable operators such as DirectTV allowed to show movie just 4 weeks after a theatrical release, both theater chains and studios may suffer financially.

But could it be that the exhibitors' very business model -- tried, tested and lucrative for generations -- needs upgrading together with the technology being rolled out in their theaters (E.g. IMAX, 3D etc.)? And, if so, what role can social media play in the new Hollywood?

The basic premise behind a theatrical release with its premium marketing and Free Toys In Every Happy Meal is to feed downstream revenue markets. It kick-starts the revenue cycle which, after a period of exclusivity, moves to Hotel Video-on-Demand (VOD) before a DVD release is scheduled. Home VOD then follows, after which a movie will be aired on Subscription TV. Finally, the production is broadcast on terrestrial television. Each stage is granted a reasonably standard period or "window" of exclusivity. To date, theatrical releases have enjoyed a 1-3 month window before transitioning to Hotel VOD. There is a further 3-month delay before it is available on DVD and Home VOD (which is now, in many cases, simultaneous with a DVD release).

These varying platforms and price points, through which a movie property transitions during the course of a traditional film distribution cycle, are the real genius of the movie-making industry. As intellectual property rights can be infinitely divisible, it serves only to multiply the revenue streams.

How many times have you seen your favorite movie? If you caught it on first release in a theater, then bought the DVD, watched it again on your subscription cable movie channel then, over a number of years, watched it once or twice on terrestrial television, the studio has managed to sell you the same product several times over on different media platforms.

Whilst major national movie theater companies continue the politicking and lobbying of executives in the big six movie studios to protect their supreme position atop the movie distribution chain, the tale of the five major record companies caught napping when Sean Parker turned his online music file-sharing service from upstart to start-up, should not be far from their minds. Particularly, as he may now be on the verge of buying up Warner Music - one of the five majors.

Adjusting quickly to a new media world order can prove complicated for a large organization.

However, nothing prevents theater groups such as AMC, Regal, Cineplex and others from investing, in the meantime at least, in a new online distribution model. Of course, mention a Web-Only Movie Release and movie executives will smile politely while they let you pay for lunch. While Web-Only releases are, for the time being, the preserve of producers allergic to money, iTunes and Netflix are beginning to prove that the online purchase and rental of movies could ultimately supersede the DVD and Subscription TV stages in the film release cycle. Perhaps it is understandable that DirectTV and Comcast are now so eager to show movies in the home so soon after theatrical release. Home VOD has moved up the chain and is in the process of putting Blockbuster Video out of business. Not content with this, Home VOD is now eyeing theatrical releases as its next conquest, knowing web distribution threatens its livelihood by further fragmenting the home video market.

It is fair to say DirectTV and Comcast would not have celebrated Mark Zuckerberg's recent announcement that Facebook will soon offer movies on-demand across its social network.

The absence of a robust monetisation model for distributing movie content online has, so far, been the tallest stumbling block for studios and producers. Premiering movies online doesn't yet offer the same downstream benefits of traditional film release largely because, currently, the web revenue environment is comparatively flat-priced: you either stream or download. There are no exciting, multiple built-in platforms and price points -- for now...

It makes sense, then, why Facebook has chosen to offer a ready-made hit movie, in Dark Knight, as its first foray into online movie streaming. Premiering a major new movie on the internet doesn't yet present a viable alternative to traditional distribution. If anything, it is just another platform or price point alongside the other traditional till receipts.

So why shouldn't movie theater companies invest in another platform and price point further down the movie distribution chain? Network-owned has just announced plans to roll out its over-the-top (OTT) online streaming TV subscription service in territories beyond the US. European, Asian and Latin American markets await -- assuming they can affordably secure relevant quality TV content. Helpfully, the international appetite and market for movies has now matured, eclipsing the U.S. domestic market to a ratio of 60:40. Coupled with the growth in broadband penetration and unprecedented online adoption rates, conditions could be ideal for the cash-rich theater companies to begin seriously looking at hedging online.

It also doesn't hurt that digital distribution platforms are notorious for generating data. Harvesting detailed stats in relation to who is watching what online and where they are located nationally (cross-referenced by theater locations) could prove a game-changer for these venue-based businesses.

AMC theater group is a good example. The lion's share of AMC's theaters are based in the US and Canada comprising interests in over 5,000 individual screens across almost 400 cities. The company recently deployed a Facebook app encouraging users to aggregate small groups based on their movie preferences. Properly leveraged, this could yield valuable data to drive classic and genre-based movie events in specific locations around the country.

One of the key advantages of online social media is the ability to build communities around niche interests. Movies now achieve cult-status much faster, and to a deeper degree, among consumers as a result. In response, companies such as AMC can seize the opportunity to forge new business models by listening to social traffic, crunching the data and moving beyond merely exhibiting movies to staging unique movie events.

Building genre-based audience groups is nothing new. But specifically programming theaters for them by location is now more realistic with social media data. For example, Facebook is showing 55-65 year-old females as their fastest growing segment. Armed with the right geo-demographic data, movie theater companies could mobilize this community into local theaters for relevant presentations, screenings, licensed merchandise opportunities and more.

Think of it as the equivalent of iTunes sharing its sales data (by genre and geography) with concert promoters.

Integral to movie-going is the very community of the experience itself and movie-makers have long been aware that young adults between 18 and 24 years are their most bankable demographic. So as 96% of millennials in the US are now said to have joined a social network, this community is even easier to reach, for both on and offline movie experiences.

This is where social networks can begin to distinguish their VOD services from the likes of Netflix and iTunes: by allowing users to set their own online community movie streaming events on their own pages. Users must ultimately be given the facility to screen their favorite commercial movies or TV shows instantaneously to and with friends. Could it be that, instead of Facebook, Google-owned Orkut is the first to achieve this? With YouTube and Google Video facilities already built-in on this network, it's a possibility. But is this any diiferent to a classic webcast? Yes. And in a single major way: it's socially marketed. Users would choose which programming to share, who to share it with, recommend it accordingly and schedule when to stream it. Social networks and their studio partners share the streaming fee and ad revenues.

While DirectTV works furiously to future-proof its subscription TV model by seeking to air movies as soon as four weeks after a theatrical release, this is unlikely to happen. Theaters will apply their own unique pressure on studios and refuse to screen movies with such brief windows of exclusivity. Studios are sure to take notice and will want to think carefully before cannibalizing their theater business. It remains the single most rewarding platform and price point in the life-cycle of any movie (accounting for over $10 billion in revenues to the industry in 2010 alone).

Equally troubling for theater chains is the prospect of studios choosing to release significant productions straight to the premium Home VOD market. However, even with a premium marketing budget attached, there is likely to be limited downstream value and maximum disruption to the studio-theater relationship.

Forward-thinking studios should persevere with making and releasing web-only content. Speciality labels such as FOX Searchlight, Paramount Vantage and Focus Features (Universal) would be ideal for this. This is unlikely to risk the relationships with theaters and could prove interesting for both sides, particularly if they partner with the theaters to do so. Even-though the market for web-only content has yet to mature, it is, at the very least, an additional price point for movie distribution. Investment in the right platform, could provide a showcase for web-only productions, testing them online and generating all the attendant social network data: who, what and where. Relatively successful movie content, could then play in specific movie houses in areas where specific streams and downloads had proved popular online -- each screening socially-marketed as an event in itself and pre-sold online.

It could be a shot in the arm for independent film; Studios would increase their platform, price points and range of film product; Theaters could off-set falling attendance for major releases by attracting sizable, calculated and quantifiable niche audiences (derived from rich online data) -- and consumers could ultimately refresh the community experience of movie-going by supporting theaters that play an active and relevant role in their social network lives.

No, it's not a revolution. But it could be one of a number of nimble steps, in the right direction, for a large movie corporation adjusting to a new media world order.