Ruling gives studios room to experiment

The FCC’s decision last week granting studios a waiver to deliver firstrun movies directly to consumers’ televisions can be considered a victory for Hollywood’s efforts to revive the struggling homevideo business.

The decision means studios are now free to experiment with new revenue streams without fear of piracy — including the ability to offer movies at home at the same time that they’re playing in theaters.

DVD sales are still taking a dive — even rentals are showing signs of slowing despite recent hits like “Avatar,” the “Twilight” franchise and “The Blind Side,” which have helped prop up the biz. DVD and Blu-ray sales were down 11% during the first three months of the year, while rentals fell 14%, according to trade org the Digital Entertainment Group.

That has studios working feverishly to embrace new methods of delivering films directly to audiences at home.

Studios have yet to unveil an official blueprint of what the new effort is going to look like, but digital, in all

its forms, is clearly going to play a major role, especially as more consumers turn to video-on-demand through their cable boxes, computers, vidgame consoles and, soon, their cell phones and mobile devices like the iPad.

With a greenlight from the FCC, members of the Motion Pictures Assn. of American will be able to deploy “selectable output control” antipiracy technology that prevents consumers from copying movies delivered to households.

“This limited waiver will provide public-interest benefits — making movies widely available for home viewing far earlier than ever before — without imposing harm on any consumers,” the FCC said in its ruling.

Technically, the FCC ruling enables studios to use the technology for 90 days, or until the movie is released on DVD or Blu-ray. The “selectable output control” technology blocks consumers from recording the movie while it’s being shown on the TV set.

Studios have been hinting for some time that they would offer day-and-date offerings of movies at home during their theatrical runs at prices steeper than those of movie tickets.

But studios couldn’t move too aggressively on digital distribution until now; they needed to be sure that any movies offered would be protected from illegal copying and distribution — which have significantly hurt the music industry.

“We deeply appreciate the recognition by the FCC that recently released movies need special protection against content theft when they are distributed to home televisions,” said Bob Pisano, prexy and interim CEO of the MPAA. He called the FCC action “a major step forward in the development of new business models by the motion picture industry to respond to growing consumer demand.”

Hollywood has been slowly inching closer to bringing firstrun movies into homes. Studios teamed up with cable operators in March to spend $30 million on a campaign that encourages consumers’ to rent more movies via set-top boxes.

The effort, dubbed “The Video Store Just Moved In,” pushes a revamped Movies on Demand service with a new green logo.

Campaign was introduced as more studios are making movies available on VOD the same day as their DVD releases.

The reason: the ability to generate higher profit margins by charging more for cable-based VOD rentals (around $5.99 per pic) if they’re available day-and-date, versus the $1 rentals that companies like Redbox charge. Studios can charge even more for high-definition movies.

They’ve been encouraged by VOD’s growth, with the DEG reporting that digital distribution, including download purchases and VOD, rose 27% to $617 million in the first three months of 2010.

In moves clearly aimed at getting consumers to turn even more strongly to cable-based VOD, Warner Bros., Universal and Fox successfully got Netflix and Redbox to hold off on offering new DVD releases to rent or stream until 28 days after they hit store shelves.

But it’s only a matter of time before studios join independents like IFC and Magnolia in considering VOD as a way to offer movies at home as they unspool in theaters as well. They just have to get more consumers used to ordering the films at home first to make that a viable business.

Where Blockbuster fits into the studios’ plan is still unclear.

The video rental chain still has the exclusive rights to offer DVDs day-and-date with their retail releases. Blockbuster needs those deals with the studios to keep its stores relevant and keep consumers coming through its doors. The coin studios collect from Blockbuster for each rental is considered lucrative enough to keep the deals in place. For now, that is.

But Blockbuster is expanding into digital as well, trying to get more customers to use its online rental service. If studios start considering Blockbuster a threat to their bottom lines, it’s only a matter of time before Hollywood forces the retailer to abide by the 28-day window or simply buy the Blockbuster business (considering its vulnerable financial state of late) and turn it into a digital delivery vehicle for the studios.

The FCC’s approval comes more than a year after the MPAA asked for the waiver. The MPAA’s proposal had initially been opposed by exhibitors, who sought to protect the theatrical window at all costs. The MPAA hasn’t indicated if titles will be available day-and-date with theatrical release or in a later window.

Either way, it’s likely individual studios will now have to negotiate with exhibs on the sticky issue of abandoning the traditional four-month release window between launches of firstrun films and homevid.

That was inevitable. Disney, among other studios, has been increasingly bringing up the issue of collapsing traditional release windows for DVD; earlier this year, the Mouse House announced it would experiment with the homevid window for “Alice in Wonderland.”

In any event, studios aren’t likely to bypass traditional theatrical runs anytime soon; the box office is just too lucrative. The B.O. is up 7.3% as of May 2, earning $3.46 billion over last year’s record $3.23 billion haul — with much of that increase thanks to 3D, which has far more impact in theaters than via 3D TV, which is years from generating significant sales.

The MPAA and its member studios have been asserting that the new method of distribution would not hurt moviegoing, particularly if home viewing comes with a high price point.

VOD runs day-and-date with theatrical runs are expected to be used to push less high-profile titles more than pricey tentpoles that already lure masses to the megaplex.

“The first and best way to view movies will always be in movie theaters — and nothing can replace the pleasure this brings to millions and millions of people all across our country and the globe,” Pisano said. “But for those people unable to make it to the theater and interested in viewing a recently released movie, thanks to the FCC, they will now have a new option. For other consumers who prefer standard, linear, on-demand or DVD or Blu-ray options, these services will be unchanged.”

The FCC’s waiver also didn’t worry the National Assn. of Theater Owners. The group issued a statement in reaction to the ruling, saying, “The FCC’s decision is not surprising. Movie theft is a serious problem. The issue of the theatrical release window, however, will be decided in the marketplace.”

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