Canadian film distributors are standing on the sidelines this year as their U.S. peers ramp up the selection of early-release VOD titles and reap the benefits.

Despite the growing list of successful premium video-on-demand titles Stateside, like “Arbitrage” and “Bachelorette,” Canuck distribs say they are locked down by longstanding rules from the country’s biggest exhibitor that prevent them from testing the domestic marketplace. But the battle stretches beyond the bigscreen as cable providers aren’t entirely sold on the idea of tossing unproven and mostly unpublicized VOD movies onto their services.

The Canadian marketplace is in a state of flux, grappling with the sudden disappearance of video stores, a near-complete void in the kiosk rental market, and consumers who see diminishing rental options.

In theory, this might lead to innovation, but in Canada there have been few attempts to initiate a new model. Recent simultaneous VOD/theatrical releases in the U.S. such as “Margin Call” and “Take This Waltz” rolled out like any other film in Canada, showing on a limited number of screens before landing on DVD and digital.

Distribs say exhibitor Cineplex Entertainment, which holds about 52% of the Canadian theatrical marketplace, wouldn’t have it any other way.

“We constantly have titles we think can work (on premium VOD),” says Naveen Prasad, senior VP of television and online at Alliance Films. “But you need the participation of Cineplex to do it right.”

Cineplex’s longstanding 105-day exclusivity agreement guarantees any film it screens won’t show up on VOD or DVD before its run is over.

“For us on the exhibition side, we want to protect the theatrical window,” says Cineplex spokeswoman Pat Marshall.

Cineplex’s clout is unmatched, with 134 theatres and 1,445 screens across the country. It draws about 70% of Canadian box office revenue, while competitor Empire Theaters ranks a distant second at 14%.

The Cineplex rule has been a thorn in the side of Canadian distribs, which often follow Hollywood’s lead. But over the past two years they’ve seen the foundation of the domestic marketplace shift as video stores shuttered en masse.

Both of the country’s video chains — Blockbuster and Rogers — closed all their combined 556 locations just over a year ago. Without a major presence from such kiosk renters as Redbox, that left most neighborhoods with few physical media alternatives.

“All the sudden there was this huge gap,” says Berry Meyerowitz, president and CEO of Phase4, a Toronto-based distributor. “It was devastating. The industry was not ready for it.”

Many expected this would leave the door wide open for premium-priced VOD titles as more Canadians turned to their cable providers to rent movies, but the uptick in on-demand rentals wasn’t anywhere near what the industry hoped.

“There’s been some small growth, but there hasn’t been the windfall we expected,” says Laura Mellanby, managing director of pay-per-view and VOD at Bell.

“We just assumed there would be … because $300 million in DVD rentals had to go somewhere.”

As far as cable operators see it, there’s still time to recapture customers. Tactics so far have been primarily focused on tentpole movies and other major releases that already have massive public awareness, which leaves little room for experimentation.

Bell has made a few attempts to test the market with low-profile titles like “Attachment,” but Mellanby says they have been met with little or no success. Competitor Rogers Cable has been a little more active this year with a handful of titles, including “Man on a Mission” and “Let the Bullets Fly.”

For now, arthouse distribs like Mongrel Media recognize that Canadian VOD isn’t a strong market. The company decided to roll out U.S. pre-release VOD titles such as “2 Days in New York” exclusively in theaters.

But Andrew Frank, director of home entertainment at Mongrel, is confident changes will be made once distribs clear the Cineplex hurdle.

“What needs to be overcome is the perceptions that the theatrical window is going to die because I don’t think that’s the case,” he says. “When the technology is out there to deliver immediate gratification, it’s hard to tell consumers that they can’t have it. That’s the reality.”

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