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visita www.manualepraticodtt.it per il libro intero
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Storia della tv digitale terrestre in Italia, dal 1910 al 2009. Digital terre...davide turi
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visita www.manualepraticodtt.it per il libro intero
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visit www.manualepraticodtt.it for the full book
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This presentation was created in 2009 for a high school film production class and updated in 2020. It provides a visual accompaniment to a classroom lecture on Film History. This module covers the period from the beginnings of photography through the early days of exhibition including projectors and projection techniques.
In 2020 as a result of the Coronavirus Pandemic, I recorded a video of this presentation. Here is the link:https://youtu.be/GQuJJ8QkHQE Please feel free to use it in your classrooms.
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Find pre-designed Disney World PowerPoint Background Templates to share your views and information about Disney world of aware the audience by creating a beautiful presentation.
Coaching, Training and Consulting services.
The purpose of the provided services is to support and help companies to grow, develop and effectively go through changes.
Our view is that people are the core element of organizations / companies and if people are selected adequately and developed appropriately companies grow and adapt to changing environments.
Our role as coaches, trainers and consultants is to establish with our clients trust-based relationships in order to provide them specialized professional services and propose solutions on specific areas.
Our objective is to provide innovative, holistic and results producing services which can:
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2.Result in a flexible and creative adaptation in any socioeconomic environment
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EXECUTIVE COACHING, BUSINESS COACHING, TRAINING WORKSHOPS, RECRUITMENT, PEOPLE DEVELOPMENT, BUSINESS DEVELOPMENT
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1. J U N E 2 0 0 7
The Future of Film Windowing
S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L
2. Agenda
Page
Simultaneous VOD and Home Video Release
The Changing Landscape
Example: The Perfectly Average Film
1
14
16
23
THEFUTUREOFFILMWINDOWING
The Economics of the Film Industry 4
Simultaneous Internet and Home Video Release 29
New Technology is Positive for Studios 32
Digital Cinema 19
1Introduction 3
Accepting Change – A Future Landscape 33
Sales Channel Summary 13
Appendix 34
Distributor/Exhibitor Splits 35
“The Perfectly Average Film” - Model 36
3. 3
Introduction: Changing Windows in Response to New
Technology Results in Incremental Profit
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
New technology has been a key driver of studio profit growth, but
inefficiencies in the windowing system has prevented them from achieving
optimal profits.
What changes are needed?
! Simultaneously release films
domestically and internationally
! Move VOD/PPV channel into the
current Home Video window
! Allow it to cannibalize low
margin Traditional Rental market
! Move Internet Rental and Sell-Through
into the current Home Video window
! Digital download is a high
margin, complimentary means of
viewing content and will not
substantially cannibalize the
Video Sell-Through market
What will it mean?
! Total Filmed Entertainment is
expected to grow 5.2% annually
through 2013
! 1.8% slower than the historical
average of the last 15 years, due
to the saturation of the Video
Sell-Through market
! However, new technology allows this
smaller revenue growth to take place
in more profitable channels, leading
to profit growth outpacing revenue
growth by 2-4%
4. 4
Films earn their revenues by going through seven sales channels
Overview of Film Windowing
Theatrical
Pay
Video
Sell-Through
PPV/VODVideo Rental
Internet
Rental
Internet Sell-
Through Television
4 Months 45 Days 45 Days
Some simultaneous with
video window
Basic
Free
Television
12 Months
5. 5
The Video Sell-Through channel produces the most revenue for the
studios, with over $8.1 billion.
The Economics of the Film Industry:
Channel Revenues
24.8%
46.6%
8.7%
5.3%
0.7%
13.9%
Theatrical
Video Sell-Through
Video Rental
PPV/VOD
Internet
Television
% of MPAA Member Studio’s 2006 Domestic Revenues
Source: Adapted from Adams Media Research
6. 6
Theatrical
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Distributors: The Studios (“Big Six”) – Sony, News Corp., Disney, Time
Warner, Viacom, and GE
Studio Revenue Split: 50/50, based on a sliding scale where the studio
gets a larger percentage of early revenues. (Appendix – Figure One)
Costs: Negative Costs (Production Budget) and Print & Advertising, but
Negative Costs are expensed as revenue is earned throughout the sales
chain.
The average film had negative costs of $65.58MM and P&A of $34.50MM
Major Players:
Average Ticket
Price
Studio Share Number of
Tickets Sold
Studio
Revenues
$6.54 50% 1,322.63 $4,325MM
2006
Source: Motion Pictures Association of America (MPAA) – Domestic Box Office Report
Exhibitors: The Theaters – Regal Entertainment Group, AMC Theatres,
Cinemark Theatres, Carmike Cinemas, and National Amusements
7. 7
Video Sell-Through
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Studio Revenue Split: 80/20, however, the studio absorbs all marketing
costs.
Fixed Costs: Encoding, Authoring, and Quality Control
Variable Costs: Marketing & Replication, Shipping, Cost of Carry, Risk of
Return, and Guild Fees
Major Players:
Retailers: Wal-Mart, Target, Best Buy, Circuit City
Average DVD
Retail Price
Studio Share Number of
DVD’s Sold
Studio
Revenues
$15.00 80% 677MM $8,131MM
2006
DVD Sale Unit Contribution
Revenues Marketing &
Replication
Shipping Cost of
Carry
Risk of
Return
Guild Fees Unit
Contribution
$12.00 $2.40 $0.25 $0.50 $0.60 $0.31 $7.94
8. 8
Video Rental
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Studio Revenue Split: 25/75, with the rentailer either purchasing the disc
directly from the studio or with the studio providing the disc and taking
25-30% of all gross rental revenues.
Variable Costs: Marketing & Replication, Shipping, Cost of Carry, and Guild
Fees
Major Players:
Rentailers: Blockbuster (B&M/Online), Netflix (Online), Movie Gallery (B&M)
Average Rental
Price
Studio Share Number of
DVDs Rented
Studio
Revenues
$4.00 25% 1,520MM $1,520MM
2006
Source: DVD Entertainment Group, adjusted to account for major studios
DVD Rental Unit Contribution
NOTE: Based on 15 rental turns per DVD
Revenues Marketing &
Replication
Shipping Cost of
Carry
Guild Fees Unit
Contribution
$1.00 $0.08 $0.02 $0.03 $0.03 $0.84
9. 9
PPV & VOD
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Studio Revenue Split: 50/50 (PPV), 60/40 (VOD)
Fixed Costs: Encoding, Authoring, and Quality Control
Variable Costs: Guild Fees
Major Players:
Cable Co.: Comcast, Time Warner, Charter, Cox, and Cablevision
Average PPV/
VOD Price
Studio Share Number of
Rentals
Studio
Revenues
$4.00 50-60% 389MM $934MM
2006
Source: Kagan Research, LLC
Satellite Co.: DirecTV, Echostar (Dish Network)
PPV/VOD Unit Contribution
Revenues Guild Fees Unit
Contribution
$2.40 $0.06 $2.34
10. 10
Internet Rental and Sell-Through
Average Price Studio Share Number of
Rentals/Sales
Studio
Revenues
Rental $4.00 60% 6.27MM $15.05MM
Sell-Through $12.99 90% 9.70MM $113.40MM
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Studio Revenue Split: 60/40 on Rentals, 90/10 on Sell-Through
Fixed Costs: Encoding, Authoring, and Quality Control
Variable Costs: Guild Fees
Major Players:
Rentailers: Amazon, CinemaNow, Movielink, Vongo
2007E
Internet Rental/Sell-Through Unit Contribution
Retailers: Apple, Amazon, CinemaNow, Movielink
Revenues Guild Fees Unit Contribution
Rental $2.40 $0.06 $2.34
Sell-Through $2.73 $0.30 $11.39
11. 11
Television
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
No revenue split, studios are either paid through 5-10 year output deals or
on a movie-by-movie basis.
Fixed Costs: Mastering, Distribution, and Guild Fees ($2-3MM per Film)
Major Players:
Pay-TV Channel Owners: HBO (Time Warner), Showtime (CBS), Starz
Cable TV Channel Owners: USA (NBC Uni.), TNT (TW), TBS (TW)
Pay/Cable/Network/Syndication Combined: 25-40% of domestic box office
returns
Average Revenue Per Film:
13. 13
Economics of the Film Industry: Sales Channel Summary
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet
Rental
Internet Sell-
Through
Revenues Per Unit $6.54 $15.00 $4.00 $4.00 $4.00 $12.99
Studio’s Revenue Per
Unit
$3.27 $12.00 $1.00 $2.40 $2.40 $11.69
Fixed Costs ($) $17,480,000 $75,000 - $75,000 - $75,000
Variable Costs - $4.06 $0.16 $0.06 $0.06 $0.30
Unit Contribution $3.27 $7.94 $0.84 $2.34 $2.34 $11.39
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
14. 14
Example: The Perfectly Average Film
Theatrical Video S-T Video
Rental
PPV/VOD Net
Rental
Net S-T TV
% Allocation of
Upfront Costs
12.0% 22.6% 4.2% 2.6% 0.04% 0.3% 6.7%
Total Revenues $21.31 $40.05 $7.49 $4.60 $0.07 $0.56 $11.93
Allocated Upfront
Costs
$7.89 $14.84 $2.77 $1.70 $0.03 $0.21 $4.42
Channel Costs $17.48 $13.63 $1.17 $0.19 $0.00 $0.09 $2.00
Total Costs $25.38 $28.47 $3.94 $1.90 $0.03 $0.30 $6.42
Channel Profits ($4.07) $11.58 $3.55 $2.70 $0.04 $0.26 $5.51
Aggregate Profits ($4.07) $7.51 $11.05 $13.75 $13.80 $14.06 $19.57
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
According to the MPAA, the average film costs $100.08MM (Negative Costs
and P&A) and grosses $42.61MM at the box office.
Negative Costs ($65.58) are expensed as revenues are earned.
Revenues $176.99
Costs $135.24
Profits $41.75
Gross Margin 23.59%
Domestic Int’l Totals
48.6% 51.4% 100%
$86.01 $90.98 $176.99
$31.87 $33.71 $65.58
$34.57 $35.09 $69.66
$66.44 $68.80 $135.24
$19.57 $22.18 $41.75
$19.57 $41.75 -
Note: The following does not include revenues from merchandising or
expenses related to taxes, distribution fees, participations, and
allocated overhead.
15. 15
Example: The Perfectly Average Film – Unit Profits
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
The studios are most concerned about cannibalizing Sell-Through profits,
because they provide the largest per unit margin.
Incremental Per Unit Profits
Unit Contribution
Theatrical Video S-T Video Rental PPV/VOD Net Rental Net S-T
$3.27 $7.94 $0.84 $2.34 $2.34 $11.39
Theatrical $3.27 - ($4.67) $2.43 $0.93 $0.93 ($8.12)
Video S-T $7.94 $4.67 - $7.09 $5.60 $5.60 ($3.45)
Video Rental $0.84 ($2.43) ($7.09) - ($1.49) ($1.49) ($10.55)
PPV/VOD $2.34 ($0.93) ($5.60) $1.49 - $0.00 ($9.05)
Net Rental $2.34 ($0.93) ($5.60) $1.49 $0.00 - ($9.05)
Net S-T $11.39 $8.12 $3.45 $10.55 $9.05 $9.05 -
16. 16
The Changing Landscape
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
In the next ten years, the four channels experiencing change are Video
Rental, PPV/VOD, and Internet.
4 Months 45 Days 45 Days
The Current Distribution Cycle
Theatrical Video Sell-
Through
Video Rental PPV/VOD
Internet
Sell-Through
Television
Some simultaneous
with video window
Television
Pay Basic
Free
12 Months
Internet
Rental
17. 17
The Changing Landscape
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
We could see the move from four to three exclusive windows.
4 Months 45 Days
The Future Distribution Cycle?
Theatrical Video Sell-
Through
Video Rental
PPV/VOD
Internet Television
The Future
! Digital distribution of films to reduce print
costs and piracy costs
! Internet (Rental and S-T) and PPV/VOD move
to simultaneous release with Video Sell-
Through
! Erosion of B&M Rental Store
! With Internet/VOD entering the same
window and an expanding library of
available films, there will be no need
to leave the home to get new release
rentals.
— Introduction of SVOD (e.g.
NetflixTV)
! Pay-TV output deals at lower license fees
Television
Pay Basic
Free
12 Months
18. 18
The Changing Landscape - Theatrical
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
While simultaneous home video and theatrical release is popular in the
press, simultaneous worldwide release is more likely and significant.
Theatrical – Value to Studio
! Creates buzz for rest of the
distribution chain
! People still have desire for the in-
theater experience
! According to the MPAA, only 20%
would have preferred to directly
purchase DVD
! Many cite the theatrical window as a
cost to studios, but production
budgets and most P&A costs are
necessary costs that would simply be
shifted to later in the sales chain,
resulting in little cost reduction
What to Expect…
! No move to simultaneous home video/
theatrical release
! Since the studios cannot collude, they
would have to individually pressure
exhibitors for a higher share of
theatrical revenues to recover from
decreased revenues
! The exhibitors would respond by not
carrying that studio’s film slate
! Too risky for the “Big Six”
! Simultaneous worldwide release
! Reduces piracy losses, better
capitalizes on advertising/buzz,
quicker investment recovery (reduces
interest expense)
! Move to highly protected digital distribution
to reduce print/piracy costs
! Big upfront costs, but LT benefit
19. 19
The Changing Landscape – Digital Cinema
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Digital cinema will let the studios improve the in-theater experience and
reduce the potential effects of piracy.
Virtual Print Fee (VPF)
! The high cost ($100K per screen) of
transitioning from analog to digital
cinema has slowed the adoption of
digital cinema worldwide
! Neither the studios nor the exhibitors
want to absorb the large upfront costs
of the transition
! Third parties have entered who will
cover the upfront costs, and take an
ongoing Virtual Print Fee from studios
equivalent to the current physical
print cost ($1,500), and a usage fee
from exhibitors.
! Arts Alliance Media/XDC (UK/EU)
! Christie/National CineMedia (US)
Benefit to Studios
! Even though studios end up paying 80% of
the transition to digital, they will pay
less per film the longer films are in
theaters (used to have to send
replacement prints)
! Allows for simultaneous worldwide
releases, since they would not need as
many duplicate prints
! They will be able to apply digital
watermarking technology to track,
control, and prevent piracy
! $6.1B in 2005 (according to MPAA)
! Creates further differentiation between
in-home and in-theater viewing
experience
! Can apply more timely advertising as
theater run extends
20. 20
The Changing Landscape – Video Sell-Through
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Studios should not fear the cannibalization by new technology.
Video Sell-Through – Value to Studio
! Largest revenue source, $8,131MM
yearly
! 2nd largest unit contribution ($7.94),
to Internet Download
! DVD purchase seen as an impulse buy,
drives people into stores, which lets
studios get large margins from
retailers
! People have a desire for physical
ownership of movies
What to Expect…
! DVD sales slowly declining, saw first
decline in 2005, continuing into 2006
and but has rebounded in 2007
! Expected CAGR: -0.5% through
2015
! Studios are expecting growing Hi-
Def Player/Video Game System
penetration as the key driver in
prevention of DVD sales decline
! Market should not be cannibalized by
Internet download
! Internet download acts as a
compliment
— Different uses (portable
players, traveling)
— Broadband still not fast
enough for downloads, let
alone Hi-Def Downloads
21. 21
The Changing Landscape – Video Rental
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
The mainstream B&M Rental Store will become extinct in the next five
years.
Video Sell-Through – Value to Studio
! There is very little value because the
studios only claim about $1.00 on
every DVD turned (and falling to
closer to $0.75 with subscription
model)
! Can drive Video Sell-Through if
consumer expects future viewings
What to Expect…
! B&M Rental Stores become exclusively
online subscription model
! Why? Cheaper inventory, labor
costs, stable monthly revenues
! However, even the revenue from
this model will erode as VOD
enters the Home Video window
! SVOD Rental Store
! If VOD moves into the Home
Video window and as current
Pay-TV output deals expire,
Netflix and BB will put large
libraries on demand both online
and through digital set-top boxes
22. 22
The Changing Landscape – PPV/VOD
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
VOD will replace the rental market, with little cannibalization of the Video
Sell-Through market.
PPV/VOD – Value to Studio
! High revenue split (60/40) with few
additional costs (encoding and guild
fees)
! Can drive Video Sell-Through if
consumer expects future viewings
! Lower margin PPV only 15% of sales
What to Expect…
! Traditional PPV on satellite is replaced
by Push VOD, where PPV is either
downloaded or recorded to DVR
! VOD is moved into home video window
in three stage process
! Testing on few average films
! Movement of all average films
! Movement of high grossing films
! Ultimately, VOD becomes as key a
profit driver as the Video Sell-Through
channel
23. 23Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
The possible deterioration of the Sell-Through market makes it seem risky,
but consumer behavior suggests that this will not occur.
VOD and Sell-Through Market:
! 38% of DVD HH are also VOD HH
! The studios lose $317MM in revenues
and $184MM in profits when all VOD HH
replace one DVD purchase with a VOD
rental
! Every DVD purchase replaced by a VOD
rental, must result in an additional 2.4
VOD purchases per VOD HH (20%) for
profits to remain unchanged
The Changing Landscape – Simultaneous VOD Release
VOD and Rental Market:
! 70% of VOD HH also rent movies either
through a B&M or online rental store
! Can capture the current low
margin rental market
! The studios gain $46MM in revenues and
$49MM in profits when all VOD HH
replace one DVD rental with a VOD
rental
THE BADTHE GOOD
! Pushback from Wal-Mart, will have to give them higher margins on DVD Sales.
! The rental market may see a drop off, but will be replaced by more profitable VOD sales.
! Data suggests that VOD viewings drive DVD purchases, therefore we should see little, if any deterioration of the Sell-
Through market.
THE LIKELY
24. 24Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Testing by Comcast showed huge VOD growth, slight Home Video Sell-
Through growth, with little cannibalization in traditional rental market.
Comcast’s Test in Pittsburgh and Denver
! The “Big Six” (less Sony) granted
Comcast the ability to sell VOD rentals
simultaneously to films’ home video
release
! Impact of Sales:
! VOD: +50% (+6.4/HH)
! Video Sell-Through: +10% (+2.2/HH)
! Video Rental: -2% (-.94/HH)
! Net Gain: +7.61 Movies Watched/HH
The Impact on Profits
Before After Difference
Revenues (MM) $86.01 $92.17 $6.16
Costs (MM) $66.44 $67.83 $1.39
Profits (MM) $19.57 $24.33 $4.76
Gross Margin 22.8% 26.4% +3.65%
Per Film - Domestic
Industry Wide - Domestic
Before After Difference
Revenues (MM) $17,460 $18,710 $1,250
Costs (MM) $13,487 $13,770 $283
Profits (MM) $3,973 $4,940 $967
Gross Margin 22.8% 26.4% 3.65%
The Changing Landscape – Simultaneous VOD Release
NOTE: HH based on the 33MM VOD HH
25. 25
The Changing Landscape – Simultaneous VOD Release
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Some are questioning the results, since the test markets are not big
Wal-Mart markets.
Comcast’s Test in Pittsburgh and Denver
! 50% VOD growth not impossible (many predicting 20-30% CAGR without shift)
! Sell-Through growth is probably overstated (likely be unchanged or slightly fall 1-2%)
! However, the shift to day-and-date with home video is still positive for the studios
Cannibalization Test – Change in Profits Over Current State (Based on 33MM VOD HH)
! DVD purchases per HH
could fall by 1 unit (8%),
for every 2.6 unit (20%)
increase in VOD purchases
! Realistically, we should see
little change in DVD sales,
with 40-50% gains in VOD
sales
Results:
-10% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
0% $537 $0 $(108) ($216) ($323) ($431) ($538) ($646) ($753) ($861) ($969) ($1,076) 0.00
5% $583 $45 ($63) ($170) ($278) ($385) ($493) ($600) ($708) ($816) ($923) ($1,031) 0.59
10% $628 $91 ($17) ($125) ($232) ($340) ($447) ($555) ($662) ($770) ($878) ($985) 1.18
15% $674 $136 $28 ($79) ($187) ($294) ($402) ($509) ($617) ($725) ($832) ($940) 1.77
20% $719 $181 $74 ($34) ($141) ($249) ($356) ($464) ($572) ($679) ($787) ($894) 2.36
25% $765 $227 $119 $12 ($96) ($203) ($311) ($418) ($526) ($634) ($741) ($849) 2.95
30% $810 $272 $165 $57 ($50) ($158) ($265) ($373) ($481) ($588) ($696) ($803) 3.54
35% $856 $318 $210 $103 ($5) ($112) ($220) ($327) ($435) ($543) ($650) ($758) 4.13
40% $901 $363 $256 $148 $41 ($67) ($174) ($282) ($390) ($497) ($605) ($712) 4.72
45% $947 $409 $301 $194 $86 ($21) ($129) ($237) ($344) ($452) ($559) ($667) 5.31
50% $992 $454 $347 $239 $132 $24 ($83) ($191) ($299) ($406) ($514) ($621) 5.90
-2.05 0.00 0.41 0.82 1.23 1.64 2.05 2.46 2.87 3.29 3.70 4.11
Unit Decrease in DVD/HH
% Decrease in DVD Sales
%IncreaseinVODRentals
UnitIncreaseinVOD/HH
26. 26
The Changing Landscape – Simultaneous VOD Release
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Further, even a significant decline in the rental market poses little problem
for the industry.
Rental Market
! The subscription rental model is still strong, which composes 13% of the rental market, and is expected to be 30% of current
rental revenues by 2010.
! The new more profitable VOD model should lead to the decline in the Traditional Rental market, and ultimately the Subscription
market as SVOD is introduced.
Cannibalization Test – Change in Profits Over Current State (Based on 33MM VOD HH)
! Worst Case Scenario:
! VOD: +15%, DVD: -9.5%,
Rental: -4%
! Net Gain: -2 Movies/HH
! Result: US: -$425M Profits
! Best Case Scenario (Comcast):
! VOD: +50%, DVD: +10%,
Rental: -2%
! Net Gain: +7.61 Movies/HH
! Result: US: +$967MM Profits
! Most Likely Scenario:
! VOD: +40%, DVD: -2%,
Rental: -10%
! Net Gain: +0 Movies/HH
! Result: US: +$128MM Profits
Overall Results:
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
0% $0 ($26) $(52) ($77) ($103) ($129) ($154) ($180) ($206) ($231) ($257) 0.00
5% $45 $19 ($6) ($32) ($58) ($83) ($109) ($135) ($160) ($186) ($212) 0.59
10% $91 $65 $39 $14 ($12) ($38) ($63) ($89) ($115) ($140) ($166) 1.18
15% $136 $110 $85 $59 $33 $8 ($18) ($44) ($69) ($95) ($121) 1.77
20% $181 $156 $130 $105 $79 $53 $28 $2 ($24) ($49) ($75) 2.36
25% $227 $201 $176 $150 $124 $99 $73 $47 $22 ($4) ($30) 2.95
30% $272 $247 $221 $196 $170 $144 $119 $93 $67 $42 $16 3.54
35% $318 $292 $267 $241 $215 $190 $164 $138 $113 $87 $61 4.13
40% $363 $338 $312 $286 $261 $235 $209 $184 $158 $133 $107 4.72
45% $409 $383 $358 $332 $306 $281 $255 $229 $204 $178 $152 5.31
50% $454 $429 $403 $377 $352 $326 $300 $275 $249 $223 $198 5.90
0.00 0.92 1.84 2.76 3.68 4.61 5.53 6.45 7.37 8.29 9.21
Unit Decrease in Rentals/HH
% Decrease in Rentals
%IncreaseinVODRentals
UnitIncreaseinVOD/HH
27. 27
The Changing Landscape – Simultaneous VOD Release
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
The studios have an incentive in their contracts to move to D&D VOD.
Change in Contract
! The studios are expected to get a 70/30 split on VOD revenues, instead of the current
60/40 split if they allow for simultaneous home video and VOD release.
Cannibalization Test – Change in Profits Over Current State
! If the gains in revenues split
proves true, the move to
simultaneous home video and
VOD release is a limited risk
proposition for the studios.
! With each of the “big six”
studios averaging between
$600-$1,000MM in profits, the
additional $25-55MM that
results from the “most likely”
scenario is significant.
Overall Results:
($450)
$128
$967
($252)
$339
$1,193
($500)
($200)
$100
$400
$700
$1,000
60/40 70/30
Worst
Average
Best
28. 28
The Changing Landscape – Internet
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Internet Sell-Through and Rental act as a complimentary revenue source to
the already established video market.
Internet – Value to Studio
! High revenue split (90/10) on sell-
through, (60/40) on rentals
! Even higher per unit profit
margin than home video
! Currently, does not cannibalize home
video sales
! Like home video, is an impulse
purchase
What to Expect…
! Just like home video became a huge profit
source for the studios, Internet download
and rental will eventually become an
important determinant of a film’s
profitability.
What to Expect (Con’t)…
! While Internet does not currently
cannibalize the home video market,
eventually as broadband penetration
expands and the computer either becomes
your television or the ease to get content
from your computer to your television
improves, physical home video sales will be
slowly cannibalized
! This is not necessarily a bad thing,
because the margins on Internet Sell-
Through is higher (similar to HD Discs)
! All major studios will move Internet S-T to
simultaneous release with home video
! Large retailers and Pay-TV contracts
are currently preventing this from
happening
— Solution: Wal-Mart will get
larger cut of DVD sales, Pay-TV
output deals will not be
renegotiated (next 2-3 years)
29. 29
The Changing Landscape – Simultaneous Internet Release
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2003 2004 2005 2006 2007 2008 2009 2010
Br oadband User s as % of Pop.
Inter net User s as % of Pop.
Br oadband User s as % of Inter net User s
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Broadband penetration is already large enough for significant move to
purchases through the Internet distribution channel.
Driver – Broadband Penetration Driver – Blend of the Television and the Computer
Source: eMarketer – December, 2006
Broadband Penetration
0
2
4
6
8
10
12
14
16
18
20
2005 2006 2007 2008 2009 2010 2011
ST Box (e.g. AppleTV) PS3 Xbox 360
Device Penetration (in millions)
Source: Adams Media Research
30. 30
The Changing Landscape – Simultaneous Internet Release
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Internet movie consumption is expected to reach $3.1 billion in 2011.
Profit Impact – Internet Sell-Through
! Net S-T 2006-2011 Expected CAGR: 77%
! If estimates prove true, overall industry
profits will be unchanged as long as DVD
S-T CAGR is greater than -2.05% (3x
Expected CAGR)
Unit Decrease in DVD/HH
% Decrease in DVD Sales
%IncreaseinNetS-T
UnitIncreaseinNetS-T/HH
0.00% 0.50% 1.00% 1.50% 2.00% 2.50%
0% $ - ($27) $(54) ($81) ($108) ($135) -
11% $12 ($15) ($42) ($69) ($96) ($123) 0.012
22% $24 ($3) ($30) ($57) ($84) ($111) 0.024
33% $36 $9 ($18) ($45) ($72) ($99) 0.036
44% $48 $21 ($6) ($33) ($60) ($86) 0.048
55% $60 $33 $6 ($21) ($47) ($74) 0.060
66% $72 $45 $18 ($8) ($35) ($62) 0.072
77% $84 $57 $31 $4 ($23) ($50) 0.085
88% $96 $70 $43 $16 ($11) ($38) 0.097
99% $109 $82 $55 $28 $1 ($26) 0.109
110% $121 $94 $67 $40 $13 ($14) 0.121
0.00 0.04 0.08 0.12 0.15 0.19
Profit Impact – Internet Rental
! Net Rental 2006-2011 Expected CAGR: 136%
! Expected to reach $1B by 2011
! Will cannibalize some of equally lucrative VOD
market, but still has complimentary qualities
! Anticipating 25% market overlap
! Should not impact Video Sell-Through,
replicating the relatively minimal impact of
Traditional Rental
NOTE: Based on 88MM DVD HH
31. 31
The Changing Landscape – Television
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Television rights fees play a huge impact on the overall success of a film.
Television – Value to Studio
! Large overall revenue source (14%
domestically, 26% internationally)
! Per film, 25-45% of gross box office returns
— This makes box office success
even more crucial to studios
! Extremely high margins (85-90%)
! Can be the difference between
whether or not a film is profitable
What to Expect…
! With Pay-TV output deals preventing the studios
from going to simultaneous Internet and Home
Video release, and the channels desiring more
original programming and cheaper in-house
theatrical content, future films will be sold on a
film-by-film basis or output deals will be
renegotiated at reduced fees
! This saves Pay-TV channels from the HUGE
cost of output deals
! Gives the studios the ability to allow
Cable/Network TV to take part in the
bidding for content in Pay window
What to Expect (Con’t)…
! However, the studios are not happy about
having to give up any money on lucrative
output deals
! But, they should still maintain 70-75%
margins on TV
! Overall, revenues to the studios in this
channel will fall 10-15%, but now with the
ability to sell Internet in the home video
window.
! This is really not a cost to moving the
Internet window because the 10-15%
decline was going to happen at the end
of the output deals regardless.
! Also, on a per film basis you will see the gap
between “good” and “poor” performers grow
if a film-by-film sale model is adopted.
— Bad films will not be bailed out
because of existing output deals
32. 32
New Technology is Positive for the Studios
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
Studios Must Let Change Happen!
! Studios must not fear change
! As long as they have control over the
windows, when new technology is
introduced or as competitive
pressures drive down margins in
certain channels, they can make
necessary adjustments to no worse
than maintain current profit levels
! More profitable distribution methods are
available with some acting as compliments
(Internet) and others acting as substitutes
(VOD) to those with smaller margins
(Video Rental)
! When studios seize the opportunity
created by new technology, incremental
profits result, making the film industry a
more attractive investment option than in
its current state
Sounds Simple?
! It sounds simple, but the studios have been
reluctant to accept change in the past.
! Examples:
— Introduction of Home Video
— Move to Simultaneous WW
Theatrical Release
— Internet Download
! They FEAR technology
! Why Fear? They have control of the
windows, and can adjust them back in
their benefit if they make poor
decisions
! On the Home Video Sell-Through front, there
will certainly be pushback from Wal-Mart,
but they need the studios too.
! Cheap DVDs drive customers into
stores
! As soon as the studios harness the power
they have with windowing, filmed
entertainment revenues and profits will grow
faster than originally anticipated!
33. 33
Accepting Change – A Future Landscape
Theatrical Video Sell-
Through
Video
Rental
PPV/VOD Internet Television
What Should Happen? What is the Impact? Will it Happen?
Theatrical Release simultaneously
domestically and internationally
Reduction in losses due to piracy Yes, 3-5 years until complete adoption, time
frame will be determined by studios
willingness to subsidize cost using the VPF
model.
Video Sell-Through Reduce exclusivity of window Incremental profits in other windows, as
people still want physical ownership of
movies
Yes, we are seeing testing now with VOD
(Warner) and Internet (Disney), becomes
mainstream in 18-24 months.
Video Rental Allow VOD to cannibalize the
market
Incremental profit on every VOD rental
purchased in replacement of physical
rental
Yes, subscription market will survive, but
mainstream B&M store will be extinct in 4-6
years.
PPV/VOD Move into Home Video window Huge profit gains for studios, up to $1B
domestically if Comcast data proves true
Warner is testing, others should follow with
smaller films, blockbusters in 18 months.
Internet Rental Move into Home Video window May take some VOD profits, but still
provides additional uses to consumer and
additional profits
Will slowly happen as current Pay-TV output
deals expire or if Starz loses lawsuit against
Disney. Wal-Mart will be an issue that can be
solved by giving them better margins on DVDs
and/or on their download service. Expect
complete adoption by 2009.
Internet Sell-Through Move into Home Video window Will cannibalize some Home Video, but is
mostly complimentary, and provides
higher margins
Television Try to renew output deals, but
accept reduced fees rather than
selling on a film-by-film basis
10-15% drop in revenues/profits Yes, CBS has stated that they will be
producing their own films for Showtime.
HBO/Showtime also have committed more
money to original programming, leaving less
for output deals. Again, expect adoption
when deals expire around 2009.
To gain incremental profits, studios should look towards the following
future landscape.