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Now Showing on the Netflix Player: Hollywood's Busted Business Model

Once again, I'm cranky about the state of movie downloads. For the third time just this year, I've found a promising product--in this case, Roku's Netflix Player--undercut by a crummy selection of movies to watch off the Internet.

But why is that? To get a better picture of how fundamentally screwed up movie distribution is, take a moment to study this graphic (click on it for a full-resolution PDF copy):

[PowerPoint slide outlining An outline of a movie's "release windows."
It's a marketing slide, prepared in April of 2007 and then provided to me a few months ago by a marketing executive at the Vongo movie-download site. It shows all the different markets into which a movie is typically released (although individual titles can depart from the pattern, and it's also more than possible that I missed a wrinkle or two in my conversations with this guy). Let's break this down:

* The first chunk of the red bar at the top, the first three to five months, indicates when the flick is in theaters; note that in the last month or two of this period, airline passengers and hotel guests can view the movie too.

* Starting at the five-month mark--the second chunk of the red bar at the top--you can buy the movie on DVD and as a download from sites such as iTunes (as indicated by that assortment of logos of movie-download stores, some of which are now defunct). You can also rent a DVD of it from Netflix, of course.

* The third chunk of the red bar indicates when pay-per-view (PPV) and video-on-demand (VOD) services can offer the movie for rent. We're talking about iTunes Store and Xbox Live rentals, Comcast VOD and so on.

* At about 11 months into the movie's life, things get a little more complicated, as outlined in the lower half of the diagram. "Subscription video on demand" (SVOD) services--HBO, Cinemax, Showtime, Starz and online equivalents like Vongo (as highlighted by the large Vs in the diagram) and Netflix's "Watch Instantly" service--now get to take their turn. This often means that PPV and VOD services have to stop offering the movie, which is why a popular rental title can vanish from iTunes for no apparent reason.

* After one or two months, the pay-TV window shuts: Broadcast and non-premium cable and satellite channels get their turn, while pay-TV channels and sites must often give up the movie.

* But a few years later, a second pay-TV window opens up, during which ad-supported channels can't air the flick.

* Finally, as much as nine years after its theatrical debut, the movie enters the "library period," which might better be called the "rational market": There are no more mandatory exclusives, so anybody can cut a deal with the movie's owners.

All clear on that? Yeah, me neither. (Note: Industry insiders are welcome to suggest corrections in the comments or by e-mailing me.)

But wait, there's more! Clearing a movie for online distribution can also require the services of small army of lawyers, who have to ensure that nobody's rights are being infringed and that all parties with a stake in the flick get their proper compensation. (Note, however, that the music business seems to have gotten over this hump by now.)

What it added up to in Netflix's case is a movie selection that reminded me of the tiny, understocked movie-rental joints that Netflix's online DVD-rental service has helped to put out of business. I can understand why the "Watch Instantly" catalogue is so skewed towards older releases--but that doesn't mean I have to like it.

But looking at Netflix's online service also reminded me of the all of the other movie-download options I've tried since the 2002 arrival of Movielink. Take a look at my 2006 dismissal of that service and CinemaNow, then read over my 2008 evaluation of Apple's iTunes Store and Microsoft's Xbox Live, and see how little my basic complaint has changed.

The hardware and software have evolved--TV-connected devices like the Apple TV, the Xbox 360 and the Netflix Player provide a far more pleasant viewing experience than earlier, PC-bound options. (The more expensive Apple TV and the Xbox 360, unlike Roku's box, also do far more than just play movies.)

But you could have the most elegant, reliable set-top box connected to the world's fastest, cheapest broadband and the fundamental flaw of movie downloads would remain. As long as these release-window calendars look more like a Five-Year-Plan handed down by a Soviet ministry, there will be precious little room for online distributors to develop a viable business.

It's not that people won't be downloading movies off the Internet as a result--they'll just defect from this command economy to use file-sharing sites and services that don't pay the people who make the movies.

At some point, that pressure has to push Hollywood to change this system. But I'm tired of venturing guesses about when--I've been wrong too many times when I've assumed that movie studios' quick adoption of the DVD meant they would be just as aggressive to move to the Web. So why don't you all take a crack at that instead? In the comments, post when you think you'll be able to buy or rent any major movie online on the same day it becomes available on DVD or Blu-ray--or on the same day it debuts in theaters.

By Rob Pegoraro  |  June 5, 2008; 12:31 PM ET
Categories:  Video  
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When the change (for the better) will take place is anybody's guess, but we are assuming that the proposed tiered broadband doesn't take root (see which will make any positive direction in the hollywood-business model moot.

Posted by: SA | June 5, 2008 3:26 PM | Report abuse

Why is any of this convoluted? It's only because you make it so.

I worked in the movie theater industry, selling popcorn, and the theaters told the film companies that home video would put them out of business, which it has. DC screens are at about 1/4 of what they once were and whereas I would see 1-2 movies in a theater in the 1980s, I haven't gone at all since 2007. I don't know any teenagers who go to movie theaters twice a week anymore. Home video and these kinds of release schedule are putting other lines of distribution out of business.

I have no interest in video download of movies and none of the techies I work with do either. I think it only attracts people in the dorms who don't have big screen tvs. I have no concern what they do, but don't take away my hardcopy DVD.

Although I know they will.

Posted by: DCer | June 5, 2008 4:13 PM | Report abuse

The dorms comment by DCer makes no sense.

I have a big plasma HDTV and would love to be able to download subscription, hi-def movies to my big TV. That beats buying a DVD you will only watch a few times, having to go to a video rental store or wait a few days for the Netflix envelope to arrive. Or having to pay Verizon $5.99 for a hi-def VOD.

Which leads to the part DCer got right - it's all about the money.

Posted by: Falls Church | June 5, 2008 5:46 PM | Report abuse

I can already download "any major movie online on the same day it becomes available on DVD or Blu-ray--or on the same day it debuts in theaters."

It's that "buy or rent" part (and the assumption of legality) that is the sticking point.

Of course, if I were to download a movie as mentioned in the first paragraph, it wouldn't be encumbered with restrictions on how or when I could play it, which is the part Hollywood continues to get wrong.

Posted by: LarryMac | June 6, 2008 9:28 AM | Report abuse

I kind of agree with what your saying. I know that I personally "pirate" movies for this very reason. Sometimes I just want to watch a movie. I have a 360 which has a great movie rental service, but a lot of times the movie just isn't on there. I go to movie theaters often (at least 1 movie a week from April to September) so I obviously don't mind paying for movies.

I don't buy movies from the Apple store because I am morally opposed to DRM. One day, Apple can decide to pull the plug on the servers (Like microsoft is doing with Plays4Sure) and there goes all my movies.

Posted by: Nagungo | June 6, 2008 11:03 AM | Report abuse

People don't go to the movies for a few reasons, none of which are the availability of DVD rentals and online movies.

First, movie quality has declined dramatically over the last decade. Scripts are predictable, special effects are over used to cover up for bad writing, plot lines are similar. How many times can Adam Sandler get involved in some "silly" situation that has him falling for the girl and learning something before people say "Enough!"

Second, movie tickets are TOO EXPENSIVE. In New York, it costs $12.50 to see some crappy movie. That means, for two people to go to the movies and enjoy popcorn and a drink it's in excess of $30. For $30 I can get HBO for 3 months or NetFlix for 3 Months-- or (gasp), rewatch one of the dozens of good DVD's I've purchased.

Just like downloadable music before, downloadble movies is the future (same for TV). When the movie companies realize the business model HAS changed, they'll get with it-- hopefully we'll get better movies along with their realization. But I'm not hopeful for that.

Posted by: NYCBrett | June 6, 2008 11:11 AM | Report abuse

Home video didn't put the theaters out of business, they did it to themselves. Competition is good, if you can't keep up look in the mirror rather than blaming your competitor.

Here in Seattle it's cheaper to take the family to a Mariners game than to the movies. Add that to the garbage that Hollywood puts, the cost of babysitting should my wife and I want to go by ourselves and watching movies at home where we have surround sound, better popcorn, a peanut gallery that can be shushed, and beer is just the better option. Either lower your ticket prices or start offering a service that lives up to the price.

As for a download service to compare with DVD purchase/rental, it's not going to happen until a couple of things get straightened out. First too many people are tied to internet providers who stand to loose too much money if their broadband customers turn to downloads over cable/direct tv. This monopoly needs to be broken up. A company should not be allowed to offer both connectivity to the web and entertainment in a market where they are the only player. Public entities should install and maintain the infrastructure (preferably FIOS) and open it up to competition from all comers. As a case study look at what the city of Tacoma, WA did with cable in the 90's.

Second, entertainment content providers need to get past their fear of piracy. It like shoplifting is going to happen factor it into your pricing, go after the major traffickers, and move on. They should also realize that a lot of piracy occurs because their is no alternative. Provide a digital option at a reasonable cost (download should be cheaper not more expensive than physical media) and the majority of people will take the legal route. With iTunes and Amazon why would I steal what I can buy for a buck? Also, DRM is fine for a rental service, but if you're going to sell me a copy then don't tie me down to a platform and/or player. Watermark it and come after me if it winds up on the streets of Shanghai if you like, but don't lock it down.

Third, (and Steve Jobs I'm talking to you), realize that while most people don't want a subscription service for music, they do for movies. In general people buy their music and rent most of their movies. On demand availability will mean even more desire for rentals. If you rent regularly then subscription starts to sound good. Look at Netflix vs. the practically on demand local video rental shop.

Just as music downloads are now quickly replacing CDs, Movie downloads will eventually replace DVDs. Corporations who embrace this model stand to make a lot of money, those who don't stand to loose money to piracy and control to the smart upstarts who figure out how to make it work (once again see the music industry and iTunes). If the music business is any guide, the current players in the game will fight for their chunck status quo rather than change, so it's going to be a bumpy ride.

Posted by: Norm | June 6, 2008 12:48 PM | Report abuse

From my perspective living in Australia you guys have a dream world of content and gadgets on the cheap - Our dollar is worth the same and we pay $16 a ticket for the movies, up to $36 for a big seat! We have ONE CABLE COMPANY - so if we dont like it, we dont get it - basic cable is $60. No VOD, Three commercial broadcast channels! PLasmas and LCDs cost three times as much, average car is $40k, Itunes movies and TV dont even work here or the rest of the world - so enjoy! But we can drink the water out of the tap and see a doctor for free anytime we want.

Posted by: steve | June 6, 2008 4:17 PM | Report abuse

i still like to go ut to the movies
provided the theaters is class a

now i thought the internet is going to have melt down in 2010 ?

why can't there be a site for the industry
of the open and close rights per movie listed and the buyer/company can then place a purchase.

Posted by: | June 7, 2008 11:29 AM | Report abuse

Eh, Netflix streams aren't even DVD-quality. We won't see the bandwidth for HD streams for several years, and then it will take another five years for someone to create a service. By that time, there will be high-high-definition discs.

Posted by: Brandon | June 9, 2008 4:52 AM | Report abuse

"My name is Dave and i'm a recovering entertainment addict."

"Hello Dave!!"

"I used to do most of the things everyone else did and then came OJ Simpson. For a full year of one issue news coverage. That turned me off from TV. I don't own a TV anymore. It's actually not hard staying away from TV. It was my first baby step away from entertainment addiction.

Was never into music. But will look on youtube for anything coming from Weird Al Yankovich. Everything else is boring. Don't own an ipod, MD player, CD player, or a single music CD.

Then came the witch hunt by the music / movie industry (aka RIAA) going after p2p. This was mostly FUD (fear uncertainty and doubt) and virus laden movie distribution. Uhhh scary. I can easily setup a PC immune to the virus issue, but never bothered. I don't want to keep a PC on all the time downloading movies to end up spending much more time than intended watching movies.

Luckily there is an alternative, a better way. And it's not piracy. It's getting over your addiction.

I spend most of my hobby time programming. Much more interesting...Try it"

"Thank you Dave for sharing your story with us. Is there anyone else with a story they would like to share?"

Kind Regards,
Dave Faulkmore

Posted by: This is like an AA meeting | June 10, 2008 9:42 PM | Report abuse

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