The "Family Pass": A way for theaters to combat Premium VOD

A few days ago, I wrote about the firestorm in the U.S. film industry over plans by Fox, Warner Bros., Universal and Sony to make some of their movies available to DirecTV, Comcast and VUDU for a Premium VOD service 60 days after they open in theaters. The premium in-home movies would cost $30 each and would be available for viewing for 48 hours from the time of purchase.

One of the arguments for Premium VOD is that movie tickets for a family cost a lot of money--tickets for a family with two parents and two kids could easily cost more than $30, plus food and drink. However, theaters could lessen the impact with a "Family Pass" that allows two adults and up to four children to see a single film, even at regular showings, for less than $30. That would allow the theaters to compete on price with the Premium VOD service. The theaters would still be able to make their normal concession stand food and drink sales, and they could argue "Why wait 60 days to save a few dollars when you can watch a movie when it's fresh?".

 Theater owners want to keep Premium VOD from gaining traction, and a "Family Pass" might be the way to do so.

Lowest summer attendance in U.S. movie theaters since 2005

In addition to the problems caused by the decline in DVD sales, you can now add bad news in movie theaters. According to Hollywood.com, U.S. theatrical attendance hit its lowest point since 2005, even though theatrical revenues hit a new record ($4.35 billion.) Why did revenues increase even though attendance dropped? The reason is that average ticket prices have been rising for years, and the introduction of 3D has pushed prices even higher.

If revenues are up even though the number of customers declined, that can't be bad news, can it? Actually, it can. Ticket prices can't continue to escalate at the rate they have indefinitely, especially given the slow and tenuous financial recovery. To spike revenues, movie studios are converting movies originally shot in 2D to 3D, with generally poor results. Revenues for these converted titles have been dropping throughout the year, and if the studios aren't careful, they may kill off the willingness of moviegoers to pay more for 3D before the new format even has a chance to take hold.

If theaters can't raise prices and attendance continues to decline, the inevitable outcome will be decreased theatrical revenues. DVD sales and revenues are also declining, even though the "loss leader" discounting of new DVD titles by the big-box retailers (Wal-Mart, Target and Best Buy) is largely a thing of the past. Blu-Ray hasn't taken up the slack in DVD sales and is unlikely to do so in the future. The market is shifting to DVD rentals, video on demand and digital downloads, but these channels bring in much less revenue than DVD sales.

It's the combination of all these trends, not any one trend in particular, that is (or should be) grounds for extreme concern in the movie industry. Some say that the industry has always had down years and has always rebounded--first radio, then television threatened to kill off movies but failed--but studios have become addicted to the "crack" of DVD sales and increased ticket prices. Movies like "Avatar" and the "Transformers" series couldn't have been produced without these revenues. Studios will have no choice but to either maintain budgets and release fewer films (increasing their exposure to risk of failure) or decrease budgets and produce the same number of films. This will decrease the potential for breakout blockbuster hits, which could result in even lower revenues. Neither outcome is appealing, and there's no solution on the horizon.

3-D Cinema witout digital?

As I've written before, 3-D has come to be seen as the savior of the theatrical motion picture business, and potentially, the consumer electronics business as well. When you go into a movie theater to watch a 3-D movie, it's being projected by a digital projector. Digital projectors have a lot of advantages in picture quality (especially maintaining picture quality over time vs. a deteriorating film print), but they're very expensive (up to $150,000 for the highest resolution and most powerful projectors.) Meanwhile, there are tens of thousands of perfectly usable 35mm film projectors out there that are useless for 3-D. According to EE Times, Oculus3D is trying to rescue those analog projectors from premature retirement.

The Oculus3D system was co-developed by Lenny Lipton, the former Chief Technical Officer of RealD, the leader in theater 3-D projection systems. The Oculus3D system requires special processing of the final digital intermediates prior to creating the master negative for striking positive motion picture prints. Once that's done, the film is processed and handled identically to any other 35mm print.

Movies made with Oculus3D are printed with the left-eye view rotated 90 degrees in the left side of the 35mm frame and the right-eye view rotated 270 degrees in the right side of the frame. The Oculus3D system rotates the two images to zero degrees, polarizes and overlaps them so that they can be viewed properly with 3-D glasses. The Oculus3D projector lens will cost around $25,000. Inexpensive passive 3-D lenses are used with the system, and obviously, motion picture exhibitors can charge the same premium for tickets with the Oculus3D system that they charge today for 3-D from digital projectors. However, the equipment cost can be paid back five times faster with Oculus3D.

If Oculus3D performs competitively to digital projection systems, not only could 3-D be viable in far more theaters, but new life could be breathed into the film manufacturing and processing industries.