Will Mark Cuban (Finally) Revolutionize Hollywood?

[David Farber <dave () farber net>]

Begin forwarded message:

From: Dewayne Hendricks <dewayne () warpspeed com>
Date: October 24, 2005 10:30:28 PM EDT
To: Dewayne-Net Technology List <dewayne-net () warpspeed com>
Subject: [Dewayne-Net] Will Mark Cuban (Finally) Revolutionize  
Hollywood?
Reply-To: dewayne () warpspeed com


the hollywood economist
Will Mark Cuban (Finally) Revolutionize Hollywood?
His plan to break the video window.
By Edward Jay Epstein
Posted Monday, Oct. 24, 2005, at 10:12 AM PT
<http://slate.msn.com/id/2128631>
I recently demonstrated my high-definition projector by showing  
scenes from the beautifully shot Eternal Sunshine of the Spotless  
Mind. First, I played an HD recording made by the TiVo-style digital  
recorder that Time Warner Cable provides. Next, I played the same  
scenes from a DVD. The HD recording was so clearly visually superior  
to the DVD that one guest asked: "Why would anyone ever rent a DVD if  
they could record it in HD?"

He had a point. Not only is an HD recording sharper—it has about five  
times the information as the DVD format (which has a slightly better  
picture quality than conventional TV)—it is much more convenient.  
There's no trip to the video store, no credit card hassle, no concern  
about late fees, no scratched disc, no labyrinth of setup menus. Why  
would anyone choose to make two trips to the store or, as with  
Netflix, to the mailbox? The studios are aware of this. That's why  
they have created an artificial barrier called the video window,  
which prevents cable operators and TV stations from showing movies at  
the same time as their release on DVD. In the case of pay-per-view,  
the window is 45 days; with subscription cable such as HBO, it is at  
least four months. If someone wants to see a new movie when it  
arrives in video stores, he does not have the option of recording it  
with a TiVo or similar device. Because most people rent movies the  
week of their release—indeed, more than 80 percent of rental earnings  
in 2004 came within the first two weeks of release—most would-be  
renters have already seen a new release by the time the 45-day window  
has elapsed. If that barrier were removed, a large part, if not all,  
of the DVD rental business would disappear.

The reasons for maintaining this barrier may be more political than  
economic. If the studios did not give DVDs a 45-day head start and a  
large number of DVD renters switched to pay-per-view to get the same  
movies, the studios would make much more money. Electronic delivery  
not only would eliminate the manufacturing, warehousing,  
distribution, sales, and return cost of DVDs—which averaged about $6  
per title in 2004—but it would cut out the video stores, which at  
present get about 40 percent of the rental money. It might also  
greatly expand the audience for renting movies so that, depending on  
how electronic delivery is priced, the lost sales of purchased DVDs  
would be offset.

What has prevented the studios from closing the video window is  
simple: Wal-Mart. The company, which is the single biggest seller of  
DVDs, has made it clear that it does not want to compete with home  
delivery. Wal-Mart executives told Viacom's home entertainment  
division in no uncertain terms that if any studio does away with the  
45-day video window for a single title, they would risk losing access  
to Wal-Mart's shelf space for all of its titles. Wal-Mart provided  
studios with more than one-third of their U.S. DVD revenue in 2004.  
In the face of Wal-Mart's retail power, the studios have not dared  
(yet) to do away with the protective video window.

Enter Mark Cuban. Along with his longtime business partner Todd  
Wagner, Cuban became a multibillionaire selling his Internet company,  
Broadcast.com, to Yahoo for $5.7 billion. Cuban and Wagner then  
created an entertainment conglomerate that includes controlling  
interests in a movie production company (HDNet Films), a distributor  
(Magnolia Pictures), an art-house chain (Landmark Theatres), a  
television and video library (Rysher Entertainment), and a high- 
definition television network (HDNet). Cuban believes that  
Hollywood's distribution system requires radical change. He wants to  
do away with artificial windows so that consumers can buy a movie, as  
he notes in his blog, "How they want it, when they want it, where  
they want it." He argues that movies should be made available  
simultaneously on cable television, DVD, and in movie theaters,  
letting consumers decide whether they prefer to see it at home (even  
if it means paying a premium for a new release) or in the theater.

[snip]

Edward Jay Epstein is the author of The Big Picture: The New Logic of  
Money and Power in Hollywood.
Weblog at: <http://weblog.warpspeed.com>



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