Slate's Hollywood Economist: DVD Rental Window

More movie fans waiting to buy or rent films on DVD, rather than visit the theater. The dent in box-office revenue is noticeable. Slate Hollywood economist Edward Jay Epstein says a movie industry "death spiral" could result.

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MADELEINE BRAND, host:

This is DAY TO DAY. I'm Madeleine Brand.

In a few minutes, the classic pop singers who moved beyond their mother tongue: Chubby Checker twisting in German, David Bowie offering his Italian version of "Space Oddity."

But first, let's go to American entertainment in English. Last week on the program we spoke with Edward Jay Epstein, who writes Slate's Hollywood Economist column, and he told us about a big problem faced by the movie studios. It's called the `death spiral.' And Edward Jay Epstein joins me now.

Edward, remind us: What is the death spiral?

EDWARD JAY EPSTEIN (Slate): Essentially, what happens is you have low attendance in the theaters, so you have lower profits for the studios. The studios need higher quarterly earnings to show Wall Street. So they begin moving the date and the announcement of a DVD release closer and closer to when the movie's in the theater. That begins to spiral because now people, seeing that a DVD is coming out or hearing it's coming out, decide to wait for the DVD--just a small percentage of the people, but eventually the end is the theaters go bankrupt.

BRAND: So there are several solutions on the table. And one of them, the first one, involves eliminating the so-called `window videos.' So tell us more about that.

EPSTEIN: Well, you know, there were no windows 20 years ago. Windows basically are a way that the studios release their movies in sequence to different media. So first it goes to the movie theaters, then it goes to the video shops, then it goes to pay-per-view, then it goes to pay TV, and then it goes to regular TV. And those different windows are basically delays. Now as the movie audience gets smaller and smaller--now we're back to the death spiral--the argument of the home entertainment divisions are `Why should we delay our release at all? We're a retail business.' So there's tremendous pressure: `Let's do away with the windows. Let's just sell--have everything come out all at once and sort itself out.'

BRAND: And what's wrong with that?

EPSTEIN: Well, the first thing is that it'll kill the movie theaters and send them into bankruptcy. The movie theaters are in the business of traffic: people going through, buying a ticket, and then buying popcorn and soda. And theaters have fixed costs. They have to pay rent and leases and interests and employees. If the audience is reduced by even 5 or 10 percent, they all go into bankruptcy. In 19--pardon me--2001, half the theaters in the world were in bankruptcy.

BRAND: So that brings us to the second proposal that you're calling the `"Godfather" scenario.'

EPSTEIN: Right. Now what some very clever people in the studios have said is, `Look, as long as we're keeping the theaters in business, they should pay us. We should offer them a deal they can't refuse. They give us a bigger percentage of the box office, and we guarantee not to release the video for six months.'

BRAND: That sounds pretty good.

EPSTEIN: Well, it would be pretty good, except the theaters, they can have the worst of both worlds. They now pay more money to the studios, and for all they know, people are still going to wait for the DVDs. They have no guarantee, and they lose their profit margins. So the theaters are simply not going to go along with it.

BRAND: OK, so the third proposal is a compromise?

EPSTEIN: Well, the third proposal is to have different windows for different movies so that a movie that's very successful--let's say "Madagascar"--and doing very well in the theaters, they keep the window for six months. And then they do a triage like they do on the battlefield. And movies that even in their focus groups and their pretestings before they're released don't look like they're going to have much word-of-mouth and much audience, they send them to the theaters for a token period--'cause that's in the contracts--and then they send them direct to DVD or video. So there are three different scenarios, but none of them seem that they could work.

BRAND: None of them would work? So what's Hollywood going to do?

EPSTEIN: Well, what people I speak to in Hollywood say is `Denial is a solution.' Just deny the problem exists, let the spiral slowly spin out of control, and then deal with the problem. One likely outcome is the movie theater as a form of mass entertainment might disappear. What you always are going to have is a core audience of movie buffs who are going to go to movie theaters. But they might be very small, very limited number, and be literally like people who listen to vinyl records rather than CDs.

BRAND: Well, those have made a comeback, so maybe there is some hope.

EPSTEIN: Right. I hope so.

BRAND: Opinion and analysis from Edward Jay Epstein. He's the author of "The Big Picture" and he writes Slate's Hollywood Economist column.

Thanks for joining us.

EPSTEIN: Thank you very much, Madeleine.

BRAND: More coming up on DAY TO DAY from NPR News.

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