Kara Sears
There are several reasons why movies are released in theatres before they are made available on other platforms, such as streaming services or DVDs. Firstly, it is a matter of supply and demand. With a limited number of theatre screens available and a high number of films produced each year, movie distributors and theatre owners aim to showcase films that will attract large audiences and generate high ticket sales. Additionally, exclusive theatrical releases create a sense of novelty and demand among audiences, making them more likely to watch the film during its theatre run. Theatres also generate revenue through advertising and trailers, which contributes to the overall profitability of the film industry. While there have been discussions and proposals for laws regulating the disclosure of trailer and movie start times in theatres, the primary reason for the theatrical release window remains rooted in the economic dynamics of the film industry.
| Characteristics | Values |
|---|---|
| Number of movies made each year | 10,000+ |
| Number of movie screens worldwide | 170,000 |
| Theatre owner's revenue source | Ticket sales, concessions, local advertising |
| Distributor's revenue source | Percentage of ticket sales, trailers |
| Trailers | 30 minutes |
| Ads and trailers | Third-most-likely place for people to see promotions for new movies in the US and Canada |
| Disclosure of trailer and movie start times | Required by a bill proposed by a Connecticut lawmaker |
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What You'll Learn
Theatre exclusivity
On the supply side, there are far more movies made each year than there are theatre screens. By some estimates, there are now more than 10,000 movies made worldwide annually, with only around 170,000 movie screens globally. This means that some films will inevitably miss out on theatrical exhibition. Theatre chains and owners do not get paid to carry any film; they share ticket revenues, so they are incentivised to screen films that will sell the most tickets. Films that have broad appeal or a dedicated fanbase are preferred. Distributors, who decide which theatres the films are distributed to, also operate on a profit-sharing scheme, typically receiving between 10 and 50% of revenues. Distributors, therefore, favour theatres that can promise to return a larger percentage of ticket sales.
On the demand side, audiences often like to see things first, and distribution platforms want to cater to this desire by obtaining exclusive rights to films. This makes theatrical exclusivity highly desirable for broadcasters and exhibitors.
Theatres also generate revenue through advertising. Local advertising before the movie begins and trailers from studios can contribute a significant percentage of income for theatres.
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Supply and demand
The concept of supply and demand is integral to the question of why movies go to theatres first. The demand for movies, the number of new productions, and the average runtime of movies have been increasing since motion pictures first appeared. However, there is a discrepancy between the supply of films and the availability of theatre screens. It is estimated that there are over 10,000 movies made annually worldwide, with approximately 170,000 movie screens available. This discrepancy between supply and demand means that some films will inevitably miss out on theatrical exhibition. Theatre owners and chains are incentivized to show films that will attract large audiences and sell the most tickets, as they share ticket revenues with distributors. Therefore, films that appeal to broad audiences or strongly to niche groups are preferred.
The advent of video tapes, DVDs, and streaming services like Netflix has significantly impacted the movie industry. While these alternatives did not initially hurt the theatre experience, the proliferation of streaming platforms and the associated subscription costs have contributed to a decrease in demand for theatrical viewings. Consumers now have more options and higher committed costs for movie experiences, resulting in a lower demand for theatres. In response to this shift in consumer behaviour, studios have experimented with releasing movies directly to streaming platforms or offering them through Video-on-Demand (VOD) services shortly after their theatrical release.
The COVID-19 pandemic further accelerated these trends, with more people opting for home entertainment and studios releasing films directly to consumers. Theatres faced financial pressure due to prolonged closures and a reluctance among moviegoers to return. However, even during the pandemic, some consumers expressed a preference for watching movies in theatres. While the future role of movie theatres is uncertain, the industry is presented with an opportunity to adapt its business models to meet the evolving demands of the digital world.
To address the changing landscape, theatres have been enhancing the movie-going experience. Over the last two decades, amenities such as stadium seating, reserved seats, food delivery, and recliners have become standard offerings. Theatres have also explored strategies like exclusivity windows and premium pricing for VOD services to maximize revenue. Despite these efforts, there is a perception that theatres are not adequately adapting to the new market conditions of lower demand and increased competition.
In summary, the interplay between supply and demand influences the release strategies of movies. Theatres prioritize films with high audience appeal, and the increasing availability of alternative viewing options has disrupted traditional release models. While theatres have made efforts to enhance the customer experience and maximize revenue, they face the challenge of adapting to shifting consumer preferences and the potential for further industry disruption in the post-pandemic era.
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Advertising revenue
Film distributors typically shoulder the marketing and advertising expenses, which are necessary to recoup through box office revenues. High-profile films, even those expected to flop, require extensive advertising campaigns to attract audiences to theatres. For instance, "Super Mario" and "Barbie" incurred substantial marketing costs borne by Nintendo and Mattel, respectively, influencing the revenue split for these films.
The advertising costs for movies can be extremely high, often surpassing production budgets, especially for films without a built-in audience. These expenses encompass television commercials, media advertisements, and promotional activities by stars, all aimed at generating hype and attracting audiences.
Theatre operators, on the other hand, generally consider advertising their locations a wasteful investment due to the proximity of competitors and the high costs involved. Instead, they rely on the studios' extensive advertising campaigns for individual films, which indirectly promote the theatre locations screening them. Theatre advertising is more common for independent theatres and new or refurbished theatre openings, utilising radio, print, and social media platforms.
While advertising plays a pivotal role in driving audiences to theatres during the initial release window, the revenue split between distributors and theatres evolves over time. Theatres initially receive a smaller portion of ticket sales, with the bulk going to the distributor. However, as the film's theatrical run extends, this ratio flips, and theatres eventually capture a larger share of ticket revenues.
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Ticket sales and profit-sharing
The distribution of ticket sales proceeds varies, with theatres typically retaining around 50% of ticket sales revenue. However, this distribution follows a sliding scale, with the studio taking a larger share in the initial weeks, sometimes up to 90% in the first week, and the theatre's share increasing over time. This model incentivizes theatres to keep films running longer, allowing them to maximize their share of the profits.
The revenue split between the studio and theatre also depends on the film's performance. For a successful film, the studio may receive a larger percentage of ticket sales, while a poorly performing film may result in a smaller percentage for the studio and a higher percentage for the theatre. This contractual arrangement helps theatres hedge against box office flops.
Theaters also generate revenue through concession sales, advertising, and rentals for private events. Concessions, such as popcorn and soda, offer high profit margins, contributing significantly to a theatre's profitability. Local advertising and previews from studios, which pay per viewer, also add to a theatre's income.
In addition to ticket sales, studios and distributors explore other revenue streams to maximize profits. These include television rights, video-on-demand (VOD), streaming, DVD sales, and foreign sales. Indie filmmakers, in particular, may focus on these alternative distribution channels to generate income. The economics of movie-making are complex, and while the industry is valued at approximately $33 billion, there is no guaranteed path to profitability for any given film.
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Studio control
Theatrical releases are a tried-and-true method for studios to generate buzz and, more importantly, money. In the traditional model, film distributors license films to theaters for a fee, and the theater pays a percentage of its ticket sales to the studio. This percentage is higher at the beginning of the film's run and decreases over time, incentivizing theaters to keep movies on their screens for as long as possible. Theatrical releases also allow studios to profit from concession sales and advertisements, which can make up a significant portion of their revenue.
While some studios have experimented with skipping the theatrical window and releasing films directly to streaming platforms, most major theater chains have pushed back by mandating an exclusivity window of 90 days before a film can be released on physical home video or streaming services. This strategy aims to protect the profits of both theaters and studios, as attendance numbers and box office sales are critical to their success.
Theatrical releases also offer a marketing advantage, as they create a sense of exclusivity and urgency that can drive more significant demand for a film. This strategy is especially beneficial for smaller studios or distributors who may not have the large budgets needed for extensive advertising campaigns. By releasing a film in theaters first, studios can generate buzz and hype, leading to more considerable audience interest when the film becomes available on other platforms.
Additionally, the platform release strategy, commonly used by studios and distributors, seeks to position their films for awards success. These releases are typically scheduled towards the end of the year to coincide with major awards events. Awards attention can result in critical acclaim, strong word-of-mouth, and increased per-screen averages, leading to expansions to more theaters.
While there have been successful direct-to-video releases, particularly for independent filmmakers, the traditional theatrical release model still holds sway in the industry. Studios continue to recognize the value of theatrical releases in generating buzz, driving demand, and ultimately increasing their bottom line.
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Frequently asked questions
Movies are first released in theatres due to supply and demand. Theatre owners don't get paid for carrying films, so they want to carry films that will sell the most tickets. Distributors also want exclusive rights to films to attract audiences.
Theatres make money through ticket sales, selling ads, and concessions. They also receive money from studios for each showing of a trailer, based on the number of people who saw them.
Distributors lease films to theatres in exchange for a percentage of ticket sales. They decide how many prints to make and which theatres they will go to. Distributors typically receive between 10 and 50% of revenues.
A Connecticut lawmaker has introduced a bill that would require movie theatres to disclose what time the trailers start and what time the movie actually starts. This is to address the issue of theatres showing long sequences of trailers and ads before the movie, which has frustrated some customers.
