Why Sean Parker’s Screening Room Could Succeed Where Others Failed

Efforts to shorten the theatrical window by enabling early in-home availability of movies have a poor track record in Hollywood. DirecTV’s effort in 2011 to offer movies in-home 60 days after their theatrical release for $30 quickly foundered, despite the support of four major studios, largely because the studios, fearful of retaliation from theater owners, didn’t shorten the window enough to persuade consumers to shell out the high ticket price. Digital HD, heavily promoted by 20th Century Fox, offers movies in home three to four weeks before their DVD/Blu-ray release for a premium price, but support from other studios has been spotty and DHD has had negligible impact on consumer behavior.

home-theater-lightingEfforts to eliminate the exclusive theatrical window altogether, such as Netflix’s insistence on making its original feature films available on its streaming service the same day they’re released in theaters, have been met with a near total freeze out by theaters, and no major studio has dared try.

It’s no surprise, then, that the new proposal from former Napster co-founder Sean Parker and Prem Akkaraju to offer movies in-home day-and-date with their theatrical release for $50, through a platform called The Screening Room, has sparked controversy in the Hollywood. Art House Convergence, which represents 600 independent theaters, released an open letter to the industry decrying The Screening Room concept.  “We strongly believe if the studios, distributors, and major chains adopt this model, we will see a wildfire spread of pirated content, and consequently, a decline in overall film profitability through the cannibalization of theatrical revenue,” the letter said. “The theatrical experience is unique and beneficial to maximizing profit for films. A theatrical release contributes to healthy ancillary revenue generation and thus cinema grosses must be protected from the potential erosion effect of piracy.”

The National Association of Theater Owners (NATO) was also quick to condemn the idea. “The exclusive theatrical release window makes new movies events.  Success there establishes brand value and bolsters revenue in downstream markets,” the major theater chain group said in a statement. “NATO has consistently called on movie distributors and exhibitors to discuss as partners release models that can grow the business for everyone. More sophisticated window modeling may be needed for the growing success of a modern movie industry. Those models should be developed by distributors and exhibitors in company-to-company discussions, not by a third party.”

Several high-profile directors and producers also came out against the plan.

So why shouldn’t The Screening Room be expected to meet the same fate as previous efforts? There are a few reasons why this time might be different.

For one thing, Hollywood is hardly unanimous in its opposition to plan. Several A-list directors and producers have lined up both in support of The Screening Room and for a piece of the action in the form of shares in the company (a very smart go-to-market strategy). That ensures The Screening Room will get a real hearing from the studios, as it apparently already has.

Further, as “Lord of the Rings” director Peter Jackson noted, it’s targeted at a limited market. Anyone who would pay $150 for a dedicated set-top box and then $50 a pop just to be able to watch movies at home the same day they’re released in theaters probably isn’t getting out to the movies much, anyway. That’s likely to make the studios more willing to take the risk of undercutting box office grosses.

The use of a dedicated set-top box also means a single point of data collection on who is watching, how they watch and what else they might be doing. Those data could prove very valuable to the studios, again increasing their incentive to participate.

Another important difference this time than in previous industry skirmishes over shortening the theatrical window is that the three largest theater chains are currently under investigation by the Justice Department and several states attorneys general over possible anti-competitive behavior, which could greatly constrain any sort of coordinated response by theaters (whether formal or informal) apart from complaining. Among the issues the antitrust cops are looking into, according to a regulatory filing by Cinemark are “matters including film clearances,” and “related joint ventures,” as well as “potential coordination and/or communication with other major theatre circuits.”

In a press release, Ohio  Attorney General Mike DeWine also cites cites “so-called exclusionary conduct” by exhibitors “that would limit consumers’ choices and stifle innovation,” which sounds an awful lot like a reference to the sort of stonewalling Netflix has run into in releasing its original films.

One of the chains under investigation, AMC, has still another reason to be cautious in how it responds. It’s proposed acquisition of Carmike Cinemas, creating the world’s largest theater conglomerate, is currently awaiting regulatory approval, giving AMC every reason to avoid doing anything that smacks of anticompetitive behavior.

It’s no surprise, then, that AMC is reportedly the one major theater chain open to making a deal with The Screening Room. If I were running AMC I might think about taking a significant equity position in the company, in fact, so long as I was making a deal, both to have a say in the strategy and as a hedge against the inevitable future disruption of my business. It would also probably box out my competitors, who would probably be prevented from joining a board I was already on while we’re all under antitrust scrutiny.

Should the AMC-Carmike deal go through, moreover, AMC says it will centralize film buying, increasing its clout with the studios. Should AMC also end up with a meaningful stake in The Screening Room, that film-buying clout would give the studios still more incentive to make their movies available to the in-home service.

Finally, the Screening Room platform could eventually offer the studios an opportunity to deliver additional content to the home on a ticketed basis, including perhaps live content.

Technically, the Screening Room setup sounds a lot like Xcinex, the  startup that was shopping around a secure in-home premium VOD platform in Hollywood last year. Like The Screening Room, Xcinex relies on a dedicated set-top box to stream the content. The Xcinex box contains imaging sensors capable of detecting how many people are in the room for ticketing purposes. In addition to movies, Xcinex is positioning its platform as a way to deliver live concerts and other types of ticketed events to the home.

“Any [content] that would require someone to purchase tickets can now be streamed directly into the home,” Xcinex CEO Cihan Atkin told M&E Daily last year. “The reason this has never been able to be done before, and why the market is flooded with subscription models, is because there hasn’t been a way to detect the number of people in the room.” (Disclosure: M&E Daily is produced by Concurrent Media Strategies).

Xcinex isn’t saying whether it has anything to do with The Screening Room. And The Screening Room seems to have eschewed individual tickets in favor of a flat, $50 per-movie fee. But that doesn’t mean the capability might not be in the box.

The Xcinex box, incidentally, also uses pattern and object recognition and reflective-lens technology to detect any recording devices present in the room where the content is being viewed. If any such device is detected, the stream is paused until the device is removed. If that, or something like it, is included in the Screening Room set-top box, that additional layer of security could be another factor that appeals to the studios.

Hollywood is a weird place — the land of illusion. So I wouldn’t make any firm bets one way or another as to whether The Screening Room will succeed. But I’ll tip my hat to its timing.