Translation of an article in the Dutch trade magazine 'Holland Film Nieuws' of Oct. 2005
(based on articles in the ' Financial Times' and 'Time', Aug./Sept. 2005)

Windows and the future of the cinemas
Optimizing, not minimizing?

by Dr. Joachim Ph. Wolff *

"Cinema releases of films several months before they reach the living room may become a thing of the past now that film companies are re-evaluating their income sources, evaluating new technologies, and trying to make feature films more attractive to the general public." That’s the introductory summary of an extremely interesting recent article in the Financial Times 1 To be sure, the article does not excel in marshalling in a well-organised manner the standpoints of leading executives in the film industry – some of which are alarming, and some of which are reassuring – , but that is all the more reason for the following critical review. Even more reason was provided by the recent article "Première in de huiskamer" [Premiere in the living room] in the 25 August 2005 issue of the Dutch newspaper De Volkskrant. Whilst the article in the Financial Times (FT) originated from an apparently well-informed and unbiased author, the article in the Volkskrant provided a particularly simplistic explanation for the recent decline in cinema attendance by attributing it to a single cause, and thus to a simple causal relation. As should be evident from the following, multiple factors and complicated relations are involved.

Introductory information
Windows are the periods of time that elapse (or must elapse) between the start of exploitation of the screening rights for a film in one medium and the start of exploitation of these rights in the subsequent form of screening. The internationally used term ‘windows’ comes from the basic idea that cinemas are the display windows for films.
Efforts to regulate windows were spearheaded in particular by the national organisations of cinema owners (in the Netherlands, by the legal predecessor of the Neth. Cinematographic Fed. NFC), and at the European level by the European umbrella organisation Union Internationale des Cinémas (UNIC), as well as by the International Federation of Film Distributors’ Associations (FIAD). The primary argument brought forward in this regard was that windows are necessary to maximise the total revenues from exploitation of the screening rights and thus enable as much money as possible to be returned to the production. One of the conclusions of the report on this subject prepared by the Europa Institute of Utrecht University in 1997 was that "if the practice of using windows would not exist, the holders of the rights [the producers] would not be able to recover their often considerable investments in films"2 , which would endanger the continuity of the entire feature film industry. The windows policy is thus oriented toward long-term results, but it is undermined by short-term policies aimed at maximising revenues from the individual media.3 However, a weakness of the argument from the very beginning has been the fact that the producers and their associations, as the most interested parties, have – to put it mildly – not made any effort to foster regulation of the windows. That is probably the reason why the European Commission, despite repeated statements regarding the utility and even the necessity of windows and the crucial role of cinemas4, was not willing to generate a corresponding European Directive.5

Dangerous standpoints
The first development mentioned in this article, whose outcome is awaited with considerable interest, is the release of "Bubble", the first film to be released "universally" in the form of simultaneous cinema, home video and pay-television versions. Internet entrepreneur Todd Wagner, CEO of the company ‘2929 Entertainment’ that produced the film, is bemused by the "habitual practice of telling consumers where and when they can consume Hollywood’s products". According to Wagner, in the music industry that policy would be equivalent to saying that a song that has become popular on the radio would not be available on CD until five months later.
It is not surprising for a relative newcomer to have a fresh view of conventional marketing policy, and in principle it is also good. However, this comparison would be stupid even if it came from a total layman. That’s because in contrast to cinemas, with radio there is no party that would reap any advantage from delaying the next exploitation stage for so long. High-handed positions based on complacency can have dangerous consequences when they are taken by influential persons. The author of the article in the FT expects that the large cinema chains, which already have complained about the shrinking windows, will never screen anything that has already been issued in another medium. Although many people in Hollywood predict that the new initiative will be a failure, Wagner appears to be hardly discouraged.6 For that matter, he hopes to get the cooperation of the cinema operators by offering them a share of the revenues from the exploitation through the other media. According to the author of the article, this amounts to an implied recognition of the importance of the promotional function of cinemas, but it appears to me to be a dangerous deal.

The standpoint of Robert Iger, the new CEO of Walt Disney since late September, is even more alarming than Wagner’s statements. That is because he has said that simultaneous release of major films in cinemas and on DVD cannot be excluded in the future, which led to vehement reactions from among others the president of the National Association of Theater Owners (NATO)7. It is now clear that another head of a major company, Ron Meyer, the president of Universal Studios, disagrees with Iger. In his opinion, a time period between the release of the cinema version and the DVD version is more lucrative for producers, and for that reason he warns against "cannibalisation" of the product.8

A less one-sided standpoint, but one that nevertheless requires comment, comes from Ryan Kavanaugh of Relativity Media, which forms the "financial bridge" between Wall Street and Hollywood. The idea that the profitability of production and distribution will be enhanced by the digitalisation is nothing new. However, as will be discussed later on, that does not necessarily mean that profitability can be improved while paying much less attention to cinema revenues, as suggested by Kavanaugh.
Kavanaugh predicts that once video-on-demand is actually available, costs will drop and profits will "go through the roof". He also adds that video-on-demand will particularly be a significant factor when the studios try to penetrate the Chinese market with its extremely low screen density. However, that is a standpoint that is indeed true for countries such as China, but not for North America or Europe.

Another equally dangerous idea was presented in an article recently published in the Italian trade journal Giornale dello Spettacolo.9 Based on the aversion to piracy shared by all involved parties, Medusa Home Entertainment (nomen est omen?) proposed complete elimination of the window between the cinema and DVD versions, because it would put an end to the piracy problem in one blow. That would of course be an extreme measure amounting to throwing the baby out with the bathwater, which has also become less effective because a consideral part of the illegal copies no longer originates from cinema screenings, and will originate increasingly from digital sources. Various leading representatives of the organised Italian film industry, not surprisingly, have thus pointed out that this would not be the right way to combat piracy.

Balanced standpoints
According to the author of the FT article, there are two reasons why the windows between cinema and DVD releases have become shorter. The first reason is that the studios wanted to have a larger share of the expanding DVD market, leading to a tendency to "grab the golden goose". The second reason is an effort to increase marketing efficiency. The idea there was that a shorter window between cinema and DVD releases would make it unnecessary to pay twice to promote the same film. That amounts to an implied recognition of the fact that cinemas are still the showcases (windows) for films, which is quite significant because it evidently involves not just favouring the DVD market, and thus not just minimizing the window intervals, but instead optimizing them.
"Theoretically, it doesn’t matter to Hollywood where the revenues come from, as long at the total amount increases." However, things are more complicated in real life. For instance, a J.P.Morgan analyst has pointed out that with an increasing supply of new DVDs, older titles that still have potential must disappear from the shelves earlier. DreamWorks Animation learnt this the hard way when retailers returned millions of copies of its Shrek 2 DVD.
As stated in the article, a decline in cinema attendance may even have more serious consequences for the entire film industry than those already mentioned: "Box-office is the engine that drives the industry. Studios rely on box-office performance when negotiating release terms for the DVD and television markets. And the big-screen experience sets the film industry apart from competing forms of entertainment and serves as a springboard for subsequent revenue streams. For a lot of big-event films […] the theatrical experience drives […] people to go and buy or rent the DVD." According to Paul Dergarabedian, president of Exhibitor Relations, a consulting agency for the film industry, most DVDs sell well because the movies were shown in cinemas. "The studios would be shooting themselves in the foot by closing the window any further."

Rick Finkelstein, president and CEO of Universal Pictures, is one of several executives who oppose hastily abandoning a proven formula because they do not want to take the risk of affecting the different revenue streams, and the word "cannibalising" was again used in this context. Jon Feltheimer, CEO of Lions Gate Entertainment, is also convinced that windows should be protected because the system still works.

Standpoints that are encouraging as well as stimulating
Dick Cook, the chairman of Walt Disney Studios, thinks that the most important thing for the film industry is to get people back into the cinemas. According to him, this requires making a visit to the cinema an experience, just as it used to be. Coming from the head of the studios of a major company, that is a very important statement, because it amounts to an acknowledgement of the major significance of cinemas for film producers. Cook’s standpoint, which ties in to the new experience economy10, corresponds to the criticism raised by others that "cinemas have lost much of their charm: they are cavernous and dark, and they have become uniform; you have to put up with 15 minutes of advertising; and part of the audience behaves rudely". Another CEO has remarked that cinemas no longer have curtains. A curtain in front of the screen may be regarded as an atavism, but the point of this remark is that with the loss of the curtain, the symbol for the "illusion that the viewer will be spending the next two hours in another world" is also lost. In that regard, I cite with approval the statements made by the cultural-sociologic researcher Carl Rhode, who said in an interview published in the June issue of Holland Film Nieuws this year that the quality of the cinema experience still leaves a lot to be desired and that the multiplexes have all been the same for years already, but that there "is indeed a need for the cinema as a place where people can do something as a group, because we are becoming increasingly socially isolated."11

Summary conclusions

The statements by important executives in the film industry cited here clearly show that at least some of the heads of major companies are convinced that cinemas are crucially important to the production. There is thus reason to expect that their corresponding preferences for a cautious windows policy will (at least ultimately) lead to an avoidance of dramatic reductions in window times.
As can be seen from the publications referenced in Note 6, a debate is currently in progress regarding the causes of the recent declines in cinema attendance. It cannot be denied that the producers have not supplied sufficiently attractive films in the recent period, which also expresses itself in stagnating DVD sales (with a delay factor corresponding to the windows). It is equally undeniable that shifts have occurred and are still occurring in consumption patterns and the taste of the general public.
From the reasons for the existence of windows described in the first section, it follows that the primary factor here is not protecting the cinemas, but instead ensuring the continuity of the feature film production industry. That means that the involved parties must be open to looking for a new balance: optimizing the windows system instead of minimizing it.
One of the significant aspects of optimization is the battle against piracy, which has entered a new phase with the transition to digital techniques. Although a draconian measure such as the one proposed in Italy would naturally not result in a satisfactory situation, cinema owners will certainly have to understand that it is necessary to take measures in that area, at least to the extent they are effective and are not worse than the disease.
As already announced by the heads of major companies, experiments will be carried out in the process of arriving at optimal arrangements. However, it is important that such experiments be arranged in consultation with all involved parties and be evaluated in a scientific way.

Discussions with insiders who are open to arguments based on facts and oriented toward the ultimate interests are naturally easier and more pleasant than attempts to convince biased opponents who are focussed on short-term results. It is also evident that the president of the most important cinema owners’ organisation, the NATO, is not afraid of vehement reactions in the latter case. It would also be significant if the national and international organisations of distributors would also express their well-considered ultimate interests. (In this regard, I would like to recall the fiery argument for the necessity of windows made by Max van Praag (general manager UIP Neth.) at the ‘political afternoon’ session during the Netherlands Film Festival in 2004.)

In my opinion, the most reassuring and stimulating statements with regard to windows policy come from the major executives in the production branch. Not only do they prove to be convinced of the crucial significance of cinemas, but they also encourage the exhibitors to improve the experience of the audience in their cinemas. The shifts in consumption patterns and the taste of the general public need to be taken into account for films yet to be produced, and these shifts must be anticipated in case of films yet to come, but there is also a need to strive for fundamental innovations when building or remodelling cinemas.


* Dr. J.Ph. Wolff is the chairman of the Neth. Foundation for Film Sector Research and former president of UNIC.
The author is grateful for the suggestions made by Eva Rovers MA and Merel Gilsing MA (of the above mentioned research foundation), Gerard Bunnik MA (vice-chairman of that foundation and Board member of the Neth.Exhibitors' Ass., NVB), Dr. Philipp Wolff (Board member of the NVB?, and Dr. A.D. Wolff-Albers (expert on science- and technology policy).
1. Joshua Chaffin, "Screen test: Hollywood studios are facing a journey into the unknow"’, Financial Times, 11 Aug. 2005
2. K.J.M. Mortelmans and H.A.G. Temmink, "Article 7 of the Amended Directive 'Television without frontiers': Residual competence of Member States in respect of the window position" (Utrecht University, 30.06.1997), p. 6
3. Due to internal rivalry between divisions, this kind of policy is also pursued by major companies.
4. e.g. "The European Film under Analysis. Second Information Report" (Brussels, 23.10.1997), p. 29.
5. This issue is discussed extensively in: J.Ph. Wolff, "Production is key in the film industry. Evaluatie van het speelfilmbeleid in het kader van het mediabeleid van de Europese Unie (Lelystad, 1998), Chapter VI.
6. This question is also examined in the article "Bom of Bubble" [Bomb or Bubble] by Lucia Alleman in Holland Film Nieuws, No. 64, June 2005.
7. Several articles have been published on this topic in the American trade press.
8. ‘10 Questions for Ron Meyer’, Time, 5 Sept. 2005
9. ‘Non e' la via giusta’ in Giornale dello Spettacolo, 15 July 2005
10. B.J. Pine II and J.H. Gilmore,"The Experience Economy" (Harvard Business School Press, 1999); Susanne Piët,"De emotiemarkt. De toekomst van de beleveniseconomie" [The emotions market. The future of the experience economy] (Pearson Education, 2004)
11. Heleen Rouw, "Bioscoop is leuk, maar games zijn leuker" [Cinema is nice, but games are nicer], in Holland Film Nieuws, No. 64, June 2005, p. 9


On being asked by the editor of a textbook about media, I recently have written for that book the text of the section about windows. That section ends with the following consideration:
The standpoint that the cinemas are the display windows for the feature films, is based on obviousness, as well as on statements of many experts, among which the European Commission itself. That, certainly, is a good reason to take this view seriously. However, that does not take away that this point of view has not yet been underpinned by results of quantitative scientific research, which should be commissioned in the near future.

Jan. 2006 Dr. J.Ph. Wolff