Hollywood braces for talks on DVD releases

Top Hollywood executives and theater owners will seek this week to resolve a brewing dispute over DVD release schedules, a contentious question as the industry grapples with shifting viewer patterns and the advent of high-tech home entertainment.

At the annual ShoWest convention in Las Vegas, starting Monday, studio moguls and the country's largest theater chains hope to reach an understanding on the so-called "window" between a movie's screening and when its DVD is released.

The Walt Disney Co started the ball rolling when it announced it would push up the DVD release of its "Alice in Wonderland" by four weeks -- prompting threats by some theater chains to boycott the hugely marketed film.

Analysts say Disney and other studios want to reduce marketing expenses, adapt to audience's increasing need for on-demand content and boost flagging DVD sales. But theater owners, already facing the roll-out of 3-D TV as a potential competitor, have reacted nervously as studios such as Disney and Time Warner Inc's Warner Bros start to tinker with DVD release schedules.

Theater owners are fighting to protect ticket sales, which have decreased to 1.42 billion in 2009 for the United States and Canada from 1.57 billion in 2002. Chains such as Regal Entertainment Group and AMC Entertainment Inc are fearful that, if studios shorten the window, they could lose even more customers as audiences wait to watch films at home.

Matthew Harrigan, an analyst with Wunderlich Securities, said theater owners fear losses ahead.

"This is nothing right now, but people see a foot in the door. That's what got people spooked," Harrigan said.

Already, Warner Bros, is considering shortening the release window for its adventure movie "Legend of the Guardians" due out in September, said a source familiar with the situation.

Peter Guber, chairman and chief executive of Mandalay Entertainment Group, said studios are not likely to budge from their demand that theater owners accept shortened windows.

"We are not in an evolution anymore, we're in a revolution, and revolutions can be lethal," said Guber, former chairman of Sony Pictures Entertainment.

Representatives for Regal and AMC declined to comment.

DEAL IN LIMBO

Before Disney upset theater owners by going public about moving up the DVD release on "Alice," studios and theaters had reached an unwritten agreement to limit moving up the DVD release to two movies per studio and only in the spring and winter, said a source familiar with the situation.

That unwritten agreement is now in limbo, but sources said that ironing out the dispute over release windows will be high on the agenda at ShoWest, which runs through Thursday.

In a speech at ShoWest on Monday, Michael Lynton, chairman and chief executive of Sony Corp's Sony Pictures Entertainment, said he will always view the theatrical run as the most important window, but that the industry must adapt.

"It is clear from the changing economic model of our industry that we're going to have to reevaluate the way in which the current window structure operates," he said.

"To meet audience demand for entertainment when and where they want it, and to keep ahead of the pirates who will fill any void we leave, we've all got to be open to experimenting with new and different windows, taking advantage of new and different technologies."

Studios want to shorten the theatrical window in part to offset rising marketing costs, Guber said. If the DVD comes out earlier, customers are more likely to remember the advertising campaign from when the movie hit theaters.

Also, studios are reacting to piracy because the longer consumers wait to get their movie at home, the more likely they will turn to illegal copies, Guber said.

Movie studios like the home entertainment market because they avoid having to split revenues with theaters, he added.

Just 10 percent of the U.S. and Canadian population goes to the movies at least once a month -- and 33 percent of the population does not go at all. But the average American watches one movie a week on DVD, according to research firm NPD.

Thus, DVD release dates are creeping up.

The National Association of Theater Owners reports the average theatrical window for major movies shrank to 4 months and 14 days in 2009 from 5 months and 19 days in 2000.

Meanwhile, "Alice" has made $430 million at worldwide box offices in less than two weeks since its March 5 debut.

A source at one Hollywood studio who declined to be named said studios can use that strong showing to argue moving up DVD releases does not hurt theaters.

"What do the theater owners lose from 'Alice' announcing they would go to DVD in three months. What did they lose? Nothing," the source said.