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In the traditional release window model movies are first released in the movie theatres and about four months later on DVD, and about 45 days later on VOD, and then about 18 months later on pay TV. In about two to three years after the movie's release they are shown on free and ad-supported TV. And might I dare to add a last option of ad supported Internet sites like Hulu a few years after appearing on ad supported TV.


DVD drives the majority of a studio's sales and a majority of its profits; however, DVD sales are declining, cutting into movie studio profits.
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Disney, we believe, raised several window release issues with those comments, the first of which is whether the studios will collapse the theatrical to DVD window. We believe that this is highly unlikely for several reasons.


For one, movie theatres are a great way to gauge the level of interest in movies and how the movie will ultimately perform on DVD. That should help studios determine demand and more accurately forecast DVD production levels. For instance, if a movie flops at the theatre then the studio knows that they should not produce many DVDs to avoid massive returns by retailers. Conversely, the immense popularity of Avatar alerts NewsCorp (NWS) that they should produce a high number of DVDs so that they do not miss out on sales.


Second, the success of a movie at the theatre helps determine how much a studio charges for the movie on pay and free television because the contracts are tied to the level of box office receipts. The higher the box office receipts the higher the studio charges the cable and broadcast network for the movie.


Lastly, DVDs will be eventually replaced by various forms of electronic sell-thru, permanently cutting into the DVD profit stream for the studios and providing further incentive to keep the theatrical window intact.
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In all, we believe that the theatrical window likely collapses by one day per year but never all at once. Some measure of a collapse can be sustained by all parties because over 90% of a movie's ticket sales are generated in the first four weeks in the theatres. Hence, the theatres can agree to a partial collapse overtime provided that the studios continue to deliver blockbuster hits and new technologies like 3D continue to drive increased profits for the theatres. Indeed, that is what has been happening over the past few years as per the following exhibit.
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As for the DVDs, their sales likely approaches zero, asymptotically, overtime as digital distribution models take hold and remove DVDs for the windowing argument entirely.
http://seekingalpha.com/article/1886...release-debate
 
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