Monkeying Around With Distribution
Think Before You Act
Feb. 2, 2006: Vol. 2, Issue No. 9
IN THE NEWS
Multimedia Launch of 'Bubble' Gets Mixed Response
An experiment in launching a movie almost simultaneously in the cinema, on cable television and on DVD attracted few theater-goers, although the film has done well in DVD orders, according to its makers.
—Sarah McBride, The Wall Street Journal, Jan. 30, 2006
In the film world, the time-honored sequence for release of a new movie is theater distribution first, followed by DVDs for purchase and rental, and finally presentation on cable or network TV.
"Bubble" is a low-budget thriller directed by Steven Soderbergh ("Traffic," "Erin Brockovich," and "Ocean's 11"). According to The Wall Street Journal, it cost $1.6 million to make, which seems unbelievable, but two sources confirm it.
It was decided to release "Bubble" in all three media a few days apart.
This raises a serious question for everyone in business who sells a product:
Is it smart to grab as much money as quickly as you can, even if it means short-circuiting—and possibly hurting—your normal distribution network?
It Happened on Fifth Avenue
Let me share with you an extraordinary story of my childhood—one that has colored and shaped my view of the modern world.
My father, historian Alden Hatch, wrote the first biography of Dwight D. Eisenhower. During World War II, my father interviewed Mamie Eisenhower on several occasions at the Wardman Park Hotel in Washington, D.C., where she was living while the general was overseas. My parents and Mrs. Eisenhower became friends.
Fast forward five years. My father was signed by the old Liberty magazine (now defunct) to do a series of articles on the 1948 presidential candidates—President Truman, Robert Taft, Thomas E. Dewey, Harold Stassen and Arthur Vandenberg. At that time, Eisenhower was Army Chief of Staff. My father called Mamie Eisenhower to say that he and my mother were coming to Washington to do research and asked if she and the general had some time to get together. To his astonishment, he and my mother were invited to stay with the Eisenhowers at Quarters One, their official residence at Fort Myer, Va.
To my astonishment, I was invited along. I was twelve.
Many scenes are etched in my memory: breakfast alone with the general every morning for five days, being left alone to entertain General Walter Bedell ("Beetle") Smith while the Eisenhowers dressed for dinner, and a private tour of the Pentagon with the general's driver, Sgt. Leonard Dry, as my guide.
But what really impressed me was the general's offhand remark at the end of dinner one night: "Say, why don't we watch a movie?"
We repaired to the top floor solarium where Master Sgt. John Moaney—the general's orderly throughout the war—had set up a screen in the front of the room and an old 16 mm sound projector on the pool table. For the next two hours, we watched "It Happened on Fifth Avenue," a light comedy in black-and-white starring Victor Moore and Charles Ruggles.
In those days, only very important people could have private film showings in their homes. For example, I had heard the great director Cecil B. DeMille had a private theater, as did the president of the United States. But the idea of knowing someone so powerful that he had access to first-run films—and could watch them in his home—blew my socks off.
In 1947 at age 12, this was the ultimate luxury. I aspired to reach a position in life that would enable me to view movies at home. I could not imagine going any higher in terms of income, power and social attainment.
Now, of course, everybody watches movies at home. I guess the modern equivalent of the position to which I aspired at age 12, would make me the owner of Paul Allen's yacht.
Still, every time my wife, Peggy, brings back a DVD from the corner video store and we find ourselves watching a $100 million extravaganza in our living room, that extraordinary wave of wonderment at what happened nearly 60 years ago comes over me.
I feel the same sense of awe when I listen to the stereo, make a cell phone call, get driving directions from a GPS machine in a rented car, log onto the Internet, or find myself at 37,000 feet in a jet plane listening to Ella Fitzgerald through Bose earphones and sipping a martini.
What the younger generation takes for granted are miracles to us geezers.
The Economics of the Film Business
It turned out that my gut reaction to watching a film at home in 1947 was spot-on in terms of what people want. As you can see from the chart below, VHS and DVDs have radically transformed how Hollywood makes money.
The Lord of the Rings-Fellowship
Pirates of the Caribbean
Now imagine yourself as a motion picture producer.
You've spent millions of dollars to create a film. It's risky business. If the film bombs, you lose big time. The risk, however, has been considerably lessened by the DVD/video rental business.
It would be smart business to recoup your costs and start to show a profit as quickly as possible.
Or would it?
For decades, the film industry has depended on movie theaters to display their wares and bring in money.
Now, this segment is in trouble. Domestic movie attendance is off by 7 percent. The subhead of Kate Kelly's story, "The Multiplex Under Seige" in The Wall Street Journal Dec. 24, 2005:
With attendance down and movies popping up faster on DVD, theater chains are scrambling to pry you off the couch—trying everything from discount tickets to curbs on rude patrons. Their fight to stay relevant in the flat-TV era.
Movie theater tickets now range from $6 to $14 in deluxe venues. It makes total economic sense for a family of four to rent the DVD—or buy it so that they can see it an unlimited number of times and lend it to their friends and family.
If the "Bubble" model were to become the standard, it would cause a terrible ripple effect:
- It would deeply hurt the exhibitors. Movie theaters all over the country would close, depriving families, seniors and folks that don't have home video equipment from enjoying the film experience. The communal social fabric of communities would take yet another hit.
- A new motion picture in theaters means attention-getting ads in newspapers which, combined with reviews and coupled with theater posters and marquee signs, all create hype and excitement. This would be no more.
- Newspaper advertising would no doubt take yet another hit, to be replaced only in part by point-of-purchase fliers and maybe a small sign in video stores.
- In the glut of DVD releases, how would movie reviewers know which films to review?
- In short, this model takes the movie business from the very big and exciting, to the very small—from the "big screen" to the teeny DVD.
"Bubble"—the film in question—got a very good review in The Philadelphia Inquirer, 3-1/2 stars out of a possible four. And the unusual distribution scheme generated some free publicity. But according to the The Wall Street Journal, many theaters shunned it. It did a paltry $72,000 in sales on the 32 screens it was shown on, and an estimated 500,000 viewers saw it on two showings on HDNet.
My take is that "Bubble" will disappear into the maw of video stores where it will take its place on the shelves along with thousands of other offerings. It will make a handsome profit because it cost so little to make. But with the good reviews, it probably would have grossed far more had it not shrugged off a full-dress theatrical release.
NOTE: As I'm writing this at 11:53 a.m. on Jan. 31, 2005, an e-mail came from my video rental store announcing the arrival of the "Bubble" DVD on sale for $19.95. It looked just dreadful, with a series of severed dolls' pink bald heads and wide-open lidless glass eyes. Also in the same e-mail were ads for "Corpse Bride," "Dune," "In Her Shoes," "Live Freaky! Die Freaky!" "The Legend of Zorro" and "The Weather Man."
How does the "Bubble" scenario relate to your business?
Takeaway Points to Consider
- A number of years ago, I wrote a Target Marketing cover story on David Oreck who manufactures and sells vacuum cleaners and air purifiers. They sell in selected retail stores as well as in Oreck's own sales and service operations. Plus he sells them direct via television, radio, off-the-page advertising and some direct mail. With a $399 selling price direct and at retail, the vacuum cleaner has a hefty mark-up that enables all players and channels to be profitable. And as Oreck told me, the direct advertising on TV, radio, space and mail gets attention and drives customers into retail stores as well as generating sales on their own.
- However, it has been my experience that if you have a distribution network such as retail, it's not a good idea to offer the same product direct. An unhappy retailer will cease to carry your product and add an equivalent one to his line. You lose that business.
- It would be suicidal to offer the same model of a product via direct marketing at a discount under the price it is being sold at retail.
- What some marketers do is create a special version of a product for direct sales, announcing that it's not available in stores. It will have different features—maybe fewer features with a lower price or more features for a higher price. But the manufacturer can honestly say that the retail market is not being cannibalized.
- In short, before making a dramatic change in your marketing mix, I would suggest looking long and hard at the ripple effect and possible collateral damage.
Letters to the Editor
Note: Denny personally replies to all correspondence.
Readers respond to "Arrrggh! What Did You Expect? " which was published Jan. 31, 2006:
"What the GM management and Jill Carroll had in common is that neither of them knew when—or how—to take chances."
Bad taste. Certainly you have no idea what this woman was really thinking.
Good points. Hard to imagine 220 bombs are going off per week in Iraq and the situation is in any way being considered stable. An Army friend said the military on the ground needs an armored vehicle called the "Cougar" in greater numbers as soon as possible. A Navy procurement official mentioned they are having trouble finding production capability. Too bad they can't convert some of the GM and Ford plants into armored vehicle plants. I have 20 fellow college alumni and other friends in Iraq; it must be awful for their parents because they hear about the incidents everyday.
Have you read any of Thomas Friedman's books? In "Lexis and the Olive Tree" written in 1999, I believe, he mentions the need for the "Software of government" to be in place—courts, effective police, local government, etc.—for democracy to work. All that takes time to emerge, probably needs the young people to go to school and emerge with the expectation of living and working in a civil society.
—Kenneth G. Kraetzer
Loved the phrase/concept "long-term plans de jour", but, alas, should that not be "du jour", as in "soup du jour"? Arrrggh!
Capitalism has greatly rewarded the risk-taker. The hero of the average "rags-to-riches" story also happens to be a renegade risk-taker, so why not rationalize away common-sense in the name of going down the road-less-traveled. Since successes and failures can simply be a matter of circumstances, some poor decisions are rewarded—which adds fuel to the "stick-to-your-vision-and-you-can't-fail" fire. Perhaps, visionaries and naive people have some of the same characteristics: having the wherewithal to cause a reaction, but lacking the preparation—or willingness—to handle the equal opposite reaction. Anticipating the equal opposite reaction is risk-management. Coincidentally, marketing, in its purest form, is also risk-management.
Your "What Did You Expect?" column couldn't be more on target from my perspective. From government to industry, celebrity to the least known of society, we all tend to act in what we perceive to be our own best interest but are unwilling to accept the results of those decisions should they not work out quite as rosy as we expected. The result—a horrible deterioration not only of the truth but also of individuals willing to pursue the truth. Rather, barricaded positions to deflect responsibility onto somebody else has become the accepted response. I think the State Department did know Hamas would win but then we would have to explain why we've been giving billions to a thug for years. If we want better decisions in business, we better weigh the potential downside of decisions and make sure we can take the heat if things don't go as planned.
Come on Denny. You've done it again. Comparing the abduction of a reporter doing her job to GM failures ... is ludicrous. You know better.
As for GM (the example here) and sensible vehicles, they blew it back in the first gas shortage in the '70s, when they dumped some diesel vehicles on the market. These cars were the same heavy heaps as the rest of the line, but the engines were supposed to suck up then-cheaper diesel fuel and somehow save money. Many of those engines (I'm told, straight adaptations of conventional mills) crapped out early and often. Some value proposition, eh?
In the July 26, 2005 column, "A Celebration for Women Everywhere," I described how the Baltimore Symphony was the first major American orchestra to hire a woman conductor, Marin Alsop. But the organization's president, James Glicker, threw a wrench in the hiring process that precipitated an internal battle royal. I wrote:
By causing the musicians—"the people who get things done"—to feel disenfranchised, James Glicker and his board exhibited a massive failure in leadership.
In business—and it must be remembered that Glicker was out of the corporate world—employee dissent seldom makes it into the media. What's more, nobody gives a damn so long as the quarterly financials meet expectations. In business, unhappy employees can resign and troublemakers are fired.
On Jan. 20, 2006, it was announced that James Glicker abruptly resigned after just 18 months on the job.
In the Aug. 18, 2005, column, "Time Warner and the Vision Thing," I described the launch of Time in 1923, which was a 32-page issue containing 117 articles created by an editorial staff of just 20. This remarkable achievement was contrasted with the Aug. 22, 2005 issue made up of 63 articles in 49 editorial pages that was produced by a staggering 269 people.
I suggested massive personnel cuts. I wrote:
If I were in charge, I would begin with the bloated, bloviating bore that is the company's signature product, TIME.
I would go through the masthead and delete 169 people, and I would then double the salary of everyone who was left—around a hundred people—and watch what the hell happened.
In December 2005, 105 positions at Time were eliminated. From AdAge.com came the announcement on Jan. 30, 2006:
NEW YORK (AdAge.com) — In the latest, much-dreaded round of cutbacks at Time Inc., the company fired 66 business and editorial employees today and offered voluntary buyout packages to others. Including the 34 or so staffers that Time Inc. anticipates will accept buyouts, today's move could mean the elimination of as many as 100 jobs.
- Alden Hatch
- Arthur Vandenberg
- Cecil B. DeMille
- Charles Ruggles
- David Oreck
- Dwight D. Eisenhower
- Ella Fitzgerald
- Erin Brockovich
- Harold Stassen
- James Glicker
- John Moaney
- Kate Kelly
- Leonard Dry
- Paul Allen
- Robert Taft
- Sarah McBride
- Steven Soderbergh
- The News
- Thomas E. Dewey
- Victor Moore
- Walter Bedell