Fred Wilson wrote a piece on his blog today complaining about the film business’ distribution model. Fred wrote in part that:

denying customers the films they want, on the devices they want to watch them, when they want to watch them is not a great business model. . . . [Studio executives] insist that they need their windows. They argue they need to manage access to their films to extract every last dollar from the market. That just doesn’t make sense to me. If they went direct to their customers, offered their films at a reasonable price (say $5/view net to them), and if they made their films available day one everywhere in the world, I can’t see how they wouldn’t make more money.

While I have no allegiance to the current business model, I understand it. Producers of any new film hope to see it distributed in a number of distribution windows starting with an exclusive theatrical release and continuing through to wide release on multiple distribution platforms typically over the course of 12-18 months.

Wilson advocates simultaneous “streeting” across all distribution platforms. As technology improves, the lines of each traditional distribution window are blurring and will be replaced with something more akin to what Fred is advocating.

Even so, I can’t help thinking that audiences might lose something valuable in the process – maybe even movie theaters themselves. That would be ironic since movie execs sounded similar alarms when television was the disrupting technology in the 1950s. Then as now, movie theaters survived – but for how long?

What follows is most of what I wrote in response to Fred’s post with grammatical tweaking and references to other commenters omitted:

There are two . . . significant obstacles to simultaneously “streeting” movies across all distribution windows.

1. Movie theaters are a limited high-value distribution channel. There are only so many movie theaters and so many seats in those theaters. Only a small fraction of the movies produced each year get a theatrical release in the US. Foreign distributors look at a US theatrical release as a quality marker (this, despite the fact that international revenues generally account for 70% of a film’s budget). So a domestic theatrical in it of itself drives the value of foreign distribution rights up. This kicker in international revenues could not exist in its present form under a simultaneous street paradigm.

2. Allocation of marketing dollars. Movies and virtually every other product with novel elements have a distribution cycle, with demand for a well regarded/well marketed product highest at or near inception (e.g., the latest incarnation of any Apple product or Star Wars sequel). The costs of striking prints of the film – which are coming down as more theaters use digital projectors – and advertising (also called “P&A”) on a typical domestic release of a 1,000 screens or more are substantial. Studios/producers require millions in marketing dollars, sometimes in excess of the cost to make the movie, to theatrically release a movie in the United States.

The goal is to fill each and every seat of every screen in which the movie is shown to justify these marketing expenses (which, if successful, drives up the value of international revenues as noted above). That would not be possible if consumers had other, possibly more convenient choices that might dilute audience share at movie theaters. Although each exploitation window requires additional marketing spend, a successful US theatrical release can have a halo effect on subsequent windows (e.g., Titanic, the Twilight movies).

3. History of Industry Resistance to New Technologies. Lastly, the industry has always been hostile to new technologies. Silent movies were adverse to talkies which were against television which bristled to home video and so on to the present day.

The advent of on-demand viewing of movies in theatrical release is already part of an evolving theatrical release window. The industry needs time to adapt its model to the new demands of its audience. Change in the film business is inevitable even if it won’t come fast enough for the Fred Wilsons of the world.