The waiting game in the movie industry

New analysis demystifies the time-lag for secondary releases

In business as in life, timing is everything. When to release a new product on to the market, and the impact this may have on a company's existing products, are crucial questions for any company's bottom line.

In the movie industry, there is a specific issue of the time delay between the release of a film in cinemas, and its release for sale on DVD or other secondary channel such as streaming.If the delay is too long, the publicity surrounding the film's theatrical release will not carry over into the DVD release. If the delay is too short, box office revenue can be lost as consumers pass up the chance to see the cinema version in favour of viewing it at home.

UNSW Business School associate lecturer Sumaiya Ahmed, together with professor of marketing Ashish Sinha, has applied statistical modelling to a wide range of data relating to movie releases – including genre, star power, word of mouth, and "perishability" – to discover the optimum time lag which will lead to maximum revenue.

Ahmed's data consisted of more than 800 films released between 2005 and 2013 in the US market and the analysis introduces a new approach that allows the revenues from the two channels to be jointly modelled to understand the dependence between the processes at play.

'The longer you hold something back, the greater the temptation is to pirate. We can’t hide from that. Neither can we control it'

SEPH MCKENNA

When to wait

"Like previous studies, we find that the time-lag for DVD release should be delayed to optimise total movie performance, but conclude that previous studies have systematically underestimated the time-lag," Ahmed says.

"Our study is the first to challenge the assumption of negative decay in performance of DVD as a function of time, as our results suggest that a delayed DVD release is still optimal for maximising revenue in the DVD channel."

The research finds that the longer a movie stays at the box office, the shorter should be the time-lag for DVD release. Similarly, the faster a movie decays at the box office after the opening weekend, the shorter should be the time-lag.

"The optimal time to release a DVD should be 101 days on average," Ahmed says. "To optimise total performance, on average, movies should wait 111 days, compared to a current (US) industry median of 123 days, to maximise total revenue," Ahmed says.

"This model is expected to enhance specific managerial decision-making, with the ability to predict optimal time-lag for individual movies."

Wider application

Ahmed used data from the release of blockbusters such as Mr & Mrs Smith and Alice in Wonderland, down to more modest films such as The Last King of Scotland.

"There's actually no reason why this can't apply to smaller independent pictures," she says. "That's the beauty of a statistical model."

While there is much mystique surrounding the movie industry, Ahmed believes that on one level, films are just products like any other: "A colleague who worked in the fast-moving consumer goods industry for 16 years, before working for Paramount Pictures, once told me, 'a DVD works in the same way as toilet paper'."

Indeed, Ahmed believes her statistical models will have application beyond the world of movies, to areas such as consumer electronics, fashion, or cars.

"Think of the iPhone 5 – Apple faced the same problem of when to release the iPhone 6," she says. "With a film, it might be genre or star power – with an iPhone, it might be features. The same consumer expectations are in play, and the same cannibalisation of the sales of your products."

Exhibition constraints

Ultimately, Ahmed's research is a call for flexible timing, which is at odds with the Australian film industry where rigidity is the norm. Richard Moore, national manager of theatrical for multi-platform distributor Umbrella Entertainment, explains:

"With only a few exceptions, exhibitors in Australia currently insist on a 120-day window between a theatrical and DVD release. Small to medium-sized distributors like ourselves, though, are also constrained by a number of other factors."

These factors include avoiding releasing during school holidays, or during February, when Oscar-nominated films are playing in theatres in earnest.

"For an independent company with a small art house or Australian title that isn't Russell Crowe's latest, there are around six to seven months in the year when you can release a film in theatres and have a chance," Moore says.

Umbrella's release of local horror film The Babadook, which has attracted critical acclaim and was a Sundance Film Festival favourite, is instructive of the challenges facing independent distribution in Australia.

"We looked at the releases of Animal Kingdom and Snowtown, which also both played well at Sundance, and so went for a similar release," says Moore. "We had to see first how our film played at the festival to make our decision."

The film grossed only $260,000 in Australian theatres, but is now selling "like hot cakes" on DVD, launching on Halloween after the 120-day window had expired.

Backyard Ashes, another Umbrella release which Moore describes as "a small, home-made Aussie comedy with a heart of gold", was released initially on only four screens. The film was still showing in some theatres after 120 days, when the DVD was released.

"The 120-day window worked for us on The Babadook and Backyard Ashes, but on smaller films, the restrictive windows can seem disingenuous," says Moore.

"I believe there is a general view that the windows established by the exhibitors will eventually collapse and that everyone will be able to release on multi-platforms on the same day. Bring it on."

Threat of piracy

Seph McKenna is head of Australian production for Roadshow Films, Australia's largest independent distributor. Like Umbrella, Roadshow is constrained by the 120-day holdback window, and typically releases a DVD as soon as possible after it expires. McKenna believes that only a film the size of an Avatar would make the company consider a longer holdback.

But according to McKenna, the elephant in the room is the problem of piracy.

"The longer you hold something back, the greater the temptation is to pirate. We can't hide from that. Neither can we control it," he says.

McKenna cites The Lego Movie, which was released in cinemas in the US on February 7, and in Australia (by Roadshow) on April 3.

"Between the US and Australian releases, my daughter went on three play dates, where she saw the movie each time," he says.

"I would like to see a business case made to justify reducing the window to increase revenue. Ultimately, if we are going to shorten or abandon windows, there has to be a way of everyone making money from going same day and date [for cinema and DVD release]. Exhibitors will be the key partner here, but exhibitors currently get lost in this conversation."

Ahmed's statistical modelling may be a way to get the conversation back on track.