Digital Transformation of Cinema

The recent shifts of the movie industry exemplify many of the core concepts we’ve covered in this course. As I’ll detail in this post, many of the changes were expedited out of necessity due to the pandemic but they all leveraged systems and infrastructure that were developed pre-pandemic. So per a central thesis of our professor’s latest book, the players that successfully pivoted their business models due to COVID were the ones that had already planted the seeds for this digital transformation.

My case study for this transformation is the just released epic film Dune, the latest adaptation of the celebrated (and dense) 1965 science fiction novel by Frank Herbert. The book is a sprawling account of the far future and the fight for control of a planet that contains a highly sought after asset, a powerful spice. David Lynch released a much maligned version in 1984 that is worth watching if only to see pop star Sting in an intergalactic codpiece.

This 2021 version is directed by French Canadian director Denis Villeneuve and boasts a cast of A-listers designed to appeal to a wide age demographic (I’m pointing at you Zendaya!) Production of the film began in March, 2019 with a planned release in the fall of 2020. The distributor of the film is Warner Bros. Entertainment, which I will note (not insignificantly) is the parent company to HBO.

When COVID-19 shut down everything in the spring of 2020, the movie industry–like most industries–had to figure out a plan. In the immediate, production was halted on anything in production and theatrical releases were delayed to a near future when the world thought optimistically that the pandemic would just be a blip of a few months.

As we entered the second half of 2020 and it became apparent that the pandemic would be having an impact of years not months, the industry shifted to leverage streaming platforms for initial release vs. the typical model where movies would come to such platforms after an exclusive theatrical release window.

This was a much more viable path if these platforms were already launched and had a dedicated subscriber base. Still, there were different revenue and timing models to explore and it was fascinating to see how different studios reacted–it was like a massive public R&D lab to witness. 

Before looking at Warner Bros. approach with Dune, I’ll turn to what Disney did. Fortunately for Disney, they launched their successful streaming channel Disney Plus just a few months before the pandemic and so naturally they turned to that platform when releasing theatrically was no longer possible. Their strategy was to initiate a new designation for first-run theatrical content, called Disney Plus Premier Access, in which existing subscribers could pay a flat fee of $29.99 to gain permanent access to a new title (in essence purchasing the digital title, as one can do on Amazon Prime Video for previously released films.) The key differentiator with Disney Plus Premier Access is that it was the initial release of these films vs buying a previous release.

The first film released in this manner was the live-action remake of the animated film Mulan, in September 2020.

Disney is tight-lipped on the numbers of subscribers who paid this $30 but in a 2020 Q4 investors call, CEO Bob Chapek stated, 

“We’ve got something here in terms of the Premier Access strategy. What we’ve learned with ‘Mulan’ is there’s going to be a role for it strategically within our portfolio of offerings.” 

Disney CEO Bob Chapek

And indeed Disney did follow up with four additional Premier Access releases in the next year. They seem to have shuddered the strategy for now based on the traditional in theater release last month for the latest MCU entry, Shang-Chi and the Legend of the Ten Rings.

Warner Bros. strategy for new releases in the age of COVID was to offer new releases for no additional cost on their streaming platform HBO Max, a service which launched in May 2020, in the early days of the pandemic. 2021 titles would only be available for 30 days to subscribers and most often had a simultaneous theatrical release. Theater distributors like AMC were naturally not happy with this plan, as they were hoping event films like Godzilla vs Kong would be the type of content to convince people to come back into the theater.

In August 2021, Warner Bros. reached a deal with the top two theater operators (Regal Cinemas and AMC) to establish a 45 day theatrical window for new releases in 2022, which means that new films would not arrive on HBO Max until after those 45 days. 

Grandfathered into the quasi-hybrid pandemic release plan from 2020 is Villeneuve’s Dune, which was released last Friday, in theaters and on HBO Max. When Warner Bros. announced their pandemic plan in late 2020, he was openly critical of this decision, penning a scathing critique in Variety that is a remarkable read. He stated at that time,

“Dune” is by far the best movie I’ve ever made. My team and I devoted more than three years of our lives to make it a unique big screen experience. Our movie’s image and sound were meticulously designed to be seen in theaters… I strongly believe the future of cinema will be on the big screen, no matter what any Wall Street dilettante says.”

Denis Villeneuve, Variety

He has softened his stance in the weeks leading up to the release since the last thing anyone involved with this film wants is some bad internal PR. Instead, Villeneuve and others have championed how *different* the experience of Dune is in the cinema vs watching from home. And one of the most notable differences is if one is able to see the film in “true IMAX” which is a different aspect ratio than traditional widescreen cinema. IMAX requires special cameras and so often IMAX content are shorter educational content for specialized theaters. Dune has over an hour of this larger than life footage in the movie and this image from IMAX really visualizes what one gains when watching in this format.

IMAX details how “In select locations worldwide, Dune will have an IMAX-exclusive 1.43 aspect ratio, with up to 40% more picture for the film and ultimately showing more of the stunning imagery as conceived by Director Denis Villeneuve.” The page lists the locations and my friends, it’s sadly a short list, with only TWELVE theaters in the country showing Dune in this “true IMAX” aspect ratio. One of those 12 theaters is right here in Boston, at The Museum of Science. And that is where you will find me on November 6!

I personally don’t think cinema is dead. I think players like IMAX and Dolby will have a hand in luring audiences away from their TVs and into the theaters by offering a unique experience that cannot be replicated at home. And indeed, Variety reported today that “premium formats” like these accounted for 50% of ticket revenue for Dune in its opening weekend.

October 27 UPDATE:

Since I’ve written this original post, the second part to this adaptation has been greenlit for production. I’m updating this post with this information as reports are that a key point of negotiations was that Part Two would have an exclusive theatrical release, so no same day streaming on HBO MAX.

20 comments

  1. Can’t say I’ve heard of this movie until reading this blog. I think I might have to check it out. Interesting that Disney did not give a number on how many individuals purchased the $29.99 premier access viewer rights. I can’t tell if that’s a bad thing or a good thing. Disney may want keep totals unknown in the event they want to continue grabbing share in the market on releases or perhaps the number of people who purchased the access was not as high as they needed. The latter of which in my opinion is what drives the decisions regarding release format post pandemic. At the end of the day studios are still going to want to maximize profit. Box office sales in theaters drive a lot of revenue. if forecasts show that home viewership might hurt that profit I could see the powers at be scale back releases via streaming services.

    1. It’s the perfect MBA type of calculation! What’s the value proposition? Is it worth the extra money to get access to something at home? Is it worth the extra money to get OUT of the home for a larger than life experience?

  2. Ravi, this brings me back to your presentation back in March for the Strategic Management final project. I think we are in a new era of movies studios, and platforms are starting to occur. I have to say after I saw the comparison between the IMAX and standard, it only made me want to go to the movies. I can’t believe the standard has 40% less of the image than the IMAX one, but I would probably end up watching the film at home. Disney has done a phenomenal job with its streaming platform, and I predict they will be market leaders in the years to come. Thanks to your blog, I might need to get another subscription.

    1. I think Disney+ and HBO Max are both worth their subscription costs (but I’m a content junkie!)

  3. I’m very interested to see how the movie theaters will evolve/adapt, and how consumer preferences and behavior shift. In my opinion there is no true “at home” substitute for seeing a blockbuster movie like Dune – there’s an excitement and energy about the shared experience (even if some fellow moviegoers can be SUPER annoying) that can’t be recreated on my average TV with subpar sound quality. It’s also interesting to note that every last detail (sound, image) was meticulously designed to suit the theater audience; I really hadn’t thought much about the inordinate hours of labor that go into these productions to create the overall experience, only to have the at-home viewing erode the science and art that was so carefully engineered. The theater industry, perhaps more so than others, is certainly facing an inflection point where their choices in how to adapt can either revitalize the industry or spell the end of a pastime that will have repercussions on how movies and content are ultimately produced and distributed. What are some ways that they could shake up the experience, like IMAX and at-seat dining/drinking have done?

    1. There was a small theater chain that operated in the Seaport (I think may have folded since due to pandemic) but it had a really interesting positioning: no kids allowed (!), premium big leather recliners, full bar/restaurant and gourmet popcorn with creative toppings. Was definitely a fun kind of date night locale for me and my wife.

  4. Ravi, very interesting post! The last time I was at an IMAX movie was Avatar so I am probably not helping the movie theaters much!

    I caught the following article on AMC changing their business model: https://www.foxbusiness.com/economy/amc-chief-surprise-investors

    A couple of things caught my eye. First I appreciate that AMC has embraced new technology like accepting cryto currency. I will be quite curious to see what new business model AMC will be moving towards. Total wild guess here, but perhaps they will be acquired by a streaming service like Netflix and subscribers will be able to watch certain movies or shows in theater. While I don’t go often, I think there is something special about going to theater. Furthermore, it would be a good look for Netflix to save the movie theater.

    I’d love to hear what others think!

    1. Oddly enough, there’s a whole kerfuffle in France from movie distributors over a plan that Netflix has to do just that — screen Netflix content in the theaters! Seems like they are concerned it will eat into potential revenue from other movies but that seems short-sighted to me…

      https://www.screendaily.com/news/french-exhibitors-body-calls-on-netflix-to-renounce-cinema-screenings-plan/5164636.article

  5. I really hope digital transformation can save this industry because I’ve always loved it. Over the years I’ve seen them try a lot of things to enhance the experience. When I was a kid it was 3D that was supposed to be the future of cinema. Then over the last decade it’s been the shift to things like luxury seats and dining that to compensate for the decrease in costumers. I hope the IMAX experience continues to show promise. Gotta save the movies.

    1. It’s amazing how far cleanliness and good food/drink go in making a good case for getting out of the house — especially if you have kids (and thus, live in chaos!)

  6. I watched Dune in HBO Max, and I would totally pay to see it in imax (once my theater opens back up)

    1. The majority of IMAX are showing in a larger format but only the Museum of Science is showing the version that leverages the sequences in the “true IMAX” format. Since I have my tickets for next week, I’ve resisted watching even one second on HBO MAX.

      But I could see that being a nice follow-up model if I want to rewatch again.

  7. Funny enough, a friend of mine recommended the movie just yesterday, so I’m very intrigued. As for the quality, I am a big fan of movie theatres and specifically IMAX; I believe the “experience” of the movies is as critical of the film itself; however, movie theatres needs to reinvent themselves to bring pack people to the box offices due to increased competitiveness of the streaming platforms such as Disney+ and HBO Max.

    1. Museum of Science for the ultimate Dune IMAX experience!

  8. Saw post on reddit from someone who saw both versions (IMAX and regular) and took a photo of the exact same moment which I think is a great visualization of the difference in the experience:

  9. I read Dune and was incredibly excited to see it in theaters. I don’t see theaters going away either because going to the theater is an experience that is difficult to mimic at home. From the smell of popcorn to the slow dimming lights, theaters set the stage for an all-sensory experience. I could have watched Dune at home, but I chose to go to the theater because I knew the picture would be more immersive on the big screen.

    1. So glad you saw it in the theater. We can compare our thoughts on the film on November 17! ;-)

  10. I think one of the last tweet’s you posted has the perfect headline for my feelings on the situation, “Audiences largely chose to see #Dune on the biggest screen possible”. I am planning on seeing Dune this Friday in theaters, though sadly not in IMAX. This will be the first time I’ve been to the theater since the pandemic. I AM SO EXCITED! I love going to the movies, and as the tweet I mentioned shows, so do many others.

    The cinema is truly a magical experience that is engrained in American culture. Though the digital landscape currently allows us to see new movies from the comfort of our homes, it can never capture the experience of the movies. I will always prefer to go to my neighborhood theater, Coolidge Corner Theater, than watch any movie at home. Hopefully, for the sake of the movie theater industry, I am not the only one.

    1. So happy you are going to see this in the theater! My November 6 IMAX showing of Dune at the Museum of Science will be my first time in a theater since January 2020 — though I did see the last Marvel movie (Shang-Chi and the 10 rings of something something) at a Drive-In theater last month.

      I love the Coolidge Corner theater. My wife and I were members back when we lived in JP before we had kids — we’d go all the time!

  11. I know we’ve already discussed this in class, but I wanted to go back and see what all the fuss was about! I see a lot of parallels between what you’ve posted and one of my prior blogs: https://isys6621.com/2021/09/13/two-front-war-traditional-telecom-providers/. In both cases we describe the impact of digitalizing media, especially through streaming services. Disney’s use case in “premium” content really bothered me as a customer, who’s to say they wont start making everything “premium” or creating a tiered structure to the service. Either way, I’m planning on watching Dune this afternoon :)

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: