Will Bubble Burst a Hollywood Dogma?

The coming film will be released at once in theaters, on DVD, and on cable. This approach may be just what the industry needs to get back on track

Academy Award-winning director Steven Soderbergh's new film Bubble is short (just over an hour), doesn't have any stars and, according to most reviewers, isn't very good. Still, Bubble could be one of the most important movies of the year. The $1.7 million murder mystery was produced by dot-com billionaires Mark Cuban and Todd Wagner with the single purpose of changing how -- and more important -- when Hollywood will let you see a first-run movie.

Soderbergh, Cuban, and Wagner intend to take on a two-decade-old Hollywood business model and collapse the windows between theatrical release and other distribution for new flicks. That means when Bubble is released on Jan. 27 in about three dozen theaters around the country it will also be available on Cuban's HDNet cable channel. And within four days, you'll be able to buy or rent it on DVD at your local Wal-Mart (WMT ) or Blockbuster (BBI ).

It may sound simple, but for Hollywood the notion of seeing a brand-new movie when and where you want it is about as welcome as day-old sushi at Nobu. Hollywood is built on the notion of parceling out people's opportunity for pleasure: Create buzz for a hot new movie -- and then create it again a few months later when it's available on DVD. And get people excited yet again when it shows up on cable down the road.

CONSUMER CONTROL. Not surprisingly, Hollywood and movie-theater owners think Cuban, Wagner, and Soderbergh are devils incarnate. I say, wise up. The music business saw its future slip away in a wave of illegal downloads. The movie industry had better realize that, thanks to the rush of new technologies that put everything at people's fingertips, folks are going to want movies when they want them -- not when a bunch of Armani-clad guys say can have them.

"Consumers have a lot more authority these days," Disney (DIS ) CEO Bob Iger told me shortly after his ascension to the top job at the Mouse House. Iger has said collapsing distribution windows is something Hollywood needs to investigate. "We can't put limits on movies when consumers don't want limits," he says. You betcha, Bob.

Last time I checked, the studios weren't exactly doing boffo business. Ticket sales dropped 7% last year, to about 1.5 billion tickets sold, according to box-office tracker Exhibitor Relations. DVD sales, after nearly doubling in the prior two years, grew by less than 5%, to $22.8 billion, according to Digital Entertainment Group. Hollywood can insist all it wants that the box-office malaise was due to a particularly large group of stinkers, but I don't buy that argument. Theater attendance has been falling for the last four years.

CRYING FOUL. The Bubble crew's new business model may be just the answer to box-office blues. As Wagner explains it, Bubble will be released in 19 of the Landmark Theaters they own, along with 16 other art houses. At the same time, they'll release it on Cuban's HDNet, which is available on various cable and satellite services.

Four days later, it will also be available on DVD at an initial price of $29.98. A few months later, the price will drop to about $20 -- about the same price as most movies when they're released on DVD.

So who's crying foul? For starters, movie directors. Batman director Tim Burton says it would destroy film as an art form, and The Sixth Sense's M. Night Shamalylan says he would rather stop making movies than see DVDs compete with theatrical releases. Theater owners are none too happy about the thought of fewer people leaving their homes to buy $10 tickets and $5 tubs of popcorn. John Fithian, president of the National Association of Theatre Owners, accurately points out that studios need theaters to promote their films and that theater ads helps stoke DVD sales.

REVENUE SHARING. With all due respect to directors and theater owners, I say, calm down. The world won't end with the simultaneous release of films in theaters and on DVD. Sure, fewer folks will go the movie theater, and that means less revenue for theater owners. But the model created by Wagner and Cuban pays theaters that show Bubble 1% of the DVD sales -- which Cuban says could amount to more than $10 million. It's definitely a start.

Of course, no one knows how many fewer people will go to the movies. Wagner says Bubble is a test case. Cuban, in an e-mail, wrote, "I don't think it will cannibalize sales any more than my ability to cook a steak keeps me from spending a lot of money at steak houses." Moreover, Cuban figures that stoking interest in movies, be it on DVD or in the theater, "will increase the fan base for indie films and for films in general."

The movie folks aren't quite as sanguine. They figure that they would lose tons of money if people skipped theaters. But that may not be the case, according to a recent study by JP Morgan analyst Spencer Wang. JP Morgan, which surveyed 1,100 consumers, found that attendance would decline by 49% if folks could catch the film on DVD. But at the time, JP Morgan also figured that DVD sales would increase by 78%, and DVD rentals by 64%.

TIME TO CHANGE. The net result would be a 36% hike in revenues for film studios, which on average get 50% of box-office sales and around $11 for every DVD sold. Theater owners would presumably be paid a percentage of the added DVD revenues, à la Wagner and Cuban's model. Plus, studios currently spend $34 million to promote each major release and $10 million more on promoting DVDs. They would save money by having to do only one marketing campaign.

Bubble won't be a seismic change on the Hollywood financial fault line. Months after its all-but-certain brief run, it will likely be forgotten by filmgoers. And I'm pretty confident that hordes of folks won't rush out to get the Bubble DVD instead of going to the theater. But this isn't really an exercise in numbers. It's a test of movie executives' ability to forge their own future rather than have consumers dictate it to them.

The movie industry is struggling to find its way in a new and fast-changing world where content is only as good as the consumers' ability to find it when he or she wants it. Iger was the first to see that, which is why ABC TV shows Lost and Desperate Housewives are now available for download through Apple's (AAPL ) iTunes service. NBC (GE ) has followed suit with The Office, and actually credits a boost in ratings to the show's iPod availability.

The rest of Hollywood had better get on board before box-office and DVD numbers turn down further. For an industry that has thrived on vision and daring, it should realize that its future may be on the line.

READER COMMENTS

Grover is BusinessWeek's Los Angeles bureau chief
Edited by Patricia O'Connell

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