Scary movie
Hollywood goes to war over simultaneous release of film and DVD.
Devin Leonard


(FORTUNE Magazine) - Hollywood is a town where relationships are currency. All it takes is one or two box-office flops for today's star to become tomorrow's pariah. If that happens, the only thing that can save you are your friends at Spago. So movie industry people trade air kisses in public and rarely criticize their peers within earshot of others. That's why a meeting last June of the Directors Guild of America was unusual.

Tossing aside the movie industry's unspoken code of conduct, M. Night Shyamalan, director of The Sixth Sense, used the event to attack Steven Soderbergh, whose films include Traffic and Ocean's Eleven. Shyamalan was incensed about Soderbergh's plan to release Bubble, his quirky murder mystery set in a small Ohio town, simultaneously in theaters, on DVD, and on cable television. Shyamalan argued that this would lead to the destruction of movie theaters. After all, why would moviegoers leave home to see a film when they could watch it on television? Shyamalan told the Los Angeles Times afterward that while he believed Soderbergh shared his love for cinema, "I think he's going to kill it."

A scene from 'Bubble'
A scene from 'Bubble'

Bubble--produced by HDNet Films, which is co-owned by Todd Wagner and Mark Cuban -- debuts on Jan. 27, and it is one of the most controversial openings since The Passion of the Christ. The way some people talk, Bubble, the first of six movies Soderbergh will direct for HDNet Films, is certain to change the way all movies are distributed.

Over the years Hollywood has built up a chain of sell-through "windows" from which it has reaped billions of dollars. The first is your neighborhood theater. After about four months, the DVD becomes available. Later the movie appears on pay-per-view television, then on premium cable networks, and finally on broadcast TV.

Until recently it would have been unheard-of to radically alter this system. Most large multiplex chains boycott movies released in other formats during their theatrical runs. But these days, it seems, nothing is sacred in Hollywood. Movie attendance fell last year by 7%. DVD sales, which generate the bulk of the industry's revenues, are slowing. At the same time, technology is transforming the way everybody consumes media. Media company CEOs who want to appear forward-looking--like Disney's Bob Iger and Time Warner's Dick Parsons--talk about collapsing the windows so that they can spend less on marketing and wring more money out of movies as soon as they hit the theaters. Peter Chernin, COO of Rupert Murdoch's News Corp. (Research), talks of releasing movies via video on demand 60 days after they appear in theaters. In short, the movie industry seems to be moving in Soderbergh's direction and turning a deaf ear to Shyamalan's protests.

Some people in the business, that is. Others are dead set against the Bubble paradigm. National Association of Theatre Owners general counsel Kendrick Macdowell says simultaneous release would be "fatal to our industry." Shyamalan says movies will lose their "magic" if they don't play in theaters and calls simultaneous release "heartless and soulless and disrespectful." (He declined to be interviewed by FORTUNE.) Some studio chiefs fear that simultaneous release could actually devalue movies, in part because the industry's deals with television networks are priced by the way films perform in the theatrical window. "We're confident that the existing window structure is the best economic model," says Michael Lynton, CEO of Sony Pictures Entertainment (Research).

The irony is, Bubble isn't likely to have any impact on Hollywood. It's a strange little movie that doesn't bear the slightest resemblance to Ocean's Eleven or any other typical Hollywood product. Soderbergh shot it in 18 days using high-definition cameras in Belpre, Ohio, and Parkersburg, W.Va., with a crew of only six people. It stars an amateur cast led by the manager of a local KFC.

Critics are divided on its merits. "The movie is absorbing and unnerving, and represents an admirable attempt on Mr. Soderbergh's part to shake off standard Hollywood clichés about provincial American life," writes the New York Times' A.O. Scott. But the Hollywood Reporter's Ray Bennett calls the movie "an embarrassment to all concerned," adding, "You feel your underwear ride up watching the unfortunate amateurs shy from the camera as they try to remember their lines." The typical moviegoer is likely to have a similar reaction.

That would be disastrous for a big-budget Hollywood star vehicle. But Soderbergh would be the first to say his movies for HDNet Films are experiments. "The films themselves aren't typical in terms of development or production, so I needed a visionary financial partner," the director said in an e-mail.

Wagner and Cuban are certainly visionary. They are the guys, you'll recall, who sold Broadcast.com in 1999 to Yahoo for $5.7 billion. They used some of that money to build a vertically integrated media company that is as much a laboratory as anything else. They don't have to worry about what the Hollywood Reporter thinks of Bubble. They can show it on cable television because they own two national high-definition networks. They can get DVDs of Soderbergh's films into the hands of consumers because they own Magnolia Home Entertainment, a video-distribution company. Finally, they can get Bubble into theaters because they own Landmark Theaters, with 59 movie houses in 15 states.

Cuban sometimes talks as if he'd be happy to turn Hollywood upside down. But Wagner says that's not what he and his partner are up to here. "This is not an attack on the theatrical exhibition industry," says Wagner. He adds that he hopes to get movies like Bubble more widely distributed in theaters by cutting owners in on a slice of the DVD revenues.

Soderbergh feels similarly. "People will always go to the movies," the director says. "I think this particular issue is really just a symptom of a larger economic problem facing the film industry." (It's worth noting that Wagner and Cuban are also happy to put money into films released through the old-school Hollywood pipeline. Their company is one of the backers of Good Night, and Good Luck, distributed by Warner Bros.' independent movie division.)

It's easy for Wagner and Soderbergh to say Bubble isn't a bullet aimed at the heart of the film industry. They have little to lose if the plan fizzles and much to gain if Bubble does well. But even NATO's Macdowell, worried as he is about the prospect of simultaneous release, doesn't see this particular film as a threat. He says even if Bubble succeeds, it will have no impact on the business because it probably won't get much theatrical traction outside Cuban and Wagner's little universe.

And if Bubble flops? "What better testimony to the failure of simultaneous release than the failure of a movie like this that has been hyped to death?" Macdowell argues. He's quick to add that he appreciates Wagner's talk about sharing home-video revenue with his members: "I'm guessing that Bob Iger is not thinking about remitting some of the revenues from DVD sales to exhibitors."

The truth is, Hollywood won't know the impact of simultaneous release until a studio tries it with a big-budget movie, like a Harry Potter picture. But those movies do just fine in the current window system. So why would Warner Bros. take a chance with one of them? What we are likely to see instead is a further narrowing of the time between theatrical and DVD releases. That makes cinema owners nervous too, but not as much as simultaneous release.

So despite what Shyamalan has been saying, it looks as though movie theaters have a future after Bubble after all. But surely the Sixth Sense director knew that. He has nothing to worry about. His movies have grossed more than $1.5 billion worldwide. The director who has been called his generation's Steven Spielberg wants his films shown in all their glory on the big screen without competition from DVDs, which he says are just "souvenirs" of the moviegoing experience.

But maybe all the talk about simultaneous release has made him a little nervous. So Shyamalan is acting like Edward Walker, the elder in his film The Village played by William Hurt. In Shyamalan's movie, Walker tells his followers that there are demons in the surrounding woods. In fact, there is something entirely different. The last thing I'd want to do in Media Bubble is give away the ending of a good movie. Suffice it to say, Walker doesn't want things to change. He gets his wish--but only after some spectacular plot twists.

Well, Shyamalan has always said he puts a lot of himself in his movies.

Devin Leonard, a senior writer at FORTUNE, can be reached at dleonard@fortunemail.com.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.