Memo to Studios: Break the windows

Brad Stone and Brian Stelter have a piece in this morning’s NYT about the rising toll of piracy, or digital theft, on the TV and movie studios. We have heard this story before.

On the day last July when “The Dark Knight” arrived in theaters, Warner Brothers was ready with an ambitious antipiracy campaign that involved months of planning and steps to monitor each physical copy of the film. The campaign failed miserably. By the end of the year, illegal copies of the Batman movie had been downloaded more than seven million times around the world, according to the media measurement firm BigChampagne, turning it into a visible symbol of Hollywood’s helplessness against the growing problem of online video piracy.

Like their music industry brethern before them, the Studios are referring to these downloaders as “pirates” and “thieves” instead of what they really are…customers who cannot buy the product they want. I am not suggesting that all seven million downloads of Batman could have been sold, but certainly a great many of those people wanted to see the movie in their home as it was released. The problem was, they couldn’t.

The movie industry has used a windowing release strategy for years which basically skims profit from various demand groups of customers; those who want to see a movie on release weekend can go pay $10 to see it then. If you would rather see it free, no problem — you just need to wait about 18 months until it hits ad-supported TV. This has been fantastically successful and makes all sorts of sense. Except for now. In the digital entertainment economy, customers are in control. They won’t wait for entertainment product to hit a particular window. Customers expect to be able to watch what they want, when they want it, at a reasonable price and in a convenient format. This is the lesson of MP3 music. And customers are about to teach it to the studios.

It’s time for the studios to break the windowing strategy. There are challenges with this: they will certainly cannibalize sales of early window-ed product like theatrical releases and DVDs. But by doing so they will avoid forcing digital customers to seek out pirated copies in order to satisfy the demand for the movie. For the Dark Knight, Warner Brothers spent more than $100M generating demand around the theatrical release of the film. Only a certain number of recipients of that advertising intended to see the film in a theatre. The rest of us might have been interested in seeing it too that same weekend, but in our home, or on our iPod while traveling. Those options were not available to us. So seven million people went out and stole the film. Why not sell it to them too?

Breaking the window model is probably impossible in Hollywood. It is so tightly ingrained in the culture of its distribution system. But digital consumers have new expectations, and they are in control. Content owners must adapt to the reality that they must now win over customers and ask them to buy their products, but they must first make sure they are selling the products in the formats and at the time the customers expect.