SECTION I: INTRODUCTION Six years ago, when we delivered our first Market Survey to German Films, what the French call the ‘chronologie des médias’ – the licensing regulations and tacit agreements which determine the release pattern of new films in different territories – were still pretty much in place. For big movies, the Hollywood studios controlled the flow of that pattern from red-carpet premiere through to broadcasting on terrestrial TV, as though operating a spigot: gatekeepers of the movie business, they doled out their product with an eye to squeezing every last drop from a film’s value chain. For distributors of independent, arthouse and foreign-language films, the process was much the same although the emphasis was different. Whereas the studios owned world rights and conducted their international release campaigns accordingly, arthouse distributors were, in most cases, restricted to operating in one territory. Over the past half-decade all this has changed, in ways that would have seemed unimaginable 20 years ago. The studios and the independent distributors have struggled to keep control of release patterns, inventing all kinds of devices such as the Virtual Print Fee to hold back the flood. They are still just about managing to do so, as indicated by the slow but steady growth in international box office revealed in the individual reports; some countries have bad years, but the general trend is still upwards. On the home entertainment front, however, the change has been much more visible, not unlike what happened to cinema circuits in the 1960s and 1970s. Then it was single-screen cinemas that began the decade as dream palaces and ended it as bingo halls or carpet warehouses. Now, in the teens of the 21st century, it is the CD and DVD shops that have put up the shutters. Almost all retail outlets were affected by the dawn of the digital era and the online shopping which was its most visible result; but the massive entertainment stores were hit especially hard. They simply could not compete with the ever faster deliveries offered by mega-retailers like Amazon (our email inbox currently offers us two-hour delivery on certain products). Moreover, such instant gratification has brought with it a new mind-set. Audiences are no longer content to sit back and have films distributed to them when it suits the studios: they demand that those films be delivered to them much sooner, if not immediately. It is hard to overemphasise the change here. The distributor controlled, just like they have done for a century. But the consumer now increasingly demands his or her entertainment be delivered. The balance of power has shifted – and the process still has some way to go. German Films on the Home Entertainment Market, by Split Screen for German Films 2010-2016 1 COMPARATIVE REVENUE FROM BOX OFFICE, DVD (INC BLU-RAY) AND VOD 2010-16 (IN MILLIONS OF EUROS) Belgium Denmark 250 300 200 200 150 100 100 50 - - 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 Box office DVD VOD Box office DVD VOD France Italy 1.500 250 200 1.000 150 500 100 50 - - 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 Box office DVD VOD Box office DVD VOD German Films on the Home Entertainment Market, by Split Screen for German Films 2010-2016 2 Netherlands UK 250 2.500 200 2.000 150 1.500 100 1.000 50 500 - - 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 Box office DVD VOD Box office DVD VOD Sweden 400 300 200 100 - 2010 2011 2012 2013 2014 2015 2016 Box office DVD VOD German Films on the Home Entertainment Market, by Split Screen for German Films 2010-2016 3 The charts above, based on information published by the International Video Federation, make this change instantly clear. Although the IVF’s figures have been updated to 2016 for only seven territories at time of writing, the pattern is the same throughout, even if the figures vary and developments take longer to happen in some territories than in others. We are confident that other territories would show the same pattern. In the charts, DVD turnover is ahead of theatrical box office in all territories in 2010, but begins to fall away almost immediately, ending up everywhere in second or third place by 2016. At the same time, streaming revenue, negligible in 2010, begins to grow exponentially thereafter, in most cases doubling on a year-by-year basis until 2015, where it begins to level off as it becomes the norm. Box office, already the norm and not yet under threat, fluctuates around the same approximate figures in each year and territory, ending up in all seven territories very slightly higher in 2016 from what it was in 2010. Another cornerstone of the old system now also under threat is territory-by-territory rights. Given the density of Europe’s population and the complexity of its borders, the system has never been entirely watertight: films would occasionally screen on German television before opening theatrically in say, Belgium, which lies well within German terrestrial TV’s footprint. Or cable TV regularly made BBC films available to subscribers in the Netherlands regardless of the latter’s territory rights. But streaming is, by its nature, something else: a worldwide service. And the movie business is currently adjusting to this fact in the same way the music business adapted to Napster 15 years ago: aggressively but in the end caving in out of business necessity. Or that is the expectation – as well as being the official policy of the European Union. “Great storytelling knows no borders,” EU President Jean-Pierre Juncker has declared, cloaking economic deregulation in cultural rhetoric. A single market, the theory goes, should have a single contract. Significantly, however, Hollywood studio Paramount agreed, in September 2016, no longer to put a clause into its agreements with TV channels prohibiting ‘outside-area access’ to its titles. If you can’t beat them, join them: money has always had the last word in the film business. In the post-theatrical market borders are disappearing all over the world, with broad areas of the planet – South East Asia, Latin America, Eastern and Central Europe, Scandinavia – already served by cross-border digital platforms. For this reason, it is no longer appropriate to treat each territory separately when it comes to home entertainment. We use that term generically since it still covers both VOD and DVD: the latter may be in decline, but a total turnover in these seven territories of just under EUR 2.2 billion is far from negligible. What is more, many platforms – and especially the world leader outside China, Amazon – offer a choice between streaming, downloading or purchase of a DVD or Blu-Ray. Some (especially in France – see above) like it physical. But whereas DVD sales are occasionally published, even producers of in-house content at Netflix do not have access to details of the number of times a film or series is watched on a downloaded or streaming basis, let alone on a subscription-model VOD platform. In return for generous budgets and a hands-off attitude towards production, the platform gets to keep its audience figures – this according to the producers of hit Netflix series THE German Films on the Home Entertainment Market, by Split Screen for German Films 2010-2016 4 CROWN – a secret. Netflix may have 104 million subscribers (October 2017 figures), but what they watch is Netflix’s secret, making it impossible to apply the kind of quantitative analysis used for theatrical releases in these reports. The European Audiovisual Observatory recently (November 2016) produced a 234-page report on the Origin of Films and TV Content in VOD Catalogues in the EU indicating what was available and what was the most promoted (a reasonable alternative to most-viewed). Keenly interested readers can consult it for themselves (it can be downloaded free of charge). The report is a mine of information, which it is beyond our remit to summarise in detail. But one set of figures recurs: the market in each territory analysed tends to break down into – as illustrated below – four very uneven groups: US films; national films (e.g. German films in Germany); other EU films; and other. Origin of unique titles (European Audiovisual Observatory) US National Other EU Other Of the 45,526 unique film titles analysed by the Observatoire (see chart above), 15,339 (46%) were US; 9,187 (26%) were national; 4,080 (16%) from other EU countries; and 4,705 (14%) other. We will restrict ourselves to three observations here. One, this is remarkably similar to the breakdown of theatrical releases by country of origin in the various Market Reports. Two, since the difference between National and Other EU is between films made in one country and those made in the remaining 27, European films may not be as well represented as they at first seem. And finally, we have no idea which of any of the films were watched, how often and by whom. Beyond that, we bow to the thoroughness of the Observatoire research. But there is one more thing to be noted in this Introduction. Set up as a DVD-rental operation in 1997, Netflix, the indisputable market leader (outside Asia) is no longer primarily a VOD site for films: the vast majority of its budget and close to 100% of its formidable promotional activities are devoted to producing and delivering its own original German Films on the Home Entertainment Market, by Split Screen for German Films 2010-2016 5 content.