Distribution

ANCILLARY MARKETS

Before television, feature films played in motion picture theater almost exclusively; after television, the new medium extended the commercial life of films by creating ancillary markets. During the 1950s, studios in desperate need of money sold off their pre-1948 film libraries to television syndicators, who, in turn, leased the films to local television stations to fill out their programming schedules. The studios were free to dispose of the pre-1948 films since they controlled television performance rights and all ancillary rights to their pictures. The sale of recent vintage Hollywood films to television had to wait until 1960, when Hollywood reached a settlement with the talent guilds regarding residual compensation. NBC became the first network to use post-1948 Hollywood films for prime-time programming in the fall of 1961 by launching NBC Saturday Night at the Movies . ABC followed suit in 1962 and CBS in 1965.

Thus, by the 1960s, network television had become a regular secondary market for theatrical films. The development of home video and "pay TV" created additional ancillary markets for feature films. Today, after a feature film completes its theatrical run, it is released to the following "windows" at specific intervals: first to home video and pay-per-view, then to cable television, and finally to network and syndicated television. Going through the distribution pipeline, a motion picture is exploited in one market at a time, with the exception of home video, which has a window that remains open almost indefinitely. At each point, the price of the picture to the consumer drops. Economists call the process "price tiering," which can be explained as follows: movies are first released to theaters at top prices to "high value" consumers, that is, those who are most eager to see them and are thus willing to pay the most for a ticket; movies are then released to "lower value" consumers at prices that decline with time. Thus a consumer willing to wait long enough will eventually get to see a favorite film for "free" over network television. Distributing pictures in this manner allows a distributor to tap every segment of the market in an orderly way and at a price commensurate with its demand. Home video became the most lucrative of the ancillary markets, and by 1989 had surpassed revenue from the domestic theatrical box office by a factor of two.

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