ANCILLARY MARKETS

In the American television industry the term "ancillary markets" generally refers to markets for feature films created by new television technologies. Before television, American films played only in motion picture theaters, and the only ancillary markets were found in theaters in international markets around the world. But the rise of commercial television in the 1950s and of pay cable and home video in the 1980s created additional venues for Hollywood product. Today, a feature film first opens in motion picture theaters to establish its box-office value and critical reputation. It is then released to ancillary markets in the following order: (1) home video (videocassette rental); (2) pay cable (premium cable services such as HBO, Showtime, and Cinemax); (3) network television; (4) cable television; and (5) television syndication. This distribution pattern is designed to maximize the full economic potential of each market, or "window" as it is called in the trade. With the exception of home video, which has a window that remains open almost indefinitely, a new feature is exploited in one market at a time. In each window, the price paid by the consumer to view the picture drops. Economists call this process price tiering: a film is first released to theaters where it is viewed for a period of months at top prices by "high value" consumers, i.e., to those who are most anxious to see the film and are willing to pay $7 and more for a ticket. The film is then released at contractually specified intervals to "lower value" consumers at prices that decline with time. A consumer willing to wait two to three years to view a film can finally receive it "free" over network television. Thus, the distribution pattern taps every segment of the market in an orderly way and at a price commensurate with its demand.

Historically, the first domestic ancillary market for feature films was created in the early 1960s when television networks first scheduled recent vintage Hollywood features in prime time. NBC began this practice on 23 September 1961 by programming "NBC Saturday Night at the Movies." Envious of NBC's successful strategy, ABC became the second network to program a prime time series of features. In 1962 the network launched "Hollywood Special" to bolster its Sunday night ratings with a package of films from United Artists. CBS, the television industry's leading network in this period, did not add a prime time feature film program until 1965 when it moved to strengthen a weak Thursday night.

Feature films had, of course, been a programming staple on television from the early days of the medium. Most of these movies were of pre-1948 vintage, however, and were used mainly to fill fringe time slots, particularly the afternoon and late evening. The first features came from Poverty Row studios, independent producers, and foreign film distributors. But Hollywood soon felt the effects of television's huge popularity. Strapped for cash as a result of the inroads TV had made on motion picture audiences many of the major studios began in 1955 either to sell off their libraries of old films to television syndicators or to create their own separate departments to handle distribution of films to television.

The majors were free to dispose of the pre-1948 films because they controlled television performance rights and all ancillary rights to their pictures. But the Hollywood talent unions, or guilds as they are called, demanded residual compensation to guild members who appeared in features made after 1 August 1948 and subsequently rented to television. Anticipating a boost in demand for recent vintage films when the networks converted to color television, the studios reached a settlement with the guilds in 1960 and began supplying the networks with a steady flow of product the year round. By the 1960s, the distribution pattern for feature films had thus become, theaters first, then eighteen months after the close of the theatrical run, network television, and then syndicated television.

 

Pay television and home video opened up still other new opportunities for filmed programming. Pay television came into its own in 1975, when Home Box Office, a venture of Time Inc., offered to cable subscribers, via satellite, the first of the so-called "premium services" consisting of recent, uncut, and uninterrupted films, sports events, and other specially-produced programming. After court battles in which HBO successfully challenged the right of the Federal Communications Commission to protect broadcast television, other premium services such as Showtime, The Movie Channel, and Cinemax entered the business. The distribution pattern in ancillary markets was therefore altered to accommodate these pay-TV services. The premium cable services became the second programming "window," following theatrical release and preceding broadcast network programming.

Although video tape recorders hit the market on the heels of HBO, home video did not become a significant force until the 1980s when Hollywood devised a way to accommodate the new technology. In response to pay-TV's ability to finance its own productions or to form alliances with independent producers, thereby circumventing the established studios, the Hollywood majors decided to release new films to home video prior to their availability on pay-TV. At the same time the studios made thousands of older movie titles available on videocassette. These strategies provided the necessary product diversity to differentiate home video from both the theatrical and pay-TV markets and to enable home video to become Hollywood's premier revenue source.

-Tino Balio

 

FURTHER READING

Banks, Jack. "The Institutional Analysis of the Pay Cable Market." Studies in Communication and Culture (Madison, Wisconsin), Spring 1988.

Lardner, James. Fast Forward: Hollywood, The Japanese and the Onslaught of the VCR. New York: Norton, 1987.

Mair, George. Inside HBO: The Billion Dollar War Between HBO, Hollywood, And The Home Video Revolution. New York: Dodd Mead, 1988.

Valenti, Jack. "Managing Changes in Technology." Variety (Los Angeles), 14 January 1987.

Wasko, Janet. Hollywood In The Information Age: Beyond The Silver Screen. Austin, Texas: University of Texas Press, 1994.

Wildman, Steven S. and Bruce M. Owen. Video Economics. Cambridge: Harvard University Press, 1992.

See also Financial Interest and Syndication Rules; Movies on Television; Reruns; Syndication