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.
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
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.
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.
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.
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