2013-09-26

Co.Labs

This $35,000 Set-Top Box Grants You Access To "The Bel Air Circuit"

Hollywood A-listers have always gotten to see movies before the rest of us, but a new device could let anyone join the club--for a price.



“Have you heard of it?” Jason Pang, the CEO of a company called PRIMA, which wants to see the democratization and the disintermediation of film distribution, asks me. “The Bel Air Circuit?”

The way he says it it sounds like he’s asking me if I’ve heard the rumors of this fight club that takes place every Tuesday night. And no wonder why–-it’s just as exclusive.

“The Bel Air Circuit, that’s the name they call it,” he says. “The most exclusive club in the world where, if you’re a Hollywood VIP, you can get films on actual film reels, with the projector and a real union projectionist delivered to your home so you can watch the movie that’s premiering in the cinema down the street in the comfort of your own couch. It’s been going on for decades and you have to be an insider to get this. There’s no money attached to it. It’s grace and favors.”

And I don’t say it, but right then, as a big movie buff, I regret just a little leaving the film industry to become a journalist. And while I know the super-rich and connected have more access than ordinary people like me, I’m just a bit disheartened to find out they have their own media distribution channels too.

“Today,” Pang continues, “it’s usually no longer reels and projectors. You have to buy about a $100,000 worth of digital cinema equipment, the same stuff they use the theaters. It’s about a hundred grand and you put that in and then the studios deliver an encrypted hard drive to your home with a keypad you have to punch a code in to.”

Pang is trying to democratize this elite distribution channel. His company is PRIMA Cinema, which he founded in 2010 after having spent much of the previous decade as the first employee and Worldwide Senior Director of Global Accounts of DivX, where he worked with Sony, LG, Pioneer, Philips, and Samsung to get the popular codec into virtually every DVD player sold worldwide.

PRIMA makes a box they call the PRIMA Movie Player (or PMP), a $35,000 set-top device that allows people to watch first-run films in their homes for an additional $500 per viewing. If you think that sounds crazily expensive, so did everyone else--at first. But now the PRIMA Movie Player is turning the first-run film business on its head by eliminating the need to be a person who rubs elbows with A-Listers to watch the latest blockbuster in the comfort of their own home.

Turning An Exclusive Club Into Hardware

Pang first got wind of the Bel Air Circuit when he was working with the studios in the early 2000’s to license DivX technology for film distribution. It wasn’t until years later, however, on a Friday night his children wanted to get tickets to the hottest family film in town, that he had his epiphany. “It was already 7:00 in the evening on the premiere weekend and I knew we weren’t going to be able to get tickets,” Pang says, expressing the horror every parent feels at one time or another. “I said to myself, ‘You know, I’d pay more if I could watch it at home right now,’ and then all of a sudden I went, ‘Oh my gosh. That’s it! It’s the Bel Air Circuit. Why don’t we commercialize the Bel Air Circuit?’”

Commercializing the Bel Air Circuit entailed PRIMA developing a state-of-the-art home media player with multiple security redundancies built in and a content delivery system that is more foolproof than Netflix, according to Pang.

“More foolproof than Netflix?” I say.

He explains that the PMP doesn’t actually stream anything. It downloads and stores all the movies currently available on PRIMA locally on a user’s hard drive, whether the user orders the film or not. By storing all the movies locally, PRIMA can ensure its customers that they don’t need to wait for downloads (which can be up to 42 GB per movie because of the quality) and that the movie that they are paying $500 a viewing to see isn’t going to stop playing if their Internet connection dies.

Once a customer chooses a movie they want to watch, the PMP user scans their fingerprint on the biometric remote to authorize the purchase. Viewers can watch the movie only once and must do so within 24 hours of ordering it. They cannot rewind or fast-forward, but they can pause it. This may seem restrictive–-especially for the price users are paying–-but it’s the cost of admission for something those with a large disposable income desire: convenience and the feeling of exclusivity.

With the PMP Pang had successfully taken the decades-old concept of the hyper-exclusive Bel Air Circuit and turned it into something the less-than Hollywood elite, yet still-affluent, could enjoy. But the hardware only solved one part of the problem.

Getting The Studios On Board

Money and audience numbers are what matters in Hollywood. If anyone tells you anything else (Art? Ha!), they’re lying. And though increasingly home video sales and digital downloads are becoming an important part of the revenue model in Hollywood, the prime moneymaker-–the box office-–is currently generating $10 billion a year and growing. So why would any studio want to give Pang and PRIMA access to first-run movies the day they hit cinemas?

“We don’t touch the box office,” Pang tells me.

“Uh, what?” I think, probably echoing the thoughts of every studio exec during Pang’s first pitch to them. “You just told me you want to show movies at home the day they come out in theaters.”

That’s when Pang drops some statistics from the Motion Picture Association of America (MPAA): Once over the age of 40, about half of those people stop going to the movies. Matter of fact, 44% of over-40s will never attend a cinema screening again in their lives.

That’s not good for Hollywood, as those over-40s also happen to have the highest disposable incomes–-which are often spent on entertainment. Pang tells me that wealth reports say there are almost 18 million homes of over-40s worldwide that have an income of $5 million or more-–with 5 million of those homes being in the U.S. alone. And it’s those homes that PRIMA is targeting.

“Whether it’s because of career, life, or kids,” Pang says, “those with the highest amount of wealth are very busy. So I told the studios: Let’s create a very high-end product for a limited amount of people, and it will cost more, but they’re willing to pay because the product is a much better product and it’s also very customized to them and their lifestyle.”

Because of the high price associated with the cost of a PMP unit and the $500 ticket price per showing, Pang knew he was excluding 99.9% of ticket buyers. But that’s what he wanted, because he knew Hollywood would never sign on if they had to cannibalize their ticket sales. Besides, by even hitting a user base of just 100,000 in the remaining 0.01% Pang could potentially generate an additional 6% worth of revenue to the box office’s annual $10 billion profit.

“If each home with a PMP bought just one film a month that’s $6,000 a year. $6,000 a year times a hundred thousand homes is $600 million a year recurring,” Pang says, relaying what he told to the studio heads. “I got everybody’s attention when I explained this. It’s an extra $100 million of petty cash per year per major studio–-on just a hundred thousand homes. If we can get into two hundred thousand homes, which everyone thinks should be a slam dunk, that’s over a billion dollars a year recurring-–and the studios are monetizing a crowd that they haven’t even touched and will not touch.”

The extreme financial incentives from such a limited audience, combined with PRIMA’s security features, which uses the same biometric and encryption security that is used by the military, was enough to sway some studio heads to license their content to PRIMA (others have yet to sign on).

As Pang explains his method of getting the studios to buy in to PRIMA it strikes me that it’s very similar to the approach Steve Jobs took with the record companies in 2003, when Apple launched the iTunes Music Store: secured media, limited audience (only Mac users to start), and increased revenue from those that don’t go to record shops anymore.

“I also think PRIMA sets a very nice precedent for digital content,” Pang adds. “Do studios really want to continue downstream and cheapen the quality of their product when their film budgets are going higher and higher every year? What PRIMA does is gives them the ability to value their content. If you want the content early and you want it high quality there’s a price for it and it’s definitely not going to be $3.99 through your cable box.”

Surprising Usage Statistics

Though the company doesn’t reveal the amount of users it has–-or the people on its exclusive client list-–Pang says PRIMA's clients are spread out across the U.S., with the highest-density locations being Southern California in the Los Angeles area, the New York tri-state area, and South Florida. The company is also looking to expand to other countries, perhaps starting in Asia-–not bad for a product that is based off a decades-old exclusive club in Bel Air.

What’s surprising about PRIMA’s clients-–even more so than that they are willing to drop $500 on a movie–-is that many of them don’t just watch a film once. They’ll order it the first time for $500 and then watch it two or three more times for an additional $500 each time. Again, this is all in addition to spending $35,000 on a PMP in the first place.

“The first repeat purchase that I saw was Ted when it came out last summer,” Pang says. “A client purchased it one weekend and then the very next weekend they purchased it again, and I thought that was the coolest thing in the world. I mean, they just spent a $1,000 on a movie, right?”

“If you can afford it,” I think.

“As we’ve grown our client base we’re finding more and more repeat buyers. One client bought a film at 3:00 in the afternoon and then bought it again at 7:00. You can tell they’re watching with the kids or with other kids. Then sometimes our systems would stay quiet for a bit and then all of a sudden you’ll see a client watch four movies in one weekend. We learned people are willing to pay $500 multiple times for the same film. You start adding that up and it becomes quite a multiple for the studio.”

The Future Of Cinema

By the end of our talk I can see why those that can afford it–-and the studios themselves-–love’s Pang’s PRIMA service. But I’ve written extensively about the future of filmed entertainment and I wonder what Pang’s exclusive club means for the future of theater-going. Will high-end services like PRIMA and low-cost traditional media streaming services like Netflix eventually run cinemas out of business? It’s something that I’m sure keeps theater owners up at night, so I ask Pang how those theater owners feel about PRIMA.

“We’ve had discussions with some of the theaters owners and we made it very clear to them that we want to cater to a very high-end clientele and that we are creating a very high-quality product and our intention is to maintain that quality level and the price point,” Pang, who is a self-professed theater lover, says. “The way I always think about it is like we’re building a luxury car. It requires a lot of time and investment and the theater owners understand that because of the price points and the clientele we’re going after. We’re not touching or affecting their mainstream business.”

But what about theaters themselves? There’s so much competition from all angles: media streaming services; ever-improving home entertainment systems; cheaper, bigger TVs. That’s not even to mention the fact that ticket prices are outpacing inflation and going to the cinema is becoming more expensive each year. Will theaters be around in 20 years? Or will they go the way of the record store?

“I definitely think the theatrical experience will always be there because it’s social–-and even if you have a world-class private home theater, people just like getting out,” Pang says. “There are always going to be theaters. The question is: How will they transform? I think in the future you’re going to see very creative theater owners not just show films, but make the cinema more of a social/entertainment hangout. You will always have the option to take your kids into the movie if you just want to watch a film and leave, but I think the whole idea around hanging out, having some food, chilling out in the lounge, talking about the movie-–I think that will become more popular.”

And if not, Pang has a $500 ticket to sell you.