Film imports

By Eric Crampton 09/07/2013


New Zealand is considering reducing the duration of the ban on the parallel import of DVDs. It should reduce it to zero. Why? The ban could have made sense in a world of physical film distribution; we are rapidly moving away from that world.

Background: films have traditionally taken a while to arrive in New Zealand. Film distributors used international release windows to ration a good in scarce supply: the physical copies of films that, after a first run in the US, made their long slow journey to New Zealand (complete with scratches and other assorted wear and tear). Movies could show up on planes before hitting theatres here. If everybody had been able to import VHS tapes or DVDs of films from the US when they hit the US market, film producers would have had to have printed more copies of films at the outset. This would have increased costs for everybody. One source says it costs the studios $1500 to produce and ship a film reel within the US. Maybe the benefits to consumers from earlier releases would have outweighed the increased ticket prices and the reduced producer surplus, but the movie industry’s producer surplus is what lets new films be made too. Also, the US provided a testing ground letting film distributors get a handle on which films were likely to be able to make it on the international stage. If they had to produce enough copies of everything to satisfy a worldwide simultaneous release for all films that had a decent chance of making it internationally, costs could have been pretty substantial.

In general, New Zealand allows parallel imports. If some big brand wants to strike an exclusivity arrangement with some NZ retailer, the government rightly figures it’s not the government’s job to enforce that arrangement by banning wholesalers or retailers from other countries from shipping the same product to NZ retailers. But NZ has maintained a ban on parallel imports of DVDs until the theatres have had a kick at the can.

Now the marginal cost of another copy of a film is near zero with digital distribution. Theatres are flipping to digital projection. Worldwide simultaneous release is no more expensive to run than a staggered release, though you do forgo the benefits to local cinemas of being able to wait and see what works in the States so they can pick the winners, and you miss the chance to jet the stars around the world for the various premieres. The benefits to consumers of being able to see what’s on in the States at the same time as it’s there airing are also much higher now than they were two decades ago. If a pile of your Twitter and Facebook friends are all chattering about a movie you can’t yet see, that really really sucks. You never say “Boy, am I glad that film didn’t come here (or took 4 months to get here) because all my friends in the States saw it and said it stunk!” If you want movies to be pre-vetted that way, you do the same thing Americans do: wait for credible reviewers to see it and do what they tell you to do.

So, the benefits of staggered international windowing are much smaller than they used to be. Parallel importing of DVDs pushes distributors away from their ideal, but also circumvents the obvious alternative strategy of just downloading things, so the losses may be less than the naive model might suggest. If New Zealand abolishes the windowed ban on parallel DVD imports, it will have negligible effects on the film industry as a whole and will encourage that more films open here at the same time as the US. I’m not sure that it’s in New Zealand’s interest to help facilitate this particular international price discrimination scheme, or at least it would take reasonable evidence to convince me that it is.