(Image credit: MGM)
By
Source: www.nexttv.com, June 2020
Already on the ropes before the pandemic, the cinema exhibition business is threatened like never before. Will shifting distribution patterns open even more opportunity for the thriving OTT sector?
Due to the outbreak of COVID-19, nearly all major movie theaters in the U.S. were shut down by mid-March, with a minimum closure time of six to 12 weeks. The closures have forced many studios to delay the release of big-budget films, most notably summer blockbusters expected to make hundreds of millions in box office revenue.
MGM’s No Time to Die, Daniel Craig’s final James Bond film, was one of the first major films to receive a brand-new release date—previously slated for an April 2020 release, it’s now expected to premiere on Nov. 25, 2020.
While many studios have followed suit in pushing the release dates of their films by just a few months, such as Disney’s live-action Mulan (pushed from May to July) and Marvel Studios’ Black Widow (pushed from May to November), others have delayed film releases by an entire year, notably Universal’s Fast & Furious 9, which originally had a May 22, 2020, release date but is now expected to premiere on April 2, 2021.
However, some studios have used theater closures as a unique opportunity to experiment with direct-to-consumer and premium video-on-demand (PVOD) models, offering consumers the opportunity to stream first-run films from the comfort of their couch at a higher cost than an exhibitor’s movie ticket.
Universal was one of the first studios to drastically consolidate the home release window for three of its films—Emma, The Hunt and The Invisible Man—when the films’ theatrical runs were cut short due to pandemic-caused theater closures. Each movie was available to rent on major transactional platforms including Vudu and Amazon Prime Video for $19.99.
The Good Kind of B.O.
Historically, according to an Ernst & Young study commissioned by the National Association of Theatre Owners (NATO), movies with longer home release windows bring in nearly $2 million more in revenue (i.e., a film with a theatrical run of 100 days that’s home-released after 98 days will rake in less revenue than an identical film with the same 100-day theatrical run that’s home-released after 108 days). So does it actually make sense for studios to jump on a PVOD release right now, while we’re all cooped up at home over delaying the theatrical release by a few months to a year?
(Image credit: Universal)
Well, Universal seems to think so. After releasing its film Trolls World Tour straight to PVOD on the day it was expected to be released in theaters, Universal—according to a Wall Street Journal report—netted more revenue in just three weeks from home rentals of the film than it made from five months of domestic box office sales from the first Trolls movie. That’s $100 million in gross sales in less than a month without the help of theater ticket sales.
The success of Trolls World Tour—in addition to VOD movie sales increasing by a whopping 67% in March—will be difficult for other studios to ignore, and Universal is betting on it not being a fluke, either.
Also read: Comcast Making New Movies Available for In-Home Viewing
“The results for Trolls World Tour have exceeded our expectations and demonstrated the viability of PVOD,” Jeff Shell, film chief at NBCUniversal, said in a statement. “As soon as theaters reopen, we expect to release movies on both formats.”
Not at all surprisingly, Shell’s excitement to bring Universal movies to both theaters and PVOD in the future has led theater chain executives to express their disappointment and anger, as the planned disruption to the established theatrical window could negatively impact their business when theaters reopen.
“This radical change by Universal to the business model that currently exists between our two companies represents nothing but downside for us and is categorically unacceptable to AMC Entertainment, the world’s largest collection of movie theatres,” CEO and president of AMC Entertainment, Adam Aron, said. “Going forward, AMC will not license any Universal movies in any of our 1,000 theatres globally on these terms.”
Cinemark CEO Mark Zoradi, while not as quick to announce to press any future changes to licensing deals with Universal, also expressed his disappointment, saying, “We believe the exclusive window is important to the theatrical experience, and are careful about undue change to that.” Cineworld, which owns Regal, also responded to Shell’s comment, saying, “We will not be showing movies that fail to respect the windows.”
With AMC expecting Q1 losses of up to $2.4 billion on write-downs, and Cinemark’s Q1 revenue down 24% from 2019, the executives’ frustration with Universal isn’t wholly unwarranted—when theaters finally reopen, they’ll have a difficult enough time recouping losses as it is without the added potential loss of customers to PVOD rentals.
Beyond the Pandemic
The pandemic-caused shuttering of theaters is only the latest shoe to drop for the age-old practice of convening folks in public spaces to watch movies. In fact, it has only accelerated the already eroding theatrical window.
These days, movies are available for streaming sale and rental, and SVOD smorgasbord video, quicker than ever.
According to the aforementioned Ernst & Young study, the average theatrical run in 2012 was 102 days. By 2017, it had eroded to just 94 days. And while the average home release window in 2012 was 112 days, it winnowed to just 85 in 2017. Today, the theatrical window is down to 74 days.
Late last year, streaming giant Netflix experimented with implementing even shorter windows with two of its movies: The Irishman had a home release window of one month, while Marriage Story’s was 27 days.
Other emerging streaming companies, such as Disney Plus and HBO Max, have announced similar direct-to-consumer experiments amid the pandemic. Disney has forgone a theatrical release of Artemis Fowl, which was supposed to premiere on May 29, in favor of releasing the film directly to Disney Plus on June 12. And instead of an Oct. 2021 theatrical premiere of the much-anticipated filmed production of Hamilton, Disney will make it available for streaming July 3. Sony’s Charm City Kings and An American Pickle will also debut not at that theaters but on HBO Max.
Cutting Mainstream OTT Distribution Out?
This shift in how we’re consuming media has not gone unnoticed by tech companies, either. The emergence of new technology like TIKIT from XCineX proves there will be a continued interest in at-home viewing over moviegoing even after theaters reopen. TIKIT, a small square device that attaches to your TV, uses detection sensors to scan the room and identify the number of people present, then connects to Venue, its accompanying app that allows you to purchase tickets to view first-run films, sporting events, live concerts and more based on the number of people watching.
Why all the fancy new equipment when PVOD has been seemingly working just fine so far? Well, currently, first-run films on PVOD, such as Trolls World Tour, have been available to rent for $19.99, which is fairly steep for just one or two viewers, given that the average movie ticket price in the U.S. was $9.26 last year and you won’t be watching the movie on the big screen.
If you’re a family of five, sure, that price point is a bargain because you don’t have to pay per head (or wrangle the children up to go to a theater). But studios may want to release non-family-friendly films and still make money. If technology like TIKIT gains traction, it could encourage studios to drop rental prices closer to movie ticket prices, making direct-to-consumer transactions feasible for any kind of movie.
So if you’ve been in the market for a bigger TV or better sound system, now may be a good time to finally invest. If studios continue on this trajectory, we won’t even need to leave our couch to go to a theater.
