Theater Owners Ready to Retaliate Over Premium VOD

Exhibitors may pull trailers or even films by studios that shorten windows, TheWrap learns

Theater owners are ready to hit back at Hollywood studios if theatrical windows are shortened in favor of premium video-on-demand, TheWrap has learned.

Among the retaliatory measures that exhibitors are weighing:
* Pulling the trailers of offending studios.
* Cutting in-theater signage for those studios’ movies.
* Renegotiating the split of box-office revenues for films that are released on VOD.

Theaters may even refuse to carry a studio's film, according to an individual with knowledge of exhibitors’ thinking.

Word of a possible counter-offensive comes just days after multiplex operators went ballistic over studios’ plan to distribute films to homes for $30 a mere two months after their release.

A leaked report said that Warner Brothers, Fox, Sony and Universal would launch a new VOD window in May.

Also read: Tension High at CinemaCon – NATO Explodes Over Premium VOD

But exhibitors will be squaring off against a heavyweight champion.

"Studios have the leverage. They control the content, they make the decisions, they can be as rational or irrational as they want to be," Edward Woo, a media analyst at Wedbush Securities, told TheWrap.

Still theater owners think they have some cards up their sleeves, and Hollywood moguls do expect exhibitors to use them.

“They’ll do what they can, and then it will settle down again,” said one such studio head, speaking on condition of anonymity.

Under the current arrangements, studios take home between 50 to 60 percent of a movie's box office, but theater owners may push to alter that balance on films with shorter windows.

Movie companies aren't ready to back down.

A major studio distribution executive told TheWrap that — pending actual data that shows premium VOD hurting the box office — there are no plans to offer theater owners major concessions at this point.

"I don't see why there should be negotiations at this stage," the executive said. "When we went into the cable business, we didn't change the way we did business. And when the (theatrical) window went from six months to three months, and the box office remained very robust, we didn't change it either."

Movies companies are desperate at this point to counteract the downward price pressure put on their films by cut-rate distributors like Netflix and Redbox.  

Aren't studios concerned about exhibitor reprisal?

"I would hope that calmer minds would prevail at this point," the executive added. "With the box office down 20 percent, this is the absolute worst time for our exhibition partners to react."

Despite the rising tempers, analysts believe that abbreviating windows will have a minimal impact on box office. For instance, the top 25 biggest grossing 2010 theatrical releases had done 95 percent of their total box office by their sixtieth day in theaters, notes Marla Backer, a media analyst at Hudson Square Research.

"At this price point, [VOD] is not going to make much difference," Backer said. Studios are "clearly desperate and are trying to replace declining DVD revenues. But it just seems ill-considered." 

Curiously, the distribution executive TheWrap spoke to Tuesday doesn't seem to have big hopes that the new window will be wildly profitable for the studios.

He said the main goal of the initiative is to "re-establish" the $30 price point for home viewing in the mind of the film-consuming public — a price point that used to exist with DVD, the executive added, before operators like Netflix and Redbox came in and started offering a "smorgasbord" of content for well under $10.

"The value of content, to me, can easily be re-established by creating this premium window," the executive said. "Whether or not people buy the films for $30 is not important. What is important is that it puts the price at $30 for a viewing."

Yet, theater owners worry that if they capitulate, the time between a movie's big-screen premiere and VOD debut will continue to shrink. Hence, the willingness to go to the mats. 

Further stoking tensions was the timing of the announcement, coming as it did in the mid of the CinemaCon love fest between studios and exhibitors. That  in turn prompted  a quick and terse statement from the National Assn. of Theater Owners, which said exhibitors were caught off guard.

Even a week later, the lead footed way the news broke still stings.

"We are extremely disappointed some distributors have moved ahead with unilateral plans to attempt premium VOD," Gerry Lopez, AMC CEO and president, told TheWrap. "Even more disappointing is that we learned of these plans in the media, when we were in the same building all week at CinemaCon."

According to another top studio distribution executive, the leak — the source for which has not been determined — undermined a "civil discussion that was leading to a commonality."

"Why the f*** would anybody want to (leak) this?" the distribution executive wondered.