With Theaters Closed and Studio Films Going on Demand, Is Movie Exhibition Doomed?

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“If it works, the world will change,” analyst Rich Greenfield tells TheWrap about Universal’s direct-to-consumer release of “Trolls World Tour”

Coronavirus Streaming Distribution Movie Theaters

As the world changes rapidly under the specter of a global pandemic, the decision by Universal Studios to obliterate the traditional window between a theatrical and video-on-demand home release with next month’s “Trolls World Tour” is another sign of a business shift that may have lasting consequences. Could this mark the end of traditional distribution in movie theaters? With 4,000-plus movie theaters closed to the public nationwide and people shut in at home, the decision to release a family-friendly film through online streaming partners may seem logical. But many observers see the move — announced initially as a day-and-date simultaneous release at home and in theaters — as a significant step toward ending exclusive windows for theaters, a battle that exhibitors have fought for nearly a decade. “‘Trolls’ is the first mainstream movie to do this, ever,” Lightshed media analyst Rich Greenfield told TheWrap. “If it works, the world will change.” Tuna Amobi, an analyst at CFRA Research, called Universal’s move “somewhat unexpected and quite significant for the industry” and said it could become “an unintended catalyst for potentially lasting disruption of the theatrical distribution window.” One Hollywood producer who declined to be named said it signaled a major shift in studio thinking. “It’s not the end, but possibly the beginning of the end for most movies other than mega budget spectacles,” the producer said. Still, many analysts said it would be risky for studios to shift away from exhibition entirely just yet. Smaller non-tentpole films should be evaluated on a case-by-case basis if the economics make sense, insiders said, noting that the future of the industry may change if those titles do work financially. Four years ago, Sean Parker proposed The Screening Room, a service to allow consumers to stream new movies at home for $50 on the same day they opened in theaters. While Parker received support from several studios and producers like Steven Spielberg, exhibitors dug in their heels around their exclusive release windows and the venture never got off the ground. But the coronavirus pandemic has changed the dynamic. In addition to Universal’s decision to pivot away from theatrical with “Trolls,” the studio will also make “The Invisible Man,” “The Hunt,” and Focus Features’ “Emma” — three movies still in theaters last weekend — available via on-demand services as early as this Friday, far quicker than they would ordinarily appear. The 48-hour rentals are pricier than most VOD titles — $19.99 — which could produce more revenues to make up for the lost box office from their virus-shortened theatrical runs. “For us, we are giving some optionality right now,” a Universal insider said. “When you can’t go to the theater, you can watch at home with your families. Same for ‘Invisible Man’ — we still want you to be able to see that movie.” The insider said that NBCUniversal CEO Jeff Shell made the decision with his top leadership, including studio chief Donna Langley, distribution chief Pete Levinsohn and others at a marathon meeting on Friday. “This came together super quickly, with Jeff coming in and talking to the team: How is anyone going to see ‘Trolls’? That’s where the discussion started,” this individual said. “Then — wait — what about these other films in theaters?” However, Greenfield said that a video-on-demand approach for most studio films could prove challenging since box office revenues will be hard to replace, especially for big-budget tentpole films. According to his analysis, the average billion-dollar-grossing film gives the studio a $375 million profit, but VOD could not generate that type of revenue (or profit). The most profitable PPV event in U.S. history was the Mayweather-Pacquaio fight in 2015, which grossed $400 million from 4.4 million buys, charged at $90 per buy. It’s hard to imagine moviegoers even paying $30-$40 for a new release every month, especially when services like Amazon, Netflix and Amazon Prime Video don’t charge extra for big starry titles.
LightShed Partners Estimates
For that reason, Universal decided to delay for nearly a year the release of the “Fast & Furious” sequel “F9,” which has the potential to gross over $1 billion at the worldwide box office. And MGM moved the upcoming Bond installment, “No Time to Die,” to November. Most recently, Disney shifted Marvel’s “Black Widow” back. With films that have potential to gross ten figures in ticket sales, delaying is a safer option than shifting to VOD. “Even with the entire U.S. movie exhibition shutting down, we would not expect any major film studio to embrace (direct to consumer) release models for blockbuster films,” Greenfield said, noting that delay is typically the safest option given studios’ profit projections as well as talent contracts with backend deals “that never anticipated a direct-to-consumer release strategy.” Shawn Robbins, chief analyst at Box Office Media, noted that Universal’s decision to delay a mega title like “F9” reflected that long-term view of the importance of theatrical releases.  “We’re simply not going to see a flood of major releases like ‘Black Widow,’ ‘F9,’ ‘A Quiet Place Part II’ or ‘Mulan’ suddenly opt for in-home releases,” Robbins said. “It wouldn’t make sense for studios to go in that direction.” B. Riley FBR analyst Eric Wold wrote in a memo: “We continue to believe that this is not a strategy that can be financially successful for most big-budget, high-profile titles — and would expect this move (and possibly others) to be very unique to the near-term outlook and not one that would linger into the second half of 2020 or 2021 as the theaters reopen to the world.” But that doesn’t mean straight-to-streaming isn’t an option for smaller films.

“For a movie like ‘Trolls,’ ‘Emma,’ ‘The Invisible Man,’ ‘The Hunt,’ you may be able to, but not for ‘Bond’ and ‘F9,’ and just achieve the same level of profitability,” Greenfield explained. “It’s important to remember while we don’t believe you can effectively do this with a billion dollar movie — there were only nine movies that did a billion dollars in 2019 — for a lot of other movies, this may make a lot of sense.”

However, in his article titled “Would You Rent a New Movie for $20? Universal Leads Film Biz Into the Future,” Greenfield said that while PVOD can work as a one-off, studios may struggle to maintain the approach over time given that consumers may be reluctant to spend $20 to rent a brand-new studio film “when there is a new movie on Netflix every single week at no additional cost.” He added, The studio insider noted that for now, decisions were only made about “Invisible Man,” “The Hunt” and “Trolls.” “It feels like a temporary situation because of the unprecedented times we’re in, but I wouldn’t venture a guess beyond that. Being in the room, the only decisions made were about these films. No one is looking at June.” However, some Hollywood studios have already followed Universal’s move. Warner Bros. took a baby step, deciding to release “Birds of Prey” into home entertainment two weeks earlier than the normal 10-week window. STX is also shortening the home entertainment window for Guy Ritchie’s “The Gentlemen.”

Even the National Association of Theatre Owners is taking the shortening of theatrical windows in stride given the unprecedented circumstances. “While one or two releases may forgo theatrical release, it is our understanding from discussions with distributors that the vast majority of deferred releases will be rescheduled for theatrical release as life returns to normal,” NATO said in a statement on Tuesday.

And industry veterans agree that movie theaters will rebound. “Not only will theaters recover, but we could reasonably see a spike in demand when life returns to normal,” Robbins said. “This is a unique situation, but history has shown that theaters bounce back after troubling economic times as an affordable source of escapism. People will be eager to break that cabin fever when the opportunity arrives, and studios and exhibition will be there to deliver it.”

But Greenfield added that these developments could also lead to a long-overdue reevaluation of the current theatrical release windows. “Waiting 90 days (for VOD) is absurd in 2020. It’s an antiquated absurdity that no one understands, especially millennials or Gen Z’s,” he said. “Hopefully this sends a new norm for blockbusters that you can watch movies whenever you want.”

Sharon Waxman and Umberto Gonzalez contributed to this article.