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Why The Movie Studios’ Stance On VOD And Streaming Shouldn’t Be Cause For Exhibition Panic

This article is more than 3 years old.

“We may have to make some changes to that overall strategy.” With those words, Disney DIS CEO Bob Chapek jumped into the theatrical fracas initiated by Jeff Shell at Universal over the past few weeks.

Disney’s boss reaffirmed the company’s belief in the theatrical process for its tentpole releases, but reserved the right to alter that strategy with some films depending upon the availability and accessibility of movie theaters. Though the interview garnered significant press, the response from trade journals and from exhibition itself was far more muted than the maelstrom that Mr. Shell stirred up last month that brought the wrath of cinema owners such as AMC and Cineworld.

Though Mr. Chapek did allude to the fact that some Disney titles may end up going direct to streaming or VOD, he added that it would be done on a case-by-case basis as the company continued to assess the theatrical landscape, which is entirely their right. While those who cover the industry are reporting what a crippling blow this might be to exhibition, let’s all remember that this is not currently a theatrical windows issue—a major source of consternation to the cinema industry—but rather an issue about which platform will reap the greatest revenue for a studio, something that has always been up for internal studio debate.

Disney and Universal aren’t saying that they’re planning on releasing their films theatrically and then going to their Peacock or Disney+ streaming services after 4 to 6 weeks. They are stating that the current, ever-changing social landscape may affect their decisions as to which distribution platform is best suited for their films.

Instead of drifting into whirling-dervish territory, let’s take a deep breath and consider a few reasons why this may not be as much of an issue for exhibitors as everyone is making it out to be.

There’s Always Been Direct-To-Video

I spent over two decades at Sony Pictures, and every year we had a handful of titles our release schedule that kept moving around to find appropriate release dates, and eventually ended up going straight to video. It wasn’t something we wanted to do, but we weighed a P&A spend and screen availability versus what we reasonably felt we could recoup from box office and decided the most lucrative path would be the video route. It’s worth noting these were not big films. And, if anyone thinks that Disney or Universal is planning on sending Fast 9 or Mulan to small screens around the world, they’re mistaken.

This is especially true with animated sequels. Again, we’re not talking Minions or Toy Story sequels here, but rather those next level animated offerings whose second or third installments would benefit from a release via some form of home entertainment rather than trying to elbow their way onto a crowded release schedule, often times at the playtime expense of more important studio titles.

Just for fun, take a look at worldwide box office charts for the last several years. Seventeen of Disney’s titles grossed over $1 billion globally during the last five years. Do the math to see how many new streaming subscribers or VOD purchases the company would need to replicate that number. Yes, studio rental from VOD is higher than theatrical, but as exhibitors will tell you, it isn’t that much greater. Long gone are the days of the 50/50 split.

Disney didn’t get to where it is by not understanding the dollars and cents of the movie business. The chance they’d take a tentpole film directly to streaming is minuscule unless they are losing Disney+ subscribers, which they aren’t, as shown by the announcement that their subscriber base just jumped to 52 million.

Ancillary Markets Often Make or Break a Film

While theatrical is often thought of as the barometer of a film’s success, it is often the ancillary markets which drive profit or loss. Deals for EST, video, cable TV, PPV, airlines, etc. are based on box office revenue. If I’m one of these ancillary components and I know that a certain title has debuted on Disney+ and that I won’t be one of the first platforms for a viewer to watch a film post-theatrical, you can rest assured I will be negotiating a lower rental fee than if it had grossed $750 million around the world.

The Too-Much-Product Argument

Exhibitors are fond of telling any studio sales rep or executive who will listen that there are too many films on the release schedule. That is invariably the rationale when a studio can’t get a film into a limited screen theater complex: “Sorry, I have too many movies to play.” I often heard that in my sleep, along with “Can’t some of these go straight to video?”

Well, if film buyers had too many movies to play pre-COVID-19 when a film would explode on opening weekend only to fall precipitously in subsequent weeks, thereby limiting their theatrical playtime, how will they feel when theaters are mandated to run at 25%-50% capacity because of coronavirus social-distancing concerns?

If moviegoers find they simply can’t buy tickets to a film’s opening weekend and are forced to make their purchases for the following weeks, then films that cinema owners could reasonably expect to play for just a couple of weeks may now last far longer in movie theaters. Is a film buyer going to take the fourth week of A Quiet Place II off the screen if it’s playing to 75% of available seats? If there was an issue with too many films in the marketplace before the world went insane, then that argument gets ramped up considerably in the weeks and months after cinemas reopen with strict distancing rules in place. By exhibition’s own admission, if a studio decides to take one of its lesser films straight to video it should theoretically be greeted by a resounding sigh of relief rather than shots across the bow.

Where this all ends up remains to be seen. Will AMC and Universal iron out their differences? The smart money is on them doing so by mid-summer, though probably not without someone at Universal throwing their arms (at a safe distance, mind you) around Adam Aron and trumpeting their commitment to the theatrical experience. After all, at this point in time and even with the company in suspect financial straits, AMC might have far less of a need for Universal than vice-versa.

With Universal’s rather lackluster 2020 release schedule, AMC, especially if they are short of screens, isn’t pointing to a wealth of that studio’s films and saying they’re essential to the theater chain’s success until we get to the international release of No Time To Die. And I for one would pay money to be the fly on the wall when Barbara Broccoli and Michael Wilson call Jeff Shell and ask him to explain to them once more why the newest installment of James Bond, and the first distributed by Universal International UHS , isn’t playing in AMC theaters in the UK, the EU and other territories around the world because the studio finds it necessary to shout from the rooftops of their need to tweak exhibition’s noses by taking some of their films to PVOD. He’s beaten Ernst Blofeld, Jaws and Auric Goldfinger in his cinematic career, James Bond isn’t going to be defeated by a bunch of trolls, that’s for certain.

It will be fascinating to see how this play out but one thing is for certain, it would behoove the industry to take one giant, deep breath and realize that, as with all studio-exhibition negotiations, private communication is far more successful than lobbing grenades in the clickbait-hungry press.

Box office figures courtesy of Cinemascore and Box Office Mojo

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