The movie-release window for video-on-demand after cinema is getting more crowded, in what should be viewed as good news because a durable formula is being hashed out that works for both Hollywood and cinema.
Earlier this week, the nation’s #3 theater chain Cinemark cinched a deal for the Universal Pictures slate and separately Warner Bros. unveiled a combination theatrical/VOD release for big-budget “Wonder Woman 1984.”
Some news reports suggest that this action in the cinema-to-VOD window represents a nail in the coffin of movie theaters. Anything but! An adjustment is inevitable given growing economic clout of VOD streaming and need to get movies online faster to blunt piracy.
In what’s known about the Cinemark agreement, Universal agrees that its movies that gross $50 million in domestic boxoffice the opening weekend won’t move to a high-priced VOD rental for at least 31 days. That means movies will play five weekends in cinemas and weekends are peak boxoffice periods. That’s particularly welcome because the deal carves out a secure run for blockbusters. Films under that threshold have a minimum 17-day window.
The agreement at hand is limited to P-VOD (the “P” is for premium) meaning high priced digital rental (think as much as $30 a pop), and not just dropped into a big a big movie pool at no extra charge to the consumer.
Already in place is the next VOD digital window known as electronic sell-through (EST) that typically is $20-25 but varies. In EST, the consumer permanently owns a movie (like buying a physical DVD), which is unlike the earlier rental P-VOD window. Then at 90-days, the general digital window (Netflix, HBO et al) is reached and also remains unchanged.
These two new 31- and 17-day P-VOD windows carve out a high-priced early rental digital window that Hollywood has been eager to establish. It’s a new revenue stream, isn’t expected to disturb other existing windows, and should deter piracy. And remember that Universal can opt to let hits linger in cinema beyond the minimum 31 days before a movie steps into P-VOD.
“Cinemark’s deal appears to nicely bridge the gap—providing flexibility to the studio, while protecting theaters from the threat of seeing the biggest tentpoles (the films most important to the box office) released into the home a few weeks after theatrical release,” analyst Meghan Durkin of investment house Credit Suisse wrote about the Cinemark/Universal deal.
A feature of deals (although not necessary all deals) is Hollywood distributors sharing a small cut of their early VOD revenue with theaters. That’s an element of Universal’s separate deal from in March (when the pandemic began in North America) with AMC Entertainment—the nation’s #1 exhibitor. Exhibitor chain #2 Regal Cinemas hanging back for now.
So, this is the digital-media template going forward. A multi-tiered landscape: P-VOD, EST and regular VOD. And more tiers could evolve. But an article of faith now is that the bigger hit movies linger longer in cinema. Low-grossing films that theaters would drop fast anyway can go to VOD faster (and indeed always have).
Keep this in mind. Today’s template is subject to modification down the road, though what’s on the table now seems durable. At some point the Cinemark and AMC deals will expire and need to be renewed. The press release announcing the Cinemark-Universal Pictures accord says that it is “multiyear.”
Also just announced, Warner Bros. is making the glossy comic book adaptation “Wonder Woman 1984” available to its streaming sibling HBO Max and theaters are the same time Christmas day. The release pattern for this $200 million production is probably an outlier for several reasons.
“Wonder Woman 1984” finished principal photography in the second half of 2018, so it’s been on the shelf for a while. Also, Warner’s parent AT&T is suffering a debt crunch so there’s desperation to get money flowing and a desire at this moment in time to prop up HBO Max, which is the startup AT&T streaming champion (once HBO Max is established, less imperative).
Also, nobody’s sure how many theaters will be open on release Christmas Day. When Warners opened big-budget sci-fi “Tenet” back in Sept. 3, 80% of theaters were open and “Tenet’s” domestic box office was a disappointing $58 million (out of a solid $350 million globally as of this posting). At the “Tenet” premiere, the 20% of theaters closed were in big cities like New York and Los Angeles, plus even where theaters were open moviegoers were skittish. “Tenet” also cost about $200 million to make.
Skeptics say distributors—the Hollywood studios—will then walk away from theaters when the current deals with theaters expire (expiration dates are unknown). Not so. Theatrical economics are worth saving.
A key support of cinema is that Hollywood distributors get over half the ticket price (around $5 average), which is a bigger chunk of dollars on a per capita basis than most other movie windows. And for that $5 per head, theatrical gives only one view to one person at one point in time. Most of the rest of the movie windows provide multiple views potentially to multiple people over days, weeks or even months.
In another cinema support pillar, distributors want cinema sizzle: Lines in front of cinemas on the streets and the halo effect from being on big screens generating critical buzz including Oscar fever, which TV presentations just can’t match.
Skeptics also assert cinema is dead because it’s less convenient: sticky auditorium floors, need a baby sitter when going out, expensive parking, etc. Well, those also apply to the concert business, in-stadium sports and Broadway. Gosh, nobody suggests those will be bye-bye as well after the pandemic recedes. So why wouldn’t cinema bounce back? It was a $42.2 billion global business annually on a revenue basis before the pandemic.
Skeptics say that the tiered windows establishing P-VOD will prompt consumers to skip theatrical and wait for VOD. That’s a definite risk. But consumers love out-of-home entertainment, particularly the youth demographic.
Most of the big theatricals dislocated by the current pandemic simply pushed back to later theatrical dates. Hint, hint! This indicates that their distributors want to retain theatrical distribution.
A minority detoured to VOD premiere or super-early window: Universal diminished theatrical for its family film “Trolls: World Tour” with P-VOD on April 10 with great success with earning of $100 million its first three weeks. But that’s unlikely to be duplicated—its timing was unique to catch the early shelter-in-place stay-at-home. A minority of films will go that route if nothing else to avoid a theatrical pileup from the bulk of movie being pushed back by pandemic disruption. But the big glossy blockbusters have a better economic return if starting in cinema.
Let’s acknowledge cinemas face economic pain, especially since they were overloaded with debt prior to the pandemic. But that debt was incurred mostly to fund improvements—so cinemas today in general have excellent facilities.
In any cinema bankruptcies, all that means is existing equity shareholders suffer and creditors take over. Creditors’ best shot at recoupment is to keep the cinema business going. Vacant cinemas have low value to be repurposed in an era where retail stores are in retreat because of consumers buying shifting to online (the Amazon Effect).
Let’s invoke those pesky skeptics one last time. They suggest Hollywood should premiere movies on every platform simultaneously, particularly regular VOD/streaming exemplified by Netflix. Hey, we’ve “seen that movie before” and it bombed. The recorded music economic model in the 1990s followed wide-all-at-once, and went into a nose dive for a painful 15-years. Today, music’s distribution is also tiered. So grabbing for everything at the start is proven to be no panacea.
Hollywood is best served by preserving money-making windows for its movies—whether cinemas or basic cable TV networks or screening on airlines. A sequential distribution pattern of milking each window in succession for a given movie maximizes economics. The economic returns from a VOD-first approach mean less money for Hollywood in today’s landscape and, certainly, for the foreseeable future.
Related content:
- Media Post: Cinemark Strikes Deal With Universal To Shorten Theatrical Window
- Press Release: Universal Filmed Entertainment Group and Cinemark Theaters Announce Dynamic Release Window Agreement
- ‘Hollywood Reporter’ How Wall Street Is Reacting to Cinemark-Universal Theatrical Window Deal
- MarketWatch: Why cinema will survive the corona-virus pandemic
- ‘Variety’: Everything You Need to Know About Universal and Cinemark’s Early VOD Deal
- Coronavirus: We’ve Seen This Movie Before
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