Business analysts looking beyond the current Covid-19 pandemic disruption see a comeback picture for the silver screen. That’s the case even though the customary 120-to-90-day window shrinks between theatrical and TV (such as video streamers like Netflix) and Hollywood trying different combinations of cinema/streaming sequencing for individual movies or batches of films.
“Despite the growing industry difficulties, we expect cinema operators to remain an integral part of film studios’ distribution and branding of their movie content, and a key destination for consumers seeking a premium state-of-the-art moviegoing experience at affordable prices,” Moody’s Investors Service wrote in a December report. That sentiment from the corporate credit rating agency is echoed by other media/entertainment/tech financial analysts.
“As well as representing a significant share of a film’s overall revenue, a successful theatrical release ‘brands’ a film and is one of the major contributors to a film’s success in ‘downstream’ home entertainment markets, as well as branded retail merchandise,” the Moody’s report adds. Gregory A. Fraser is lead analyst on the report.
For instance, MGM’s next James Bond spy thriller film and Walt Disney Studios’ big-budget comic book adaption “Black Widow” are scheduled to premiere in cinema, despite enduring pandemic premiere postponements.
The consensus is big budget movies will continue to gravitate to a full cinema premiere, given that route provides the best economic returns; film distributors pocket about half of ticket prices.
But further down the movie-magnitude scale, the outlook is less clear, forecast the analysts. Medium-caliber films won’t automatically be cinema centric, instead probably taking shorter cinema windows, which can even mean the same day as streaming, or even skipping cinema. At the bottom of the movie-magnitude scale, the least expensive, narrow-focus films (think “indie” fare) increasingly will premiere on video-on-demand, though in some instances with a parallel theatrical release of some sort.
As for testing alternatives in the video streaming front, two tracks are available: “premium” (P-VOD) collecting $20-30 from consumer for a 48-hour rental and regular “subscription” (S-VOD) that simply drops films in standard streaming services for unlimited viewing at no extra cost to consumers. (Most executives pronounce VOD as “vaud” as in vaudeville when used after P or S.)
The P-VOD poster child is Universal Pictures’ “Trolls World Tour” that rolled up $100 million in domestic P-VOD revenue from streaming April 10, 2020. “Trolls World Tour” skipped domestic theatrical premiere (though currently is getting some cinema screen time in a re-release mode) while generating $44 million in overseas cinema boxoffice. The 2016 predecessor to “Trolls” was produced for $125 million.
In some cases, Hollywood distributors agree to share a sliver of P-VOD revenue generated during theatrical run with cinemas, as an offset for lost cinema attendance. Note that in this Hollywood reaches to sprinkle cinema fairy-dust on films; a VOD premiere doesn’t generate the same publicity and marketing heat.
Given “Trolls” popped at the start of the pandemic lockdown, consumer behavior was altered and so that plan to skip domestic theatrical may not yield as good results in a more-normal environment.
The other configuration being pursued is Hollywood players are dropping movies in S-VOD streaming services at no extra charge, as was the case for Walt Disney Studios with a movie version of stage play “Hamilton” and Pixar animation’s “Soul.” Both premiered the studio’s corporate sibling Disney+.
Warner Bros. is propping up its corporate sibling streamer HBO Max by funneling 17 theatrical films in calendar 2021 the same day as they arrive in theaters. There’s push-back, so it remains to be seen if Warner alters this plan midstream, which many analysts predict. In any case, Warner says its 2022 theatrical slate will follow traditional distribution. So the Warners’ simultaneous streaming/theater distribution — referred to as “day and date” arrangement — is seen as a one-year only maneuver.
The business analysts make rough estimates of economics for films emphasizing P-VOD and S-VOD. This is important because a brainless conjecture floating around that premiering movies on streaming (and skipping theatrical) is smart economics. It’s not because that eliminates the revenue-generating window of cinema.
Cinema movies eventually get streamed too, collecting a second helping of revenue. Today’s ecosystem of sequential distribution — cinema, physical DVDs, streaming, premium pay TV, basic cable TV, broadcast TV networks, TV syndication, etc. — milks money at various junctures.
Business analysts figure that Warner Bros. decision to play “Wonder Woman 1984” as an S-VOD offering on sibling HBO Max at the same time premiering in cinemas Christmas Day 2020 results the comic-book movie adaptation being an unprofitable as a stand-alone movie.
At present, “Wonder Woman 1984” generated $39 million in domestic boxoffice and $113 million in international BO, which is perhaps one fifth of what would be expected with sequential distribution in a normal environment. The studio’s parent AT&T wanted to boost HBO Max, however, which triggers other economic benefits.
Moody’s estimates that a P-VOD run at $20-30 extra charge to subscribers generates transactions for between 1-12% of a VOD platform’s subscriber base, and 8% is a good midrange figure for P-VOD subscribers penetration.
“At the $30 PVOD price point assuming a normalized P-VOD audience share no greater than approximately 8%, we estimate that blockbuster films in the $150 million to $300 million production cost range require roughly 75 million to 150 million SVOD subscribers to breakeven,” concludes Moody’s. That’s assume the whole subscriber base would generate a P-VOD buy rate of 8%.
To put subscriber-count benchmarks in perspective, Netflix is tops with 200 million subscribers worldwide, and next-ranked Disney+ is at 90 million subscribers worldwide. Thus, most streamers don’t have the subscriber heft to make P-VOD premiere economics work for big films. However, P-VOD titles can play on multiple platforms, including cable TV on demand.
For movies streaming in S-VOD at no extra cost to consumers (like “Hamilton” on Disney+), the rule of thumb is that viewership is about 40% of the S-VOD platform’s subscriber base. Of course, whatever the percentage viewership, such S-VOD play does not generate extra revenue. (story continues after table below)
Hollywood’s Own Vid Streaming Platforms
| Parent | Movie Units | BO share | Owned streamers |
| Walt Disney | Disney Pictures, Pixar animation, Marvel Studios, Lucasfilm, 20th Century Fox, Searchlight | 38% | Disney+ ESPN+ majority/Hulu |
| AT&T/Warner Media | Warner Bros., New Line Cinema, DC Comics | 14% | HBO Max |
| Comcast/NBC Universal | Universal Pictures, DreamWorks animation, Illumination animation, Focus Features | 13% | Peacock |
| Sony | Sony Pictures, Columbia Pictures, Tri-Star Pictures, Funimation | 12% | Crunchyroll |
| Lionsgate | Lionsgate | 7% | Starzplay |
| ViacomCBS | Paramount Pictures | 5% | Paramount+ |
“We have a film industry, albeit with incredibly diverse assets and motivations, that is actively figuring out new optimal monetization models,” wrote MoffettNathanson research in a report a month ago. “Unlike prior times when the film industry was a consortium of six studios, today’s industry features a group of tech insurgents with vastly different motivations, return-on-invested-capital (ROIC) expectations and investor bases.” Michael Nathanson is the lead analyst on the report, titled “Our Virtual Visit to an Altered Universe.”
With Netflix is valued by Wall Street at a staggering $245 billion (its stock market capitalization), there’s a land-grab mentality at the moment by traditional Hollywood companies establishing their own streaming services to investor valuations. An example is Warners’ one-year maneuver placing its theatricals on corporate sibling HBO Max on the same day as cinema premiere. Analysts figure that such unusual distribution patterns will diminish once the Hollywood’s own studio-streaming platforms (see accompanying chart) get established or fold.
Can cinema withstand upheaval of traditional distribution? The business analysts think so.
“As most box office receipts occur in the first three weeks after release, we don’t expect a moderately-shorter or flexible window to significantly weaken theaters’ competitive positions,” S&P Global Ratings wrote in a December report. “However, box office revenues could be cannibalized if the window becomes too short and customers are more willing to wait for release in-home.” S&P analyst Naveen Sarma is lead researcher on the report.
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