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Studios Push for $50 Early Home Movie Rentals, But Negotiations Are Complex (EXCLUSIVE)

Variety logo Variety 2/23/2017 Brent Lang
© Provided by Variety

At least five of the major studios are pushing plans to get movies into homes earlier, but theater chains and studios are still far apart from agreeing on how it would happen.

Warner Bros. and Universal have been the most aggressive in pursuing an arrangement that would see certain movies receive a premium video-on-demand release within weeks of their theatrical premieres, but now other studios are joining the discussions. Twentieth Century Fox has also begun to talk early releases with theater owners, while Sony is having its own separate talks with exhibitors and is trying to devise its own plan.

Paramount, which previously did a pilot program with AMC and a few other exhibitors to release “Scouts Guide to the Zombie Apocalypse” and “Paranormal Activity: The Ghost Dimension” on digital platforms early, has continued to seek a similar strategy. Though different studios are exploring different scenarios, the plan that has gathered the most steam would involve offering up movies for $50 a rental some 17 days after their theatrical opening. Those rentals would be available for 48 hours.

The latest round of discussions began roughly 18 months ago. To get a sense of how these negotiations are progressing, Variety interviewed six studio and exhibition executives, all of whom spoke on the condition of anonymity.

Studios are looking to sign up two or three major exhibition chains, and believe they have the best shot at convincing AMC to come on board. They are also bullish on the prospects for Cineplex, the Canadian theater chain, joining the ranks. Cinemark is seen as the least likely to agree to shake up traditional distribution patterns. There is a growing sense among major studio executives that consumers have grown tired of waiting to see movies in the home, and that they are turning to illegal downloads of films in greater numbers. As Warner Bros. CEO Kevin Tsujihara told analysts this month, “It’s about giving consumers what they want. If we don’t give it to them, they’re going to go to pirated versions.”

Filmmakers have signaled a willingness to be flexible about how their films are seen. Martin Scorsese is finalizing a deal with Netflix for his next film, “The Irishman,” and directors like Steven Spielberg and J.J. Abrams endorsed the Screening Room, a controversial proposal that would have offered new movies in the home on the same day they opened theatrically.

It’s not just that the rise of streaming services has made the theatrical experience seem anachronistic for a generation of moviegoers. Studios are under financial pressure from a collapsing home entertainment business and are looking for ways to prop up sales and rentals. The DVD business had stabilized after constricting severely, but executives grew alarmed when sales began to slide dramatically again last summer. Some retailers, such as Sam’s Club, are flirting with no longer selling DVDs and Blu-rays.

At one point, some studio executives had hoped to have a deal with theater operators wrapped up by the time the exhibition industry gathers in Las Vegas starting March 27 for CinemaCon, its annual trade show. However, the complexity of shrinking release windows, industry jargon for the amount of time between a film’s theatrical debut and its launch in the home, has proved vexing, with no pact in sight. Some studio executives privately insist that they always intended to take a slower and more deliberate approach.

Studios had hoped to entice theater owners by cutting them in on a percentage of the digital revenues, offering them up as much as 20% of the profits. Despite the potential revenues, exhibitors are worried that they could be opening a Pandora’s Box, making it more attractive for customers to skip the cinema entirely and wait for films to be made available for a higher price in their home. They want assurances that the plan could be renegotiated on the fly if there is evidence it is cannibalizing the business.

Screening Room is seen as a possible third-party platform for the movies in the premium on-demand platform, but the deals would not be exclusive. The company, which is backed by  Sean Parker and Prem Akkaraju, has proprietary technology that guards against piracy. In recent months, the company has quietly formed alliances with theater owners around the world. Parker is best known for his roles in companies such as Napster, Facebook, and Spotify. Akkaraju was previously a partner at the electronic music company SFX Entertainment and was a partner at InterMedia Partners.

Currently, there is a roughly three-month gap between when a major studio movie opens theatrically and when it is made available for sale or rental. As a concession for allowing films to be made available for premium on-demand rentals, theater owners want studios to agree to keep the traditional window in place, so consumers wouldn’t be able to rent or buy movies at the regular price for approximately 90 days. Exhibitors want studios to agree to keep the three month window standard for between 10 to 20 years.

Those aren’t the only issues that are proving difficult to negotiate. Exhibitors are pushing for more transparency in how studios will collect and disburse digital revenues. Because a third party will be renting these films, they want more assurances that they will receive their fair share of the profits.

There are also differing positions on what types of movies will be made available for rental. Some studios want to limit the films that are made available on premium on-demand platforms to mid-budget dramas and comedies. They are not interested in releasing the Spider-Man films of the world within weeks of their debut. There are other studios that are taking more of a package approach, mixing in big tentpole films with smaller pictures.

Some executives would like to see the window shortened even further, even pushing for a simultaneous release of movies. In their discussions, Universal and Warner Bros. have advocated having more of a fixed time between a film’s debut in theaters and launch on premium on-demand, whereas Fox and Paramount have looked for a more flexible approach. Under the second scenario, they would like the release date to be triggered by a film’s theater count — when it stops being widely shown, it would premiere on-demand.

As they are pushing to make films available earlier and at a higher price, studios are also trying to figure out what those changes will mean for television and streaming licensing pacts. These may have to be renegotiated if a premium on-demand model is instituted.

Then there are regulatory hurdles. Anti-trust laws prohibit the studios from working in coordination with each other. Their negotiations must be done on a company-by-company basis, a frustration given that most executives would like an industry-wide solution to a problem they feel is facing their collective business.

Universal, Paramount, Fox, Warner Bros., and Sony declined to comment.

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