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What’s At Stake In Warner Bros & Universal’s Premium VOD Talks

Deadline logo Deadline 12/3/2016 Anthony D'Alessandro
© Provided by Deadline

EXCLUSIVE: Warner Bros. and Universal’s statements this week that they’re in discussions with theater chains for a new premium home window has raised more severe questions than answers in the exhibition and distribution community.

While not a day-and-date release concept like the Screening Room’s proposal earlier this year, the idea is that movies would become available in the home two weeks following their theatrical release.

The National Association of Theater Owners hasn’t weighed in on this week’s news yet. However, it comes as no surprise to hear that these studios are seriously considering a shortened premium window, given that they’re owned (in WB’s case about to be owned) by telecom/cable companies. And with home entertainment industry revenues down around 24% since 2004, a loss of about $8 billion annually, some major studios are looking to recapture that cash in a streaming era.

First, some clarity on this week’s news:

— Some industry folks with knowledge of Warner Bros’ points say the studio is proposing a new product for the marketplace which would be realized in a year to 18 months, whereby consumers can purchase titles on a device while they’re still in theaters. Exhibitors would get a cut of this new form of revenue. The price point is more like $50, not $25. All movies would be available, from tentpoles to mid-budgeted fare. Target demo? Parents with young kids, older people who attend infrequently, and those in rural communities where the nearest theater is 40 miles away.

Let’s face it: Movie tickets are expensive. No one pays the average ticket price of $8.51, it’s more like $12-$17 or higher. Despite the fact we’re barreling toward another record year of $11B-plus at the domestic box office, there are segments of moviegoers who don’t attend frequently, and who deliberate which movies are worth the price especially when they take into account parking and dinner. We hear WB’s talks with exhibitors haven’t been contentious, but open. The goal: How can studios and theater owners make incremental money that’s not being realized in an ever-changing world?

— The fact that Universal has been in talks with exhibitors about a shortened window isn’t new, they’ve been ongoing for quite some time.

— What’s being kicked around between studios and exhibition is an 18- to 24-day window following theatrical release. Not day and date.

— Screening Room may still be an option should a premium window come to fruition. What some have rejected about Screening Room’s proposal was its day-and-date concept, its revenue share plan figures, plus the fact studios would have to buy into that streaming service exclusively. A major studio’s ownership by a cable/sat company negates the need for Screening Room, but still, if windows are broken, the service might be in the mix.

— A division continues to reside among those in distribution and exhibition about the whole premium VOD concept.

One insider with knowledge of the studio talks says major exhibitors like Regal and Cinemark are in fact listening, while another declares it will be a cold day in hell before theater chains gave into a business situation that jeopardizes their money and their companies’ livelihoods.

“It’s not all about popcorn, a film’s rental is important too and exhibitors have businesses to run with overhead, taxes to pay, venue rentals, labor laws and even handicap parking space guidelines,” says one exhibition executive. AMC is the wild card, as they’ve always been, given their participation in Paramount’s genre experiment last fall with Scouts Guide To The Zombie Apocalypse and Paranormal Activity: Ghost Dimension. Several sources believed that experiment failed. Many exhibs failed to book the film, thus crippling both pics’ domestic B.O. results — their total cumes amounted to $22M. When reached for comment, AMC and Cinemark didn’t have one.

— What does Wall Street think? Deadline’s David Lieberman reported today that exhibition stocks fell in the wake of Warner Bros boss Kevin Tsujihara’s comments.

For premium VOD to become a reality, several questions need to be answered at this early stage. And given how this shortened window concept has reared its head several times over the last six years, exhibition and distribution still don’t know how to answer them:

— Premium VOD price point and theatrical film rentals. At what price point does the theatrical business get cannibalized? If a movie’s availability on premium VOD overlaps its theater booking, does that mean the exhibitor gets a higher portion of the gross? Does a studio still get the same share of the theatrical gross? Or does it get less? Will premium VOD only be available in those sections of the country where a film is under-indexing? Or will it be available everywhere?

The reality about VOD revenue. How much does a film make from streaming? Nobody knows except the studio. Furthermore, what theaters in a specific zip code lay claim to a share of that VOD cash? (Imagine the fight between Times Square’s Regal and AMC venues, which lie across the street from each other.) How do you figure which theaters were crushed by the presence of a title on premium VOD? How much of it is enough for a multiplex to stay in business? If one lives in Beverly Hills, they can go to the movies in Century City, Westwood or Santa Monica. Which neighborhood movie theater then would get its fair share of VOD cash? Says a studio executive, “They have to draw a circle around each theater and figure out a method to calculate; it’s never going to be perfect.”

— Even worse about VOD. Currently, exhibitors have the upper hand over studios when it comes to collecting box office at sales point. The theater then a cuts a check to the studio for their share of the gross. With VOD, a studio would collect cash at the sales point and cut a check to the exhibitor. When does the theater chain get paid? Six months or a year after a film’s release? And how much did the studio make from that title anyway on VOD? Essentially, this is where an organization like ComScore could benefit as the revenue go-between for they studios and theater chains, much like they are on box office.

Windows. How does a new premium VOD window impact other windows? DVD, TV, etc.?

Should premium VOD come to fruition, some think it’s the little theater owners who’ll get hurt, not the multiplexes like the ArcLights.

Says one exhibition executive about premium VOD, “The whole idea shows lack of control. Look at what happened to the music and book industry once everything became available digitally. If you have Spotify, why do you need Tower Records? The whole idea will make theater-going obsolete. I don’t believe big screens and premium VOD can co-exist.”

Another studio exec asserts that despite those filmmakers who supported the Screening Room concept, “They mostly want their movies shown on a big screen. Nobody makes movies to be shown on their cell phones or as a multi-platform release.”

One scenario to consider: Perhaps in the end this is about a shortened DVD window. Back in 2010, before Uni floated the idea of an early release of Tower Heist (which was killed), Disney asked theater chains for a shorter DVD window on Alice In Wonderland. That film wound up grossing $1.02B worldwide ($334.1M domestic) and the discussions shrunk the then-DVD window from four months to the current 90-days with minimal impact on both exhibs’ and distribs’ bottom lines.

Warns another sage studio chief about the premium VOD imbroglio: “Once the toothpaste is out of the tube, you can’t put it back in. Exhibitors and studios have to be really careful.”

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