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CinemaCon 2019: What If Theaters and Streamers Complement Each Other, Rather Than Fight?

As three studios compete with Netflix with an "if you can't beat them, join them" philosophy, will theaters be left empty-handed?

HANDOUT EDITORIAL USE ONLY/NO SALESMandatory Credit: Photo by THE WALT DISNEY COMPANY HANDOUT/EPA-EFE/REX/Shutterstock (9292355a)Bob Iger and Rupert MurdochWalt Disney Co. to buy 21st Century Fox, --, --- - 14 Dec 2017A undated handout photo made available by Walt Disney Co. showing Walt Disney chief executive Bob Iger (L) and Fox owner Rupert Murdoch at an undisclosed location. Walt Disney Co. announced 14 December 2017 it will purchase 21st Century Fox's businesses containing Sky Television of which Fox owns 39 per cent and entertainment activities of 20th Century Fox film studios in a deal valued at 52.4 billion USD in stock, and the total transaction being valued at some 66.1 billion USD. A new company will be set-up consisting of remaining assets of Fox that include Fox News and Sports. Disney says it will also assume some 13.7 billion USD of net debt of 21st Century Fox.

Bob Iger and Rupert Murdoch

HANDOUT/EPA-EFE/REX/Shutterstock

This year, there’s no elephant in the room at CinemaCon; it’s a herd of pachyderms, and they don’t include “Dumbo.” With nearly every major studio investing billions toward building their own streaming businesses, Netflix is no longer the only streamer to threaten the cozy partnership between the studios and the brick-and-mortar theaters that play their movies. That means pressure on the theater owners has never been greater to finally shorten their precious theatrical windows.

This challenge isn’t new; backroom negotiations between the theaters and exhibitors broke down when Disney announced its acquisition of Fox. “It’s such a moving target,” said one studio chief. “It’s gone on for years. The problem is you take one step forward and two steps back and it never gets anywhere. Everyone is pushing the envelope as hard as they can. The theaters are at the losing end of this fight. And we don’t want to lose that relationship.”

Disney swallowed Twentieth Century Fox, leaving the studio members of the MPAA at five; Netflix is the sixth, with Amazon expected to follow. Going forward, Fox will feed content to new streamer Disney+ (as some 4,000 redundant Fox employees face layoff notices). Departing Fox distribution chief Chris Aronson, who enjoyed his role as a song-and-dance showman at past CinemaCon events, has ceded that role to Emma Watts; of the group in the 2018 photo below, only she and Fox Family president Vanessa Morrison are moving to Disney.

Emma Watts, Stacey Snider, Chris Aronson, Elizabeth Gabler, Vanessa Morrison and Pam LevinePioneer of the Year dinner, Arrivals, CinemaCon, Las Vegas, USA - 29 Mar 2017

Emma Watts, Stacey Snider, Chris Aronson, Elizabeth Gabler, Vanessa Morrison, and Pam Levine

Rob Latour/REX/Shutterstock

Cable giant Comcast’s NBCUniversal is also heading into streaming, as is AT&T’s new Warner Media, and all of this is placing massive pressure on theater owners to open those exclusive theatrical windows. (Universal CEO Jeff Shell has taken the lead in pushing back.) In a candid interview on CNBC, IMAX CEO Jeff Gelfond said exhibitors seek a 12-week window. While he respects the theatrical window when dealing with studio blockbusters (he also played “Apollo 11” and “Free Solo”), Gelfond revealed that he’s discussed these issues with Netflix, which suggested the possibility of a four-to-six week exclusive window.

Hollywood movies have trended toward year-round tentpoles for some time, with blockbusters taking advantage of ancillary windows to fully exploit their value. That’s one reason why industry-dominant Disney — which could soon command an unhealthy 40 percent or more market share — isn’t in this conversation. Disney has nothing to worry about as they chip away at Netflix’s business.

Netflix did the math on what they lost when the major theater chains wouldn’t play “Roma.” (Millions of dollars.) And in order to persuade top filmmakers like Martin Scorsese to keep bringing quality content to Netflix, the streamer is considering upping their theatrical game. They may want to make some of their money back.

Netflix could keep four-walling indie theaters, which gets expensive. Doesn’t AMC want to play $175-million gangster epic “The Irishman” with its all-star cast of DeNiro, Pacino, Pesci and Keitel? That’s the question that everyone will ask at CinemaCon; the answer will help define the way forward.

Martin Scorsese and Robert De Niro

JALAL MORCHIDI/EPA-EFE/Shutterstock

Antitrust laws mean they can’t talk to theaters as a unit, so last year Fox, Universal, and Warner Bros. each had talks with top chains AMC, Regal, and Cinemark about a shortened exclusive window before Premium Video on Demand. (Netflix, Hulu, and HBO Go are Subscriber Video on Demand.) Some suggested as short as three weeks, with altered deal terms based on projections of what a movie would earn throughout a longer run.

“We have been exploring the optimal way of releasing films in the U.S. and around the world,” said one senior studio executive. All the studios have. Meanwhile, the theaters have been fighting tooth and nail to retain their exclusive windows. That’s partly because getting people to show up in theaters and buy concessions (and increasingly, more food and alcohol) has been their sole source of revenue.

“The thing you have to worry about is, are you evolving fast enough to anticipate the changes that are happening in the marketplace?” exiting Warner Bros. studio head Kevin Tsujihara told the Los Angeles Times last month. “Are you giving people what they want? Because if we don’t do that, we won’t maintain our relevance. The question being asked on the theatrical side is … are those [movie release] windows still relevant to the consumer? Do they make sense to my 19-and-17-year-olds at home, especially when they see movies like ‘Roma’ that are available on Netflix? We need to figure out how we can address some of those things and also maintain what is so special about going to a movie theater.”

Over the past four years, Netflix iterated and learned as it spent billions on feature content. Meanwhile, theater owners prevented the analog distributors from testing different ways of releasing films, and measuring the impact on moviegoers. For the past decade, Paramount, Universal and others tried to push some alternate options, but met serious resistance. Now the direct-to-consumer future that many saw coming is here. But because the studios and theaters haven’t tried anything different, they haven’t learned anything.

There’s evidence that Academy Award winners already on DVD can still play well in theaters, that “Roma” pulled audiences to theaters while on Netflix (although it certainly would have pulled more if it wasn’t), and that Christopher Nolan “Batman” movies sell out on IMAX long after their supposed expiration date. But if studios take their new films to multiple available platforms, and abandon theaters except for blockbusters, what then?

Not only do Disney, WarnerMedia and Universal increasingly have common cause with Netflix, but there’s also a new player in the mix as Apple joins the fray. Original content starts this fall, including some film acquisitions. The company plans global theatrical engagements for documentary “The Elephant Queen,” animated feature “Wolfwalkers,” and teenage Muslim film “Hala,” acquired at Sundance. Overseeing all of this is Apple’s Eddy Cue, senior VP of internet software and services, who reports to CEO Tim Cook. Another frequent question around Hollywood: Does Apple know what it is doing?

Eddy Cue, Apple's senior vice president of internet software, shows the new Apple TV product at the Steve Jobs Theater on the new Apple campus, in Cupertino, CalifApple Showcase, Cupertino, USA - 12 Sep 2017

Eddy Cue

AP/REX/Shutterstock

Amazon Studios, which until now has abided by theatrical windows, is coming to CinemaCon to screen their hot Sundance buy “Late Night” for exhibitors, but with no full-fledged presentation. Amazon’s welcome may be muted this year, as new chief Jennifer Salke’s announced plans to play with more flexible exhibition windows has not gone over well with exhibitors. Surprise.

As Apple and other streamers like Amazon innovate with theatrical windows, “they will be met with the same limitations that Netflix has,” said one studio distribution executive. And not all streamers will be able to afford the full-on Netflix four-walls for any extended period of time.

The thorny problem: all studios need the goodwill of theater owners in order to continue playing the middling movies on their screens. And nobody is inclined to challenge the long-term model and risk losing big money in the short term. One day a studio will go rogue. “Unless and until these [theater owners] join the 21st century,” said one studio distributor, “the world is going to pass them by.”

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