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As Universal Redefines ‘Direct to VOD,’ Studios May Find a Global Crisis Has a Silver Lining

Where Universal goes, others will follow, leaving closing theater chains hobbled.

Trolls World Tour

“Trolls World Tour”

DreamWorks Animation

Last week, Universal Pictures executives hunkered down to find another way to get their movies to audiences that would be stuck in their homes. The studio run by NBCUniversal CEO Jeff Shell, a former cable executive at owner Comcast, has long advocated a shorter windows policy for movies. He believes audiences are willing to pay a premium to watch their movies at home via cable, either day-and-date or within weeks of their theatrical debuts, but faced blowback from the major theater chains.

So, on Friday March 20 Universal will push already-opened Focus Features’ “Emma” and horror flicks “The Hunt” and “The Invisible Man” — films with advertising still fresh in consumers’ minds, marooned in theaters that will soon be closed — to VOD, where they can be rented for $19.99 for 48 hours. That price point was calculated as the cost of two movie tickets, said insiders with knowledge. And what better time to pursue this model, as theaters have no leverage and cinephiles are stuck indoors with kids sent home from school?

“It screams opportunity,” said one top Hollywood producer. “At this moment the studios have all the leverage. The studios have to recover the money they’ve spent. They’ll put anything up that they can.”

Universal wants to teach consumers to pay for their movies early rather than get used to waiting for them on Netflix and Disney+ at a far lower subscription cost. (This is one of many ways that theaters have held up progress by insisting on their 90-day window.) Traditionally, no studio would favor straight to video; digital rentals and sales are 62% smaller than they were in 2004, and it cannibalizes the higher-value channel of theaters. However, all of that would change with spanking-new theatrical-worthy titles to lure consumers.

That’s why Universal’s truly radical move is pushing a movie scheduled to open in theaters April 10 straight to VOD: DreamWorks Animation’s “Trolls World Tour.” This makes exhibitors crazy. If the studios just postponed their movies, those shiny baubles would lure starving moviegoers back to theaters after the crisis is over.


Focus Features

But when is that? May? Summer? Later? With Disney moving up the streaming window for “Frozen II,” the next question is what Hollywood’s most powerful studio (racked by losses from cruise ships and amusement parks) will do with Pixar’s current release “Onward,” which could go straight to Disney+ from theaters, shattering the 90-day window, or live-action remake “Mulan,” which was pushed back last week and marks huge losses in advertising dollars.

Will the studio choose to launch the well-hyped movie (which lacks major stars) straight to Disney+? And maybe Paramount wants to take advantage of the millions that it’s thrown at also-canceled  “A Quiet Place Part II”? Monday night, Warner Bros. announced that DC’s underperformer “Birds of Prey” is going straight to VOD.

Exhibitors argue that movies are worth more when they hit streaming after weeks of theater branding. People fall back to titles they know on streaming. That helps a sequel like “Trolls,” but premium VOD might not work with a less-established title.

People enter AMC's Studio 30 theaterAMC Theatres Odeon and UCI, Olathe, Kansas, USA - 11 May 2005AMC Theatres is buying European movie theater operator Odeon & UCI Cinemas Group in a deal valued at about 921 million pounds ($1.21 billion). AMC says, Tuesday, July 12, 2016, that the transaction will make it the biggest movie theater operator in the world. Odeon & UCI has 242 theaters in Europe. The deal will give AMC a total of 627 theaters in eight countries.

AMC Theatres

Orlin Wagner/AP/Shutterstock

The major theater chains are already tottering under rock-bottom stock prices, serious debt loads, too many screens in big cities and under-populated brick-and-mortar shopping malls. First among equals is over-leveraged AMC (which closed Monday at $2.60, down from $17 in April 2019), which is shuttering operations in America, following several closures in Europe.

The world’s largest theater chain boasts 1,000 theatres and 11,000 screens worldwide, owned by China’s Wanda Group. If the chain can’t handle its debt (loans are due in 2024), rent, payroll, and vendor payments, it will default and be forced to declare bankruptcy. The good news is a Chapter 11 reorganization would help the chain restructure its debt and position itself to emerge in stronger shape. Lenders and real estate managers would want to support an ongoing business, especially as theater buildings really have only one purpose. “What is the overall survival of theatrical if AMC goes under?” asked one exhibitor. “We can’t afford that as an industry.”

European-owned Cineworld has also been on a tear, buying properties like Regal and it was poised to acquire Canada’s Cineplex, which now may not go through. Cineworld was overextending itself just as theaters were closing down in Europe and America. Smaller chains Arclight and Pacific and Cinemark are in better shape to survive a hiatus intact, along with more nimble Landmark, owned by billionaire real estate mogul Charles S. Cohen, and Tim League’s Alamo Drafthouse.

“Theater operation will still be a viable business once the crisis is past,” wrote Roadside Attractions co-president Howard Cohen in an email. “The question is who takes the hits for the closure period — workers, which sucks, and probably banks and lots of other creditors.”

The situation is fluid. As Universal moves forward, the studio will assess the future of other films such as Focus Features’ “Never Rarely Sometimes Always” and the upcoming “High Note,” as well as summer openings. As Universal pushes its movies into homes by Friday while nailing down deal points, insiders with knowledge say it’s also rapidly making deals with global players from Amazon and Google to Apple, Skye, and Microsoft to carry these movies in at least 80 percent of the world market, followed by more.

The theaters don’t have alternatives. All they can do is furlough workers and batten down the hatches. The studios that hang in with them will maximize their returns — especially on tentpole fare — when moviegoers flock back to cinemas.

Although this is a temporary move for Universal to maximize current audiences, not a permanent shift, many expect other studios to follow suit. Anyone with a phone will be able to watch these Universal movies. That’s what gives theater owners cold shakes.

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