On March 16, Universal announced it will immediately make some new theatrical releases available for premium VOD, starting with “Trolls World Tour” on its original release date of April 10. Meanwhile, led by Regal, AMC, New York, and Los Angeles, theaters stare down total closure. Exhibitors and studios, once inextricably linked, now face very different existential crises.
Studios invest billions in movies and marketing; theaters have enormous expenses and debt. But unlike exhibition, which nears worldwide shutdown for the first time in history, those making movies can replace some of that lost theatrical revenue through streaming. Theaters have only time on their hands, and that revenue is impossible to replace.
At CinemaCon, which was scheduled to take place next week, distributors and exhibitors would have heard that they need each other and there aren’t two sides; they’re the same team. However, Universal’s move strongly suggests that’s not the case: Not only is the studio protecting itself, it’s also engaging in an experiment that all studios have long wanted to try.
Until now, the desire to protect their relationships with exhibitors was reason enough not to do it. Now that it’s clear the theaters will have to close, the power balance shifted firmly into the hands of studios. They have alternatives, and they’re eager to try them.
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Industry sources tell IndieWire that exhibitors understand Universal’s overall strategy, and don’t blame the studio for finding emergency alternatives. That said, there is widespread anger and frustration that it was done without consultation or more than a few minutes’ notice before it became public.
On Monday morning, most exhibitors were still planning Friday bookings for “Trolls,” “The Invisible Man,” “The Hunt,” and boutique division Focus Features’ “Emma” when they were told that that if they were open and did, it would be day and date with home availability.
Universal’s plan is a high-speed acceleration of what’s already common practice. Two weeks before the 90-day window of theatrical exclusivity ends, some movies are available on VOD at a premium price — usually $19.99 for a 48-hour rental per household. Once the 90 days are over, the price drops.
For exhibitors already reeling from the immediate loss of revenue, this level of force majeure is stunning. It’s not just losing future grosses for these titles; it’s that Universal moved so swiftly to take advantage of the circumstances. While the virus represents crisis for the world, for studios it could bring a silver lining.
Releasing a film on VOD means more than premium pricing; it’s also a smaller P&A budget and a better revenue split. Theatrical splits are about 50-55 percent, but VOD allows studios to keep 65-70 percent. So let’s do the math for “Trolls World Tour:” If 10 million customers purchased the film at $20 each, that would raise $200 million. At 70 percent, that’s $140 million, with less marketing spend.
Whether this film has that value for the home audience, particularly when Netflix and Disney+ are available for subscribers for the asking, remains to be seen. (One way people who want to support theaters might voice their feelings is to not rent it.) Also, a premium price for two films that were already in play might be a risky decision. “The Hunt” grossed $5.3 million this weekend. Perhaps at a lower price consumers might take a chance. But at a premium? Good luck.
The budget for the “Trolls” sequel has not been made public, although the 2016 original cost $125 million. That would make the proposed VOD take of $140 million more breakeven than blockbuster — but to achieve the same in a theatrical release, “Trolls World Tour” would need to make more than $300 million. Based on the average ticket price of $9.26 (latest figures, 2019), that would require more than 32 million ticket buyers — three times as many as VOD.
Beyond the bottom line, the VOD release of “Trolls World Tour” will address a long-held philosophical question: What would happen if a major film bypassed theaters and went directly to the public for on-demand purchase? Sony did this after “The Interview” was sabotaged by North Korea; it was available at standard pricing while a small number of theaters concurrently played it. However, this is another level altogether.
“Trolls” is a franchise family film that gives kids at home something to do; it’s not the the next Marvel film. However, it’s good enough to provide data that allows studios to assess if this is a viable backup model. And when theaters reopen, Universal and other studios are in a position to propose shortened windows for all platforms.
For the major exhibition circuits, this has to be a body blow (as well as perhaps some consultation with lawyers). For rival studios, it could be inspiration. Either way, this is a moment of truth. Studios could kill theaters. Or, theaters watch the experiment fail. But whatever happens, it’s hard to see how things ever return to normal.