The span between a movie’s theatrical debut and home-video release is likely to get shorter, perhaps as soon as this year.
Theater chains have long resisted the idea of letting studios release movies directly to consumers any sooner than 90 days after the films arrive in the cinemaplex, but reality is starting to set in.
In 2016, DVD sales fell nearly 10 percent to $5.49 billion, according to the Digital Entertainment Group, but the overall home-entertainment industry grew 1.4 percent, thanks to streaming and digital sales. Studios get a higher profit margin from digital sales and would prefer to make their films available sooner rather than letting them linger in theaters for weeks, making diminishing returns. A shorter window could also save on advertising costs, eliminating the need for a separate campaign for home rentals.
One answer is charging viewers a higher fee for a chance to see a movie at home just a few weeks after its theatrical release — what’s called a premium on-demand window. Among the major studios, Universal Pictures, Warner Bros. and 20th Century Fox have been the most vocal about this approach. Executives have floated rental prices from $25 to $50, according to people familiar with the matter.
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“Our stance here is that we believe theatrical windows are set to change in 2017,” said Robert Fishman, senior associate at MoffettNathanson. “We’re just waiting for the announcement at this point.” He estimated the parties will eventually settle on a $30 rental fee.
AMC Entertainment Holdings Inc., Regal Entertainment Group and Cinemark Holdings Inc., the largest theater owners in the United States, have said they are open to talks with the studios about creating a premium on-demand window. In previous years, exhibitors have thwarted experimentation by studios by boycotting their movies. But the theater chains recognize the pressure on studios is too great and are now trying to cut the best deal they can, Fishman said.
The industry had a strong start in 2017 in North America, with movies such as “Beauty and the Beast,” “Logan” and “Kong: Skull Island” faring better than expected. Last year, box office revenue in the United States and Canada grew 2 percent to $11.4 billion, even with attendance flat, according to the Motion Picture Association of America. But big-budget movies are still risky ventures, with heavy promotional costs, so studios are looking for ways to eke out more profit.
Bloomberg reported in December that studios were pushing for digital rentals from $25 to $50 as soon as two weeks after a theatrical debut. Apple has also been pressing for earlier access for movies, which would help its iTunes download store stand out in a crowded online market, Bloomberg reported.
Several obstacles still stand in the way of the premium on-demand window. In addition to price, studios and theater chains have to work out the length of the wait for home video. While Universal Pictures executives are among those aggressively pursuing a deal that could bring movies into the home as early as 17 days after release, other studios like Warner Bros. are considering waiting a month or more for some of its movies, said people familiar with the situation.
Complicating matters, the studios and theaters have to work out deals one-on-one, because neither industry can negotiate as a group under antitrust laws. The most successful studio of 2016, Disney, doesn’t even want to experiment with windows, Fishman said. Sony Pictures is interested in shorter windows, one of the people familiar with the matter said, and Paramount Pictures has dabbled in bringing movies home sooner with some of its smaller films.
Another consideration is the long-term arrangements that studios have with premium cable channels, like HBO and Starz, to show new movies several months after opening in theaters. Adding a new premium video-on-demand offering could affect the pay-TV window.
And there are differing views over whether such deals would give movie-theater owners a share of revenue from premium digital rentals in exchange for their cooperation, one of the people said. That would help make up for revenue they would miss out on. Fishman estimates the theater chains would lose $7 million to $22 million for the average $100 million domestic box office movie, depending on when the new premium window is created. The closer to release, the costlier to exhibitors.
Exhibitors are happy to talk as long as the goal is increasing movie sales, said Eric Wold, analyst at B. Riley & Co. “They are going to find a way to work, but I don’t think its going to be resolved anytime soon,” he said.