“Unaffordable” 90-Day Theatrical Window Is History As Leverage Tilts Towards Studios Post-Pandemic – Analyst


Studios look set to gain the upper hand in skirmishes with exhibition over windowing as trends during the COVID-19 pandemic extend into the future with mid-range films generating the $50-$100 million range the most at risk of dwindling theatrical runs, according to a leading Wall Street analyst.

Exhibitors have until now been able to stand their ground with Hollywood, said Robert Fishman of MoffetNathanson in a report Monday. But “this time is different in that all of the major studios … are likely to be more aggressive with windowing strategies. As long as multiple studios push forward with PVOD or some other form of window changes, the balance of power in favor of studios shifts even more in their favor and reduces the leverage the exhibitors have as they would be unlikely to boycott multiple studios’ upcoming releases.”

The crux, Fishman believes, is that “the standard 90-day ‘dark period’ between theatrical release and home video is an inefficient period that studios can no longer afford.” He said his firm expects the major studios to push forward with a new window after all the experiments end once theaters reopen. Universal will likely lead the charge, with Warner Bros. and other smaller studios quickly following.

As the pandemic shuttered theaters across the country, Fishman anticipates domestic box office plunging 50% in 2020 year-on-year assuming studios stick to current release dates. He predicts a rebound next year to $9.7 billion — still down 15%  from 2019 levels and 13% lower than his pre-COVID estimate of over $11 billion. The 2020 numbers are very much a work in progress, he cautioned, given that some major cities have’t yet set reopening dates and consumer behavior variables. Downside risks to 2021 include more titles slipping because of the shutdown in production as well as additional windowing experiments from studios either bypassing the theatrical window to put more product on their streaming services or pressuring both the existing theatrical and home video windows.

Theatrical windows will remain critical drivers of profitability and social awareness for tentpoles. But movies generating between $50-$100 million — which he said fell from nearly 30% of domestic box office in 2010 to only 16% last year after reaching a low of 12% in 2017 — are most at risk. Small films generating under $50 million in domestic box office have held their share around low to mid-20% over the same time period, he noted.

Given that, “It’s hard to see how mid-budget, non-tentpoles will be worth the cost and expense of traditional theatrical distribution,” he said. (He noted that smaller films generating under $50 million in domestic box office have held their share  elatively steady at around low to mid-20%.)

If this is to be, a key question is what share of PVOD revenues exhibitors will end up capturing to help offset the cannibalized box offic. Fishman initially expects exhibitors’ could end up getting between 10-20% of PVOD revenues — depending on their willingness to allow studios to push forward with this new window and how many studios are negotiating against them initially.

He noted that prior to COVID-19, Disney was always the lone studio fully committed to the theatrical window. “While we still expect all of their tentpoles to premiere on the big screen, we think Disney could continue to be more aggressive in shortening the window between the theatrical debut and when the movie hits Disney+.” Most other studios would push forward with straight PVOD strategies.

Before the pandemic, experiments like Universal’s Trolls World Tour would have been met with strenuous pushback and likely blackouts by theater owners. The only thing chains have been able to do now is threaten to no longer play any Universal movies in their theaters after reopening — or movies from other studios, as AMC Entertaiment CEO Adam Aron, put it, unilaterally abandon current windowing practices absent good faith negotiations. Trolls was the first but there have since been many more window experiments during this shutdown, including Warner Bros’ Scoob! available for rent ($19.99) and sale ($24.99) and Disney’s Artemis Fowl being included as part of the Disney+ subscription offering. Disney’s film version of Hamilton will debut on Disney+ July 3, more than a year ahead of its initially planned theatrical release.

Fishman noted that a major challenge as things shift will be getting the various studios with their own set of conflicting interests — depending on ownership and the position the studio plays in the overall company — to agree on terms. Some studios push for much earlier windows, to as long as 30-45 days for others, at varying price points in the $20-$50 range. As studios test dates and price points, he said he expect the industry to eventually come around to a common standard by next year — shaking out at around a $30 price point and 30-day post theatrical release window. (Although given the recent tests they could end up as low as $20 per rental.)

“But before we estimate the cannibalization impact on domestic box office, we still need more visibility on whether Disney would consider participating as well as learn more about other studios’ plans to be as aggressive as Universal after theaters reopen,” he said,

In the same report, Fishman looks at Cinemark, reiterating his ‘neutral’ rating on the stock, its conservative financial position that’s allowed it to weather the downturn more easily than peers and the potentail for it to be a player if the industry consolidates post-pandemic — on either side of a a spurt in M&A. Cinemark, the nation’s third larges chain, reports earnings Wednesday.

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