Playing soon on a TV near you: Hollywood’s latest blockbusters

The span between a movie’s theatrical debut and home-video release is likely to get shorter — as soon as this year.

As movie theaters and studios converge this week in Las Vegas for an annual gathering, the looming change to the industry will be heavy on executives’ minds. Theater chains have long resisted the idea of letting studios release movies direct 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 rather make their films available sooner rather than letting them linger in theaters for weeks making diminishing returns. A shorter window could also help save on advertising spending, 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 publicly vocal about this approach. Executives have floated rental prices from $25 to $50, according to people familiar with the matter.

“Our stance here is that we believe theatrical windows are set to change in 2017,” Robert Fishman, senior associate at MoffettNathanson said in an interview. “We’re just waiting for the announcement at this point.” He estimates 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 U.S., have said publicly in recent months that they are open to talks with studios about creating a PVOD 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 for themselves, Fishman said.

The industry has had a strong start to the year 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 U.S. 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.

The discussions about a shorter window have been going on for a while. 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 could help its iTunes download store stand out in a crowded online market, Bloomberg reported the same month.

Several obstacles still stand in the way of the PVOD 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 possible deal that could bring movies into the home as early as 17 days after release, some 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 rules. The most successful studio of the past year, Disney, doesn’t even want to experiment with windows, Fishman said in a note. 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 long-term arrangements studios have with premium subscription 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, one of the people said.

And there are differing views over whether or not 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 out on $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. who will be attending the conference. “They are going to find a way to work, but I don’t think its going to be resolved anytime soon,” he said.

At the conference this week in Las Vegas, CinemaCon, presents an opportunity for exhibitors and studio executives to rub elbows and perhaps spark conversations that lead to deals. The trade show started Monday with a keynote address from John Zeng, president of Wanda Cinema Line Co. Studios will present highlights from their upcoming slate of films.

Last year, the conference was overshadowed by an attempt by a startup called Screening Room to work with studios and exhibitors on a service to deliver new movies at home on the day they open in theaters. Screening Room Chief Executive Officer Prem Akkaraju will be among those executives attending CinemaCon, without Sean Parker, the Napster co-founder who has backed the project, according to a person familiar with their plans.

“The whole issue of windowing is not something one entity can push on everyone else,” Wold said. “A studio can’t force a change in the distribution model. It has to be done collectively with all the parties involved.”

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Bloomberg’s Nicole Piper contributed.

film-streaming

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Keywords: MOVIE-WINDOWS

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