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Release War

29th April 2020

007's distributor Universal are at logger-heads with AMC over the switch to streaming

MI6 logo By MI6 Staff
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For the 25th James Bond film 'No Time To Die', MGM has partnered with Universal Pictures to distribute the film to international audiences. United Artists Releasing, which is 50% owned by MGM, will handle the North American release, thus allowing MGM to keep more of the box-office revenue from the USA and Canada. Although it was not immediately raised as much of an issue in the trade press, Universal's remit to self-determine their release strategy for other properties may now affect how cinema chains handle 007.

The first move was made by Universal in March when the studio decided to release some of their own films as streaming on-demand titles at the same time they were still in theatres. This broke the long-standing 90-day exclusivity arrangement studios have with theatre chains, during which time audiences can only see the film in a cinema. After the 90-day window passes, studios can push the film out as a pay-per-view title on cable, streaming rental, or home release, or any combination they like. For most films, this is rarely a conflict as the title has left cinemas before the 90-days is up. However, back in 2015, 'SPECTRE' was peculiar in that it had a 154-day theatrical release in the US up until April 7th, long after the DVD/Blu-Ray had been released in early February (the extraordinarily long run may have had something to do with crossing the magical $200m mark, as when it finally did, Sony pulled it).

When the Coronavirus pandemic started to affect cinema audiences and close locations domestically, Universal decided to do away with the 90-day agreement and launch 'The Invisible Man,' 'Emma,' 'The Hunt,' and 'Trolls: World Tour' as a home streaming rental for as much as $19.99. This infuriated the theatre chains, but the jury was out on whether the experiment would be a success.

Yesterday, Universal reported that it had indeed been a great success. 'Trolls' brought in over $100m in streaming rental revenue in just three weeks. Traditionally, studios only get to keep 55% of a cinema ticket. For premium streaming rentals, that jumps to an 80% share. So, for every $19.99 online rental of a film, the studio can expect to see $15.99 in revenue. For a US average cinema ticket price at $9.26, the studio would only see $5.09 (on average). For the studios, that means one streaming rental is worth three cinema tickets. 

NBC Universal CEO Jeff Shell told the WSJ: "As soon as theaters reopen, we expect to release movies on both formats." Shell's positioning is that cinemas are no longer the dominant player in a release strategy, and may at best be equal to streaming rentals.

The report in the WSJ characterized theatre owners as accusing Universal of “taking advantage of the pandemic” and promised a return to “normal” business practices. The National Association of Theater Owners (NATO) President and CEO John Fithian waived away the performance of 'Trolls'  and said: "a limited number of exceptions doesn’t really make a changed business model."

AMC, the largest theatre owner in the world (also parent company to Odeon in the UK), did not agree that things would be going back to normal if Universal kept up their strategy. In a letter published by the trade press, AMC's CEO Adam Aron told Universal: "This radical change by Universal to the business model that currently exists between our two companies represents nothing but downside for us and is categorically unacceptable to AMC Entertainment, the world’s largest collection of movie theatres."

Then AMC dropped the bomb: "It is disappointing to us, but Jeff’s comments as to Universal’s unilateral actions and intentions have left us with no choice. Therefore, effectively immediately AMC will no longer play any Universal movies in any of our theatres in the United States, Europe or the Middle East. This policy affects any and all Universal movies per se, goes into effect today and as our theatres reopen, and is not some hollow or ill-considered threat. Incidentally, this policy is not aimed solely at Universal out of pique or to be punitive in any way, it also extends to any movie maker who unilaterally abandons current windowing practices absent good faith negotiations between us, so that they as distributor and we as exhibitor both benefit and neither are hurt from such changes. Currently, with the press comment today, Universal is the only studio contemplating a wholesale change to the status quo. Hence, this immediate communication in response."

Today, Universal responded to AMC's threat: "...as we stated earlier, going forward, we expect to release future films directly to theatres, as well as on PVOD when that distribution outlet makes sense.," and added that they are "disappointed by this seemingly co-ordinated attempt from AMC and NATO to confuse our position and our actions.”

What Universal is claiming here is that the industry trade body NATO had coordinated with the largest member AMC on a synchronized response. "NATO and AMC did not coordinate those statements in any way," said NATO in a hurriedly released statement. "Unfortunately Universal has a destructive tendency to both announce decisions affecting their exhibitor partners without actually consulting with those partners, and now of making unfounded accusations without consulting with their partners.”

Over in Europe, the equivalent trade organization the International Union of Cinemas (UNIC), issued a statement backing up their North American counterparts: "This combination of unusual circumstances should not be used as a reference to re-design a longstanding and proven release business model, which remains crucial in ensuring the ongoing availability of films to the benefit of audiences."

If AMC turns down exhibition of 'No Time To Die' and Universal's other big moneymaker Fast & Furious, they could be cutting off their nose to spite their fate. Before the Coronvirus pandemic hit, industry analysts suspected AMC may struggle to avoid bankruptcy. The global crisis has done nothing to improve their odds.

'No Time To Die' may or may not be affected by these developments. As the Bond film is not actually a Universal film (from the studio perspective), and Universal is merely distributing it, both parties could argue an exception and release as normal but still hold their grounds on Universal titles.

One may assume that MGM ultimately has the power to decide for Universal on how it will be released in the international territories. It is incomprehensible that Universal could release 'No Time To Die' as a premium streaming rental day & date as a cinema release internationally, but United Artists Releasing keep to the traditional 'only in theatres' model for North America.  

Doing the maths, if MGM and Universal were aiming for 'No Time To Die' to have a $1b global box-office,  that would roughly equate to $550m in revenue for the studio in a traditional theatrical release model. If the film was to be released as a premium streaming rental at $19.99 globally, it would have to sell to 34.4 million consumers to earn the same profit. That may seem like a lot, but 'Trolls' clocked up 5 million sales in just 3 weeks with little marketing of the change in release strategy. It is also only a fraction of the number of people that would have to physically go to a cinema to earn the same profit. 

Ask yourself this: do you think 1 in 3 people who were planning to go to the cinema to watch 'No Time To Die' would pay $19.99 to stream it at home? If the answer is yes, the future of 'only in theatres' is in doubt. This may be our new normal.

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