Premium VOD Paralysis Reflects Poorly on Studios, Exhibitors (Analysis)

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It’s been a rough summer for the movie business. Box office for the season is down by double digits versus last year, and by single digits year-to-date. Exhibition stocks are getting hammered. And some analysts believe the third quarter of the year could be just as woeful.

Which makes recent reports suggesting the major studios are considering striking a deal to launch a premium VOD window with Apple and Comcast as soon as two weeks after titles begin their theatrical run entirely understandable.

The studios and exhibitors have been bogged down in negotiations that seem to have intensified in recent months, yet go back seven years without resolution. Yes, this is a complex situation, but it’s not the Middle East peace process, either. It’s well past time a deal got done for the sake of both of their struggling businesses.

Instead, we have this absurd new two-week proposal being floated, which just isn’t going to happen. Exhibitor backlash would be swift, perhaps in the form of the kind of boycott that could kill a movie before it ever appeared in homes. If the bulk of negotiations with the exhibitors has centered around 17- to 30-day windows, an even shorter duration is an even bigger non-starter.

The Apple/Comcast report seems like pure posturing — a flare sent up from the studios to signal their frustration with the stalemate. With AMC Entertainment and Regal Entertainment trading near 52-week lows, the time is now to put pressure on the exhibitors.

That said, both sides look equally pitiful right now. How much worse must it get for this dysfunctional duo to come to their senses and reach a deal? How much longer will executives continue to issue updates on negotiations in which progress never seems to actually get made?

All that’s been accomplished to date is negligible experimentation responsible for a smattering of select movies available in a post-theatrical window (anyone remember “Tower Heist”?). All the while, the home entertainment business that once provided a comfy cushion for the studios has shrunk significantly with no hope of ever coming back as the digital alternatives pile up.

Those alternatives are only going to get stronger as Netflix and Amazon move beyond just licensing theatricals in later windows to cranking out dozens of their own original titles. These efforts may still be nascent today, particularly for Netflix, but don’t be surprised if the streaming service catches up quickly to Amazon, which has taken a more exhibition-friendly approach than Ted Sarandos ever will.

Apple could also eventually join Netflix and Amazon as a threat, but for now, the studios have cast the Cupertino colossus as a PVOD savior. Accelerating the window on movie transactions doesn’t have the importance of, say, iPhone 8, for Apple, but it’s not a trivial matter, either. Coming days after the company made clear its intent to spend $1 billion on original programming, premium VOD would provide just the kind of boost Apple needs to follow through on CEO Tim Cook’s pledge to double the size of the services business in which its content-related efforts are house by 2020.

iTunes has seen its dominance of the transactional content business it pretty much invented seriously eroded by alternatives like Comcast. If ever there was a catalyst to revitalize iTunes and reach the goal Cook set, it’s premium VOD. It’s not going to be singularly transformative, but in combination with original series, that’s a terrific one-two punch it’s been lacking for over a decade.

Comcast probably sees the potential premium VOD can bring to its own Xfinity platform, but there’s a helluva wrinkle here: The company also owns a movie studio, Universal Pictures. Let’s see Comcast synergize its way out of that one.

Universal or otherwise, there is no way any studio is going to have the cojones to follow through on the two-week proposal because of the fear of exhibitor reprisal. Diminished as the box office may currently be, studios would be foolhardy to attempt the nuclear option such a runaround would represent. NATO has proven its pugnacity time and again; it doesn’t need an excuse to start a fight.

Studios and exhibitors have been signaling all year to the marketplace an intent to work something out. The ‘whither PVOD?’ question has hung in the air so long that the absence of an answer doesn’t reflect well on either side of the negotiation table. And still they’ve sat locked in a starting content for so long that they seem blind to the pressure building all around them.

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  1. Steve says:

    Less and less reasons to visit a movie theater.

  2. Mark F Brack says:

    Being a former theatrical film exhibitor – I am so thankful I DON’T own a theatre these days. Blame the old Paramount Consent Decrees for the current high cost of movie tickets. A strong argument can now be made that the studios should be allowed to vertically integrate and own movie theatres again. The best way to see a movie is still in a World Class theatre – not on a home screen – no matter how big it is in the house. Most of us, if not all of us, can’t have an IMAX sized screen and sound system in our home. What the studios need to realize is – if you keep making product that sucks – or is a repeat of the past – no one will be willing to A) shell out $’s for it at a theatre or B) pay $30 bucks for it in a PVOD format. Hollywood has no one else to blame, then themselves, for the current state of the moooovie industry. Reed Hastings of Netflix says theatres have not changed in the last 40 years – really Reed? Theatres are the reason all films are now released in stereo – 40 years ago it wasn’t Netflix that caused a paradigm shift in film soundtracks and their quality. On that note what the heck has Netflix done to improve the movie watching experience? With Netlix and PVOD you have to provide your own screen, sound system, chair and popcorn as well as the device to stream the damn film too…………… As for me I intend to boycott Netflix and support Amazon and theatres…………………..A great film is reduced to something less than a movie when exhibited on a home screen, or IPhone IMHO!

  3. billthom56 says:

    Come on folks, this isn’t that complicated. Good movies, 30 day window before premium Video on Demand, 2 year experimental window, 3 year experimental window of you want to line up the studios agreements with the entertainment labor unions. As Andrew Wallenstein points out in his excellent analysis, the studios and the tech companies have been talking about this for what seems like forever. If we don’t try this experiment now on a full slate of releases at different price points for a reasonable length of time, the window of opportunity will have passed us by.

    Look at what Amazon and other online sellers do with books– variable and promotional pricing works.

    The time to move on this is this fall.

  4. Nathan Boyle says:

    A wild-card that could have an underlying impact on many of the digital channels is the accelerating effort of broadband providers (wireless and land-line) to throttle video content, squeeze higher profits out of data limitations, etc. Verizon today is launching what is being decried as a step too far in capping the quality of video across devices. These broadband providers will eventually demand more money from consumer to distributors alike. Rest assured a Netflix or Amazon will then take that blunt object back to studios and others when it comes to paying for content. As likely will be broadband providers attempting the usual and failed path of reviving their own VOD business as a preferred delivery channel for studios, offering higher quality/faster delivery by not going with a Netflix or Amazon. The only thing for sure in all of this is years of chaos, consumer resentment of the broadband providers and diffusion of consumption across wider and price variable channels as people see cheaper and less complex ways to get what they want.

  5. Steven S. says:

    It’s about the economy stupid. The middle class has disappeared. The reality is, the average American can no longer afford to go to movies regularly when tickets are $15 – $18. (Plus $12 for popcorn and a drink.) Most people don’t have that cash to spend more than an occasional outing. Any nobody can afford to bring the family. Movies are now like live theater. Entertainment for the wealthy and upper middle class. It’s the same reason so many mid-price restaurants have gone out of business. When theaters lower ticket prices, people will return. The longer it takes for that, the more people will be used to getting their entertainment elsewhere.

  6. George says:

    Movie-goers will not pay $30 or $50 unless it’s for opening weekend. Theaters will not allow that. Case closed. Move on.

  7. harry georgatos says:

    The content at the end of day stinks. 98% of content won’t survive the test of time. Basically what we have now is disposable entertainment that people watch once or twice and is immediately forgotten. One can come up with all the platforms to exhibit movies but at the end of day it comes down to the excellence of content that will determine if one survives or crashes.

  8. Mr.Mike says:

    There seems to be a catch-22 here, because if the studios push the PVOD window way past two weeks, say to a full month, the customers have already forgotten the theatrical marketing push and are probably not willing to front even $30 for the title.

    A two week theatrical window followed by a high-priced PVOD (high enough that the lower priced theater seats would still be an alternative) would be a win-win-win, in my opinion, as it would get even those folks who are unwilling to go to a theater, but still want to be part of the new release phenomenon / talks at the watercooler.

    The theaters could also simply go to a new two week turnaround window. If new movies are pulled after two weeks to go PVOD, the theaters could show more new movies made by Hollywood, each generating peak revenue for the first two weeks. More movies made & shown, more revenue generated, everyone is happy.

  9. Matt H says:

    AMC & Regal have significant leverage that pretty much guarantees they can can’t pass films. If they pass they break loan covenants causing defaults.

    The studios have not been this powerful since the last wave of chapter 11 bankruptcies. Will the studios use that power this time is the question?

    Just imagine AMC passing Star Wars or Avitar… Let the game of chicken begin…

  10. Alex says:

    Content is always king, and the quality of the content, with the exception of a handful of films, just hasn’t been there this summer. The fall should be better for both studios and exhibitors because there are actually some titles that people will want to leave their house to see(“(“It”, “Blade Runner “, etc.). But the price of going to a movie has become ridiculously high and that is also a reason people are choosing to stay home and watch Netflix. People are being more picky about what they’re willing to see at a theater. Moviepass is a good start, but the price of going out to a movie will have to come down and the quality of the movies wil have to improve to get attendance back up.

  11. Kinoeye says:

    Maybe if the Studios put out content that was worth $30, this would make sense. They seem to be forgetting that in all this rush to find new ways to exhibit, what they’re exhibiting is 98% junk that no one wants to buy, even if it’s in the Walmart bargain bin.

    • Ron says:

      I agree with Kinoeye , no good subject reaps no good dollars also the movie industry and it’s actors hate the american people who voted for our POTUS , they resist him so we resist the movie industry their are more of us then you guys , do you really need to be told this is why , actors stand and say nothing good and really expect us to support them back in movies , no way they started it with all their big ugly mouths. .

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