The Broken Theatrical Window Theory
And other essays on the future of tv & film
By King Williams
Welcome to my freemium newsletter by me, King Williams. A documentary filmmaker, journalist, podcast host, and author based in Atlanta, Georgia. This is a newsletter covering the hidden connections of everything in the world of Atlanta from urbanism to politics and entertainment.
Today’s article is about theatrical windows and their effect on the greater movie industry.
The coronavirus is accelerating and eviscerating the future of entertainment.
In the last 30 days, we’ve seen more change to the distribution models of the film industry than we’ve seen in 30 years.
It started 8 weeks ago, with (the Comcast owned) NBCUniversal, announcing that several of its films currently in theaters like Invisible Man, The Hunt, and Emma would be made immediately available via Premium Video-On-Demand (PVOD).
All the films would be playing exclusively at home for 48-hours for $19.99 via cable and digital marketplaces such as iTunes, Amazon, and Google Play. The biggest film, the 3D animated sequel Trolls: World Tour, is available at home, and on (PVOD) on April 10th. Warner Bros. has followed this trend as well and is releasing its animated film Scoob this Friday via PVOD.
This was followed up by NBCUniversal shocking the industry by immediately taking multi-billion dollar franchise films, Fast and Furious 9 and Minions 2: Rise of Gru of the 2020 calendar altogether, moving them into 2021.
Other studios have already followed suit as Sony Pictures has moved their entire slate of films to 2021. While Warner Brothers have moved several films as well, including Wonder Woman 1984 from June 5th to August 14th, and Paramount has moved all of its films to the fall/winter of 2020, starting with A Quiet Place 2 which was originally scheduled to be released on March 20th, to September 4th, Labor Day weekend this year.
Disney, the biggest player in the theatrical business is stuck between two worlds
Disney, the largest traditional entertainment company in the world, around the same time in early March announced that it would be releasing its then-latest film from Pixar, the 3D animated film Onward via PVOD on Friday, March 20th, two weeks after it debuted in theaters on March 6th (near the time of the US outbreak of coronavirus) and on its own streaming service, Disney+, on Friday, April 3rd.
This was a one-two punch as Disney also announced during that time, that its $1.4 billion grossing, Frozen 2, would be eschewing most of its home video sales and rental windows, as well. A sales window that started February 27th, but was abruptly made available 17 days later on its own streaming service, Disney+, on Sunday, March 15th.
While parents and Pixar fans applauded this move, Disney will be writing down losses of potentially billions of dollars in direct revenue. This was due to a loss of box office revenue, second-fourth tiered release windows, diminished merchandising opportunities, and its highly profitable theme parks, despite maintaining over 55 million satisfied customers of Disney+.
Theatrical Windows pay the bills, period.
Windowing is the period between watching a movie in theaters and even when you can home or (on your phone, legally).
Windowing refers to the agreements between the studios and third parties regarding the distribution and exclusive release ‘windows’ of a mainstream film. Starting in theaters, moving to home video, then to on-demand channels, rental services, streaming services, and cable/local television.
The changing power dynamics between studios and theaters have been going on for the better part of two decades. The last 60 days have seen some of the biggest changes in windowing in decades, as studios are using the downturn due to the coronavirus as a test case for a DTC (direct-to-consumer) future.
Looking at the last 20 years of attendance figures, the number of tickets sold in North America peaked in 2002, when cinemas sold about 1.6 billion. In 2019, attendance totaled roughly 1.2 billion, a 25 percent drop — even as the population of the United States increased roughly 15 percent. Cinemas have kept ticket revenue high by raising prices, but studio executives say there is limited room for continued escalation.
Offerings in theaters may also grow more constrained. Even before the pandemic, major studios were starting to route smaller dramas and comedies toward streaming services instead of theaters.
Due to declining attendance (while increasing profits), the proliferation of smartphones, video games, social media has affected movie theaters. But has been gasoline thrown on them all with the rise of the ‘streaming wars’ between the studios (and Netflix) over the last 5 years. Studios need the direct cash flow the box office provides and theaters need the continual customer base to sell more concessions, memberships; etc.
The reason why you pay $7 for popcorn
The reason why you pay $7 for popcorn and $6 for an obscene amount of soda is that that’s where the theater makes its money. The box office split is roughly 50/50 on ticket sales between the studios and the theater, leaving the theaters to focus on concessions as the primary driver of profits.
For the theaters that 50% split is going primarily to insurance, staffing, maintenance, utilities, security (digital/real life), payment processors, tech staff, and management. Movie theaters only make money, when the studios make money, it’s been a mutually beneficial relationship for nearly a century, until recently.
For theaters, the longer a film plays, the more theaters are able to monetize concessions, memberships and gift cards, etc. But this is at odds with studios, as the longer the film plays, the less box office revenue comes in for studios, due to lower theatrical attendance. This is compounded by the fact that upwards of 75-90% of maximized revenue of a film comes within the first 5 weekends (or 31 days) of release at the box office.
Then considering most films don’t last longer than 5 weeks at the box office, every customer transaction matters for studios. And it’s because of this that studios have adapted a 90-day theatrical window, a middle ground between theaters and studios. And that window has been slowly eroding since the mid-2000s, collapsing faster each year. Even when factoring deals with streaming services, premium cable, standard cable, and network tv, for studios the numbers don’t typically add up financially without a theatrical run.
Analog dollars beat digital dimes
Consumers, in my opinion, are not willing to spend the price it actually takes for studios to recoup their investments on projects.
Even for lower-budget films, back in 2011, NBCUniversal tried and ultimately rescinded a plan to make the Eddie Murphy-Ben Stiller comedy Tower Heist available to customers for $59.99 at the same time it was to premiere in theaters. Theaters balked, those in the industry scoffed at the price and there was little interest in the film, to begin with, but NBCUniversal was correct to start thinking this way even if the price was too high.
Fast-forward to March 2020, NBCUniversal has now set the new standard for premium video-on-demand with their slate of films immediately made available, including Trolls: World Tour and Invisible Man, both playing for $19.99 and available for 48-hours. The 48-hour window and $19.99 price point for these films has been criticized as too expensive and considering the current marketplace, all of these films will most likely be write-downs amounting to billions of dollars in losses. The 48-hour window and $19.99 price point for these films has been criticized as too expensive and compared to Netflix, the perceived value wasn’t the same for customers.
For the studios going DTC produces really three problems:
1) overtime devalues the value of the product, movies are competing at the price of free (social media/podcast/tv) and distracted viewership at home from all of these other forms of media
2) the costs to go DTC currently isn’t commensurate to the analog business models and
BONUS: Theatrical runs actually makes a film more of a success because of 2nd-5th tiered windows. And before you say ‘good’ or ‘Netflix’ is $10-a-month, there’s a couple of things to know about that…
The Netflix argument is misconstrued and here’s why
Netflix is still a buyer of content, and only has one source of revenue, subscriptions.
Netflix’s strength is based solely on its first-mover advantage, specifically in the public’s perception of being the only streamer in the marketplace for nearly 10 years. It also benefits due to its inflated stock price and access to cheap capital, allowing the company to have multiple financial opportunities a traditional media company wouldn’t. Netflix calling itself a tech company vs a media company also allows it to trade at higher multiples on the stock market, giving it access to more private equity and allowing the company to raise debt in ways a traditional media company could never.
This has allowed Netflix to build a moat of video content on debt, which currently stands around $15 billion and the company is actively raising more as of the time of this article. Netflix is burning all of the cash they bring in by increased funding more originals and licensing shows/movies, to the tune of $17 billion this year alone.
This Amazon-esque strategy allows the company to stay ahead of rivals by spending more than anyone on its core business. Netflix and other streaming companies are already billions in combined debt, with the hope that one day revenues will eventually be enough to cover losses. This amortization of spending and raising obscene amounts of debt to keep the company afloat is a risky bet for any streaming service, Netflix included.
A misunderstanding of streaming vs theatrical vs DTC
Current direct-to-consumer (DTC) models still rely on big transactional checks to keep things afloat.
Netflix wins out in the court of public opinion most because for consumers it’s the closest price point to zero.
When it comes to theaters because it’s one of the few businesses that are priced relatively correctly to the cost of doing business and to cost of bringing in profits necessary to keep things afloat. Most consumer-facing companies typically are offering goods and services at break-even or at a slight margin. That works fine when you are a fast-food company or fast fashion but not when you are a movie theater. That’s because (depending on age/race) a theater may only see a customer only 5 times a year, and this has less to do with ticket price than it does with sprawl, age, race, and gender (more on that tonight).
Movie theater’s value proposition is closer to live events, which include concerts, traditional theater, and sports. All of which are selling a communal viewing experience, technical exhibition prowess, and single event. But despite this value proposition, the actual business model of theaters is closer to gas stations, which relies on concessions (Pizza/Alcohol/Candy), and premium memberships (QT Card/AMC Stubs), to monetize visits.
So what does this all mean?
There’s no telling how the theater business is going to be post coronavirus but we do know for sure that it’s already changed. If and when, there is a viable solution to keeping everyone safe from the coronavirus, there will be some changes.
1) Theatrical windows will get shorter. 90 days is too long, but 30-50 days seems likely. Studios need the cash and streaming is still not cost-effective yet.
2) Movie prices will change. Whether it be a tiered system for blockbusters vs indies, it’s possible, as well as an expansion of something similar to AMC’s widely popular $5 program.
3) Movie theaters will have to get into sports and live-streamed events.
4) Movie theaters will have to go all-in on the premium experience on one end and the basic, no-frills, dollar movie theater experience on the other.
5) More packages for cheaper food, even BYOB/BYOF in lieu of lower ticket prices could be on the table.
6) Partnering with more film festivals and streaming companies for a unified home-IRL experience.
All of these may come sooner than later, as our future overlords at Amazon are considering buying AMC theaters with the change in the couch. If you want, you can read about that later tonight.
I hope you enjoyed this article and please let me know your thoughts!
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