Behind Universal’s Bold Bet to Shorten the Theatrical Window

Behind Universal’s Bold Bet to Shorten the Theatrical Window
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In inking deals with exhibitors to send films to homes earlier in exchange for a slice of premium on-demand revenue, studio chief Donna Langley sees the result as "additive, not the opposite."

Nov. 17, 2020, marks a milestone in Hollywood’s distribution history. That’s when Cinemark Entertainment stunned the town by signing a multiyear deal endorsing Universal’s bold move to create a new premium video-on-demand window in the U.S. that will see movies — both big and small — be made available in the home months earlier than they normally would.

Few thought that Cinemark, led by CEO Mark Zoradi, would agree to such an arrangement beyond the COVID-19 crisis, yet the deal is for three to five years, insiders say. The pact means Universal has two of the country’s largest circuits on its side after this summer’s agreement with AMC Entertainment. The landmark partnerships create a 17-day PVOD window for smaller and midrange Universal titles and — per the "dynamic windowing" deal struck with Cinemark — 31 days for event pictures that debut to $50 million or more at the domestic box office. (Cinemark's terms extend to AMC.)

Some studios, like Universal, have tried for years to shatter the window and charge a premium price for early home viewing, but have always backed off amid threats of theater boycotts. A majority of Hollywood studio titles make 75 percent to 80 percent of their domestic gross in the first three to four weeks, yet until now haven’t been available in the home for 74 days to 90 days. Universal believes PVOD could fill in the gap.

“Here’s what we firmly believe: It is additive, not the opposite. You are enabling someone to see a movie in a variety of different ways. It meets the consumer where the consumer is, and it’s answering the very real and stated desires of the audience,” Universal Filmed Entertainment Group chair Donna Langley tells The Hollywood Reporter.

“I can’t tell you the number of times I leave a theater with my kids, having seen whatever great movie just came out, and because they don’t understand windows, they want to see it again immediately,” adds Langley. “They want to go home and get to watch it. To be able to walk out of the theater and say, ‘You know what, we can see it in two or three weeks at home.’ I think it will drive a lot of transactions.” (Langley spoke to THR before the Cinemark deal was officially disclosed, and didn’t directly address it.)

Neither Universal nor theaters are expected to immediately say which titles are going to PVOD, although it’s widely known that Freaky (Nov. 13) and The Croods: A New Age (Nov. 25) are going to PVOD after 21 days and 24 days, respectively.

Wall Street analysts agree that PVOD could create an important new revenue stream in the U.S., particularly for smaller films or underperforming titles, but say a larger studio title still needs a robust, global theatrical release (again, post-pandemic). “My view on these windowing deals remains positive. It’s a smart move for all,” says Eric Wold of B. Riley Securities.

Collapsing the traditional theatrical window and creating a PVOD window has been an enormous priority for NBCUniversal chief Jeff Shell, Langley’s boss, much as he’s reorganized the TV side to shift the focus away from linear to streaming. And assisting Langley on her end is UFEG vice chair and chief distribution chief Pete Levinsohn, who reports to her. (One hitch: PVOD isn't widely available overseas.)

When Shell boasted in late April that Trolls World Tour, which was immediately made available online in the early weeks of COVID-19, earned $100 million in PVOD transactions in its first three weeks, AMC CEO Adam Aron dispatched a blistering note to Langley threatening to boycott all the studio’s titles. Three months later, AMC and Universal unveiled their new 17-day window initiative. Langley now reveals that “it was a shock for theatrical at the time, but we very quickly got into conversations with them.”

AMC and Cinemark are expected to share in the PVOD revenue. So far, generally, the price for a rental title is $19.99, although Disney charged Disney+ customers $29.99 to watch Mulan. It remains to be seen whether a new PVOD window becomes an industry standard.

Disney and Warner Bros., for example, are prioritizing growing their streaming services by luring customers with high-profile product. And there are other concerns about creating a new PVOD window during a raging pandemic. "We’re not convinced that it is a good enough model to make up for what you lose in theatrical. PVOD will cannibalize moviegoing coming out of the pandemic. People will be leery of doing normal things for a while,” says a rival studio executive.

Other insiders, however, say all of the major studios are flirting with the idea of striking their own PVOD deals with the likes of AMC and Cinemark. The negotiations are complicated by the fact that Universal enjoys "favored nation status" since it was the first to come to the proverbial table.

Surveys conducted by the National Research Group show that early PVOD and theatrical can coexist given that the market is segmented into those who prefer going to a movie theater and those who would rather watch at home. But it isn’t without its risks.

“There is a potential downside to shortening windows at home, creating a slippery slope that lowers the value of a newly released film in the eyes of consumers,” says Ethan Titelman, an executive vp at NRG, adding that streaming competition could push down prices, making it harder to charge a premium in the future. “What happens when the consumer becomes more savvy and decides to wait just a little longer to see a movie they want to watch for less or nothing at all?”

As a result of the AMC deal, Universal is releasing far more movies than any of the other majors, with the combined output of the main studio, Focus Features and DreamWorks Animation.

“We needed to do something, and this was part of the answer. This will evolve beyond COVID-19, I have no doubt. We are being forward-thinking and innovative and thinking of our future, and protecting our storytellers and our filmmakers,” Langley says. “Again, the beauty of the deal is there is the flexibility, title by title, to decide. And once we have data, and we can support strategy with data, we and exhibition are going to get smarter and smarter about it. And, really importantly, the consumer has optionality. They can see a movie in a movie theater, they can see it in a few weeks at home. Or they can do both.”

Outside of Shell's comment regarding Trolls 2, Universal isn't reporting PVOD grosses. Nor are other studios doing so in regards to the movies they've sent to PVOD during the pandemic.

"It isn’t a clear narrative like box office, and is a very different moment in time," says Langley regarding PVOD. "It is a story that has a first, second and third act."

A version of this story appeared in the Nov. 18 issue of The Hollywood Reporter magazine. Click here to subscribe.