NBCU CEO Addresses 'Trolls' Theatrical Window Controversy, Calls Premium VOD "Complementary"

"I would expect that consumers are going to return to theaters," and PVOD will be part of the film environment as a "complementary" element, says Jeff Shell as Peacock is "pacing ahead" of expectations.

NBCUniversal CEO Jeff Shell and Comcast chairman and CEO Brian Roberts on their first-quarter earnings conference call on Thursday addressed the recent industry debate about Universal Pictures' decision to break the theatrical window for Trolls World Tour amid the novel coronavirus pandemic and other hot topics.

Shell told analysts that a majority of movies are currently being consumed at home, whether people like that or not, and it was "not realistic" to expect that to change right now, even though he said he expects theatrical is "some day again going to be the central element to our business," adding that "is how people make their movies and how they expect the movies to be seen."

The Trolls sequel was "ready to go," and the company had worked on it hard and spent a lot of money on it, and consumers “desperately needed” a family and kids offer.

He said the idea behind the PVOD offer was to "preserve the premium nature of movies," and Shell said he "couldn’t be more pleased with Donna Langley and her team" and their execution, and that the numbers were "really interesting," concluding: "I would expect that consumers are going to return to the theaters," and PVOD "will be part" of the film business as a "complementary" offer, "not a replacement."

Comcast CFO Mike Cavanagh said while recent movies have had digital success, "we will determine our future distribution approach on a title-by-title basis."

Shell earlier this week lauded Universal Pictures' decision to debut Trolls World Tour on premium VOD (PVOD) instead of waiting for cinemas to reopen after the pandemic, saying it could herald a permanent change in how Universal releases its movies. Trolls World Tour reached an estimated $100 million in on-demand rentals in its first three weeks in North America, more than enough to put the film on the road to profitability, according to the conglomerate. The figure was also not far behind the $116 million grossed by the original Trolls movie in its first three weeks at the 2016 domestic box office on its way to reaching $153.7 million in the U.S. and Canada, not adjusted for inflation.

"The results for Trolls World Tour have exceeded our expectations and demonstrated the viability of PVOD,” Shell told The Wall Street Journal. “As soon as theaters reopen, we expect to release movies on both formats.”

The National Association of Theatre Owners responded by saying the outcome should not be interpreted as a sign of a “new normal” for Hollywood. “Universal does not have reason to use unusual circumstances in an unprecedented environment as a springboard to bypass true theatrical releases,” said NATO president and CEO John Fithian. "We are confident that when theaters reopen, studios will continue to benefit from the global theatrical box office, followed by traditional home release."

AMC Theatres, the world's largest cinema chain, said Tuesday that it will no longer play any of Universal's films in the wake of Shell's comments. "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 theaters in the United States, Europe or the Middle East," AMC chairman and CEO Adam Aron wrote in a letter to Universal Filmed Entertainment Group chair Langley.

Exhibition giant and Regal owner Cineworld on Wednesday also weighed in, with CEO Mooky Greidinger saying, "Universal was the only studio that tried to take advantage of the current crisis and provide a ‘day-and-date’ release of a movie that was not yet released."

Roberts said Comcast is trying to use the virus crisis to take "advantage of the disruptions and [look] where can we re-examine" costs and innovations.

Shell was also asked whether NBCU amid the virus crisis had the right level of expenses, saying his team was spending much time looking at the cost base and expects the company to make "pretty significant" changes over the coming months. He didn't provide further specifics or to what degree cost reductions would include layoffs.

Cavanagh said TV advertising trends will "materially weaken" in the second quarter, partially offset by lower sports costs.

He added that the theme parks unit would have a second-quarter loss of $500 million if parks remain closed throughout the quarter. 

Thursday's Comcast earnings call also included commentary on the recently launched preview of the Peacock streaming service to millions of Comcast customers sheltering at home with access to a trove of 15,000 hours of TV shows and movies.

NBCU executives are hoping that Peacock will thrive during its preview, even without some of its biggest draws. After all, Comcast customers who sign up will have to wait until after Peacock’s July 15 wide launch to watch new originals like utopian drama Brave New World.

"We are already pacing ahead" of expectations on monthly average users and time spent with the streaming service, Roberts told analysts, adding that while it wasn't planned this way. "there may have not a better time to launch Peacock."

Roberts admitted that there will be "substantial operating losses" at the company's theme parks, but added they will benefit from substantial pent-up demand when they reopen. He added that the firm will ensure visitors feel safe and confident to attend them.

Early on the call, Roberts said the virus has caused NBCU, Sky and other units to make "tough, fair and, I think, best decisions" for customers and employees." He said there would be "substantial duress" for the TV, theme parks and film production businesses, while Comcast Cable's broadband business has benefitted.

He also lauded how Sky and NBCU have made Comcast a more global business, saying, "it’s this global perspective that has helped us immensely" amid the crisis.

Roberts also addressed the loss of sports events, saying when they return there will be "so much excitement and enthusiasm" whether stadiums filled with fans or not. He said the loss of sports was a “material event” in Europe as many Sky customers have paused their sports package subscriptions. But he said many European teams are back practicing and could resume playing as early as May, while Comcast is "constructively" talking to its sports partners as it plans for a return to normal.

With construction teams back to work on NBCU's planned Beijing theme parks under updated virus safety protocols, Roberts said the park is currently set to be finished "on time and budget" in 2021.

Cavanagh on the earnings call said instead of detailed guidance, he could only offer "highly caveated commentary" given that the virus pandemic and its impact continue to evolve quickly. 

He said, for video net losses, the company is not seeing trends changing "as we begin the second quarter," while cable systems advertising revenue will be hit harder in the second than in the first quarter as momentum weakened in March.

Cavanagh also said the "significant" virus impact on NBCU and Sky will put pressure on debt leverage ratios, meaning Comcast won't restart stock buybacks this year.