NBCU's 'Trolls' Play: Stars Want Pay, But Will Studio Make Any Money?

Trolls: DreamWorks Animation LLC/Universal Pictures. Shell: Todd Williamson/Getty Images.
NBCU CEO Jeff Shell expressed his excitement about the on-demand revenue numbers for 'Trolls World Tour.'

As Justin Timberlake looks for backend and theater owners brood over the tentpole, rivals  think profit may be out of reach: "They probably overhyped it."

Universal's experiment with releasing Trolls World Tour on demand in the midst of a pandemic has been full of surprises. For starters, NBCUniversal shocked theater owners by not notifying them in advance that it was going to offer this title on demand. They reacted badly to the perceived attack on their traditional windows. But the studio also caught its own talent off guard when it revealed early premium on-demand plans for the animated tentpole.

Sources tell The Hollywood Reporter that the Trolls sequel's top voice stars, including Justin Timberlake and Anna Kendrick, also were not informed ahead of the March 16 announcement that the film would be available to rent for $20 online. This is not the sort of surprise such people usually like, and it's a sensitive matter because compensation for big stars in animated films is largely tied to box office bonuses. The stars' reps are now asking for them to be paid, no doubt to the tune of seven figures, but they were still game to publicize the film.

It also may surprise many people that despite NBCU's boast that the Trolls sequel has scored almost $100 million domestically from the on-demand release, the movie is still millions in the red and, in the opinion of some industry veterans, may never make a dime. (A source with firsthand knowledge of the studio's thinking says that despite the doubters, Universal believes it can make $40 million or more in profit from all revenue sources.)

But the untested proposition in this on-demand experiment is what happens to revenue from later windows, including the all-important overseas box office in countries where on-demand is not yet a big business, as well as subsequent electronic and DVD sales. "They probably overhyped it," says Hal Vogel of Vogel Capital Management. "But like most people in the business, they haven't had a lot of success in the past two or three months, so any ray of sunshine helps."

Other observers note that NBCU CEO Jeff Shell expressed his excitement about the numbers in a Wall Street Journal interview that was followed a couple of days later by an ominous April 30 earnings call in which he said the company was looking to cut costs "pretty aggressively."

Whatever happens, a critical point is that the Trolls release is a unique experiment from which limited information can be extrapolated. It had a budget of about $100 million or more and benefited from a big-movie marketing campaign, complete with promotional tie-ins, that cost the studio more than $35 million in the U.S. alone. But Universal won't be running this type of experiment with the next Fast & Furious movie; the budget is too big and the potential box office return too great. (The last film grossed $1.2 billion worldwide, a number that cannot be generated from $20 on-demand rentals.)

In the Journal interview, Shell horrified theater owners by declaring the Trolls experiment to be such a success that NBCU plans to release movies "on both formats" when cinemas reopen. He didn't say on the same date but theater owners, who want no change at all to the exclusive theatrical window, weren't going to wait for details. AMC Theatres CEO Adam Aron issued a threat to boycott Universal's films and said that the conglomerate was trying to "have its cake and eat it too" with the on-demand play.

Universal quickly issued a clarification expressing the studio's support of theaters, but its policy remains unclear. Given that Universal knows it needs theaters, it is fair to assume that Shell in his interview was firing off an ambiguous but aggressive salvo in a negotiation aimed at shortening the period between the usual time a movie is released in theaters and the time it can be made available on demand.

As for the ultimate success of the Trolls experiment, the jury is way out. It's well-situated to break through clutter as a piece of intellectual property already familiar to audiences. The premium on-demand release seems to have been the best strategy the studio could have pursued given this specific set of circumstances. Some observers think the win for Universal is that it taught many consumers who would not ordinarily have thought about paying a premium price to watch a movie on demand to try it for the first time.

And Universal keeps a bigger percentage of revenue from on-demand than it would from the box office; on the minus side, there are the questions about revenue from other sources, including overseas markets. (The film was offered on-demand only in the U.K. and a few other places.) The original Trolls grossed $154 million domestically, but $193 million overseas. Exploiting the movie theatrically in some markets, like Latin America, will depend on the chains opening and on theater owners agreeing to play it. Cineworld, which has a major presence in that important market, has also said it will boycott Universal films in reaction to Shell's comments.

A veteran theater executive who runs another chain says he has no doubt that major overseas distributors will see Trolls as a relatively easy opportunity to punish the studio. Then there is the question of subsequent sales of the movie. Universal is following the normal course, which is to put a film on sale electronically as early as 74 days after it opens in theaters, or in this case on demand. Trolls (available for electronic purchase June 23) will cost the standard $19.99, the same amount Universal charged for the premium on-demand rental.

A couple of weeks after that, as is standard, Trolls will be made available on DVD and to rent digitally for roughly $5.99. "I don't think they'll completely cannibalize [sales]," says the head of another entertainment company, "but whether it's 5 percent or 50 percent, I am certain that their ancillaries will be less valuable." As for the stars, the original deals for Trolls were struck a few years ago, before on-demand was a real business. Talent reps are not happy with the on-demand strategy, because they won't get the relatively transparent box office numbers. (Bonuses would have kicked in when the film reached $350 million.)

Studios "don't have to show you the VOD numbers, so you're completely relying on them," says a person with firsthand knowledge of the Trolls situation. But this source expressed confidence that the issue will be worked out. "The lawyers will talk on both sides and come to a number," he says. "It doesn't behoove them to look like they're short-shrifting talent."

Pamela McClintock contributed reporting.

This story first appeared in the May 6 issue of The Hollywood Reporter magazine. Click here to subscribe.