A landmark deal between the U.S.’ biggest theatre chain and one of its biggest media companies sent shock waves through the film and entertainment industry. Anthony Okolie speaks with Andriy Yastreb, Telecom and Media Analyst at TD Asset Management, about how these decisions could reshape streaming video services.
- Several changes that impact the movie theater industry happened in recent weeks. First, AMC and Universal struck a landmark distribution deal. And the second, Disney decided to move a major movie release, Mulan, to streaming premium video on demand. Joining me is Andriy Yastreb, telecom and media analyst with TD Asset Management, to talk about the implications of these decisions for the film and entertainment industry. Andriy, first talk to us about the Universal and AMC deal. Specifically, what does this mean for new movie releases and premium video on demand, or PVOD?
- Hi, Tony. Thanks for having me. So as you noted, a few weeks ago, Universal and AMC announced a big deal where they decided that for some movies, Universal will have an option to shorten the theatrical window to just 17 days, so roughly three weekends. And they will basically have an option to do that, and that is granted by AMC.
It's a big change for the industry, because historically, the exclusive theatrical window would run up to three months, not three weeks. And after that only, movies would move to DVD and other distribution channels. So this deal means that a lot of movies will show up on digital platforms a lot sooner than they used to.
- And so from a consumer's perspective, why might video on demand be an attractive option versus going into the movie theaters?
- Well, first of all, for a lot of customers, it will be a lot cheaper. If you think about a family of three, you going to movies means spending $30 or so on tickets, plus $10 or more likely $20 on popcorn and drinks. So if you go to movies, it's about $50 or more an expense. If you decide instead to rent a movie as it's available on PVOD platform, those rentals are usually $20 or $30 for two-day rental.
And obviously, large family will be able to save money. And then there's also another aspect of it that when you watch a PVOD movie, you can watch it from your cell phone in your living room. And during COVID's environment, obviously it means that people don't have to get exposed to potential danger, right, when they would go to movie theaters.
- And as you mentioned, this deal signals a significant change in the way we view movies. Why did AMC do this deal now?
- Well, I think the main trigger was COVID specifically because obviously a lot of movie theaters were closed. There's still uncertainty of what will happen later as a potential second wave. And AMC looked at it as an opportunity to get another revenue stream because they both share some of the revenue from PVOD rentals. Second part of it is that the 17-day option for exclusive theatrical windows, that's just an option.
If a movie is doing really well in box office, then Universal will continue to have that movie in the movie theaters. And finally, the point is that, historically, about 70% or 80% of revenue from box office was generated within the first three weeks of a release of a film, and the consumers want to watch it when it's new. And that implies that from that perspective, AMC is not giving up that much in this deal.
- And what about Disney? Because we hear a lot about Disney and its streaming channel. Of course, it's going to be releasing its live action Mulan film through its streaming channel Disney+ for an additional fee. Do you see them pursuing a separate strategy or different strategy from Universal?
- I think in this case, Disney is just testing the waters and trying to see how things can develop in the PVOD world. So Mulan was originally scheduled to be released in March. It was delayed and now will be released as PVOD on Disney+ platform. And from Disney's perspective, a movie such as Mulan would historically have a box office revenue in total of about $500 million, plus/minus. And Disney would get slightly more than half of that, and the other half would go to the movie theaters.
In this case, Disney is pricing it at $30 pay-per-view in the US, and Disney has already over 60 million Disney+ subscribers. So if, let's say, 10 million of those subscribers choose to watch that movie, that means $300 million of gross proceeds to Disney, which would be quite similar to what they would get from movie theaters.
And that's an interesting option for Disney here because if there's more than 10 million subscribers that pay $30 to watch this movie as it gets released on digital platform, then there's potential upside for Disney to make more money relative to release the movie into theaters. And if that's the case, then over time, we'll see more movies being released digitally versus released in theaters.
- So I think that leads me to my last question. So given what we know today, what's your outlook for theater stocks, movie theater stocks?
- Well, I think there are several interesting impacts here. So in the short term, we obviously have the impact from COVID. And in areas that were most impacted by COVID is that movie theaters were among the first ones to be shut down, and they're also among the last ones to be reopened because they are not really essential businesses. So there's a lot of uncertainty in the short term.
And from long-term perspective, I think another really important development here, that the balance of power within this relationship between movie theaters and studios is changing. So studios realize that they can release profitably movies on digital platforms and make some relatively similar money to what they were making in box office, so they don't rely on movie theaters as much as they used to.
But the opposite is true for theaters. They still rely on new movie releases. And without new movie releases, they cannot attract the crowds that they used to have. So I think overall what we will see is that we will see more volatility in the short term, and it will depend on how the situation with COVID develops, if you have some second wave or not.
But another part of it is that over time, there is a issue with changing power within this dynamic. And for now, we have some good news because more movie theaters in North America have been reopened in recent weeks and in coming weeks as well. And on top of that, the demand from consumers so far seems to be quite positive.
- Andriy, thank you very much for your time.
- Thank you for having me, Tony.