Odd Couple

20 Jul, 2015 By: Erik Gruenwedel

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Talk about strange bedfellows. In a move underscoring the rapidly evolving digital entertainment landscape, Paramount Pictures, AMC Theatres and Cineplex Entertainment announced a first-of-its-kind in-theater and digital revenue-sharing initiative that could significantly expedite home digital distribution.

Under the agreement, upcoming Paramount releases, Paranormal Activity: The Ghost Dimension (Oct. 23) and Scouts Guide to the Zombie Apocalypse (Oct. 30) will be given a wide release with the digital home entertainment purchase available 17 days after the film dips below 300 domestic theaters. 

In effect, consumers could get retail access to theatrical movies still showing in theaters.

That’s a big deal — huge, in fact, because until now theaters have been loathe to sacrifice any of their exclusive three- to four-month release window. Indeed, the theatrical window shrunk just five days (to three months, 26 days) between 2013 and 2014, according to the National Association of Theatre Owners (NATO).

Gerry Lopez, CEO of AMC Theatres, said the new distribution strategy allows theaters to engage with consumers throughout the lifecycle of films and meet studio needs while reducing the piracy window.

“This model aligns the interests of consumers, filmmakers and exhibitors to maximize the theatrical experience first and then enable legitimate digital access,” Lopez said in a statement.

So why the change of heart?

Money.

AMC, Cineplex and other exhibitors will receive a percentage of any of the studio’s digital revenue for the period of digital availability through 90 days from the initial U.S. theatrical release, with each exhibitor’s share proportional to its theatrical gross market share. Paramount said it is in discussions with other exhibitors and will offer them a similar arrangement for these two films.

“Paramount’s willingness to cut the exhibitors in on the revenue was a surprise, but makes sense because they are getting something that could impact the exhibitors,” said Michael Pachter, senior media analyst with Wedbush Securities in Los Angeles. “I thought it was an especially creative solution to the problem, and a good compromise.”

Pachter is quick to note that the deal does not include packaged media. Also, digital access only becomes available when the title has lost significant box office appeal. With most movies generating the bulk of their ticket sales in the first few weeks of release, and consumers increasingly confronted with alternative on-demand video entertainment options, the length of the theatrical window seemed antiquated — and political.

“It appears to me that Paramount is trying to capitalize on pushing the release of digital sales, while being sensitive to the concerns of exhibitors to minimize cannibalization of ticket sales,” Pachter said.

‘Tower Heist’ Debacle

The biggest fallout between a major Hollywood studio and the theaters occurred in October 2011 when Universal Pictures Home Entertainment attempted to offer robbery comedy Tower Heist on premium video-on-demand in select markets just 21 days after its theatrical launch.

The ‘PG-13’ movie featured an all-star cast of Eddie Murphy, Ben Stiller, Casey Affleck, Matthew Broderick, Tea Leoni, Alan Alda, Michael Peña and Gabourey Sidibe, among others. It was slated for nationwide release in 3,800 theaters.

Cinemark Theatres responded quickly, vowing to not screen the movie if released three weeks later digitally. Facing a boycott by two of the nation’s largest theatrical chains and condemnation from NATO, Universal quietly scuttled the PVOD launch, effectively killing the format.

Fast-forward to the present, and Paramount says its strategy is an effort to work with exhibitors to both grow revenue in a rapidly evolving entertainment environment and to maintain the value of exhibition and acknowledge the role of exhibitors in the larger distribution cycle.

Paramount designed the plan after analyzing the performance of its recent film slate against metrics related to length of time in wide release, piracy activity and sales across windowing periods.

“Movie-lovers want us to respond and meet their desires. Exhibitors want to keep their businesses strong. Our hope and intent is that this initiative offers a degree of innovation that benefits all parties,” Brad Grey, chairman and CEO of Paramount Pictures, said in a statement.

Creative Ticketing

Paramount’s new digital strategy isn’t the first time the studio has worked with theaters to embrace retail.

Two years ago, Regal Cinemas, the nation’s largest movie theater chain, for the first time offered early 3D access to Brad Pitt’s zombie thriller, World War Z, when buying a $50 “super” ticket. The purchase included the official movie poster, 3D glasses, a T-shirt, a digital copy of the movie, and small beverage or popcorn. Fandango.com, which was the exclusive vendor of the ticket, emailed ticket holders when Paramount Pictures Home Entertainment released the title with UltraViolet functionality at retail.

Last winter, Paramount partnered with AMC Theatres to issue “The Unlimited Ticket,” which allowed the theater chain’s frequent moviegoers to watch Christopher Nolan’s sci-fi drama Interstellar as often they want.

Megan Colligan, president of domestic distribution and marketing at Paramount, said studios are developing new strategies as they reassess their business models.

“There’s going to be more experimenting to come,” Colligan told the Associated Press. “You can’t do what you did 10 years ago and have the same results.”

The Netflix Factor

While Paramount insists its strategies respond to an evolving market, it is no secret Hollywood and theater operators are seeking ways to confront Netflix, which plans to release — for the first time — major theatrical titles day-and-date with streaming access.

First up for the SVOD juggernaut is the African warlord thriller Beasts of No Nation, starring Idris Elba and launching Oct. 16. Next comes a sequel to 2000 Oscar winner Crouching Tiger, Hidden Dragon that will be released in early 2016 in China. Adam Sandler cowboy comedy The Ridiculous 6 bows Dec. 11. War Machine, starring Brad Pitt, is slated for release in 2017.
 
The simultaneous theatrical-streaming release window has been aggressively championed by Ted Sarandos, chief content officer at Netflix, who bristles at the antiquated theatrical window in an era of the on-demand consumer.

“The current distribution model for movies in the U.S. particularly, but also around the world, is pretty antiquated relative to the on-demand generation that we are trying to serve,” Sarandos told attendees last year at MIPCOM in Cannes, France. “The current model we have has been the same almost since the beginning of movies on television in the early ’70s. The world has moved on from then.”

With most NATO members (with exception of select Imax screens and independents), again vowing not to screen Netflix’s movies, Sarandos remains indifferent. That’s because releasing the service’s original movies in theaters is largely done for show and symbolism.

“I think it's important for people to understand that these movies are not TV movies, they’re of the same size and scale and scope of the movies you will see in theaters. So one way to do that is to have them in theaters sometimes,” Sarandos said July 15 on Netflix’s fiscal webcast.

He said Netflix welcomes theaters willing to screen its movies, but he’s not going to rejigger release dates based on an optimal theatrical window.

“I think the movies, as they go, will be attractive enough that theater owners will want to book them in their theaters at the same time that they're on Netflix,” Sarandos said. “So [the theatrical window] is not really the driver.”

To analyst Eric Handler, managing director of media and entertainment for MKM Partners in Stamford, Conn., Paramount’s experiment is a novel way to create marketing efficiencies with lower-budget films that tend to have shorter shelf lives in theaters.

“Historically, horror films are very front-end loaded and tend to fade fast,” Handler said. “Giving the exhibitor a cut of the VOD revenue is an interesting concession that could help open future doors.”

BTIG Research media and tech analyst Richard Greenfield concurs, adding that experimenting with ‘B’-titles minimizes the risk to all parties involved.

“When they do it on [bigger-budget titles] I’ll be excited,” Greenfield said.

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