| March 6, 2022
I wrote last week that the theatrical experimental window was closing.
But then Disney did its reset for the coming summer. And it makes perfect sense, really.
There are two clear, opposing ideas in play. First, for the bigger movies to make the money they hope to make, theaters need to be open and at least 75% operational. On weekdays, 33% occupancy is plenty. But on weekends, theaters need near-sell-outs and sell-outs to make the machine work, both for theater owners and distributors.
Second, though we can start to get a real sense of when that 75% seat availability will be realistic, no one knows when audiences will be ready to have that experience again.
The often one-note industry media comes to the issue ass-backwards, obsessed with shortened windows and streaming. But even after a year of almost completely closed movie theaters, the math hasn’t changed. Distributors know that theatrical is an important financial piece of their economic structure and want to have a full and thriving theatrical window before pushing the films to streaming, in all its incarnations. The math isn’t very complicated. Two bites of the apple is better than one.
But those of us who believe in the strong future of theatrical can’t pretend nothing is happening. We can deny that “audiences have changed,” a dumb argument based on nothing but personal experiences skewed by the fact that most film writers are middle-aged and are not regular moviegoers. But studios have wanted to shorten the theatrical window forever… and have.
Every time the studios squeeze the theatrical window, they push away part of the theatrical audience. This has gone on for decades. The reason has always been an effort to increase profitability. It never has anything to do with making the audience more satisfied. NEVER.
The steps are simple. First, maximize revenues. Second, improve the profit margin. Econ 101 stuff.
But media wants to make everything into a game-changing social drama. It used to be called “selling papers.” Now it’s called clickbait. But the problem is that when journalists sell a story that may not be 100% valid, they begin to believe it and then they feel they need to defend the position and in time, it becomes rote… but a rote falsehood.
If you are interested in what is remarkable, it’s that between 1999 and 2019, with the advent of DVD and the world wide web and then streaming television, domestic theatrical have gone from $7.4 billion a year to $11.3 billion (with a high of $11.9 billion). 53% growth. Thirteen of 20 years have been growth years. Every down year has still been, in its time, one of the Top 5 best box office years of all time.
Sounds unpopular and dying, eh?
But what about the last five years? Netflix ate the world!
The first years in history with a domestic gross over $11 billion. The “worst” year was 2017’s $11.1 billion year. The best was 2018’s $11.9 billion year.
And international has grown every single year… until the pandemic shut down theaters.
Disney, like everyone else, has had enough stasis. They are ready to take the movie side back to the market and feel the audience is ready (if not anxious) to engage their product. The studio has done three experimental releases on Disney+, two paid, one as part of the subscription fee. They know the numbers. We do not. (I do not trust the guessers… not on the positive or negative side.)
Disney waited until this week to pull the ripcord on May. But May is too soon to expect real theatrical box office to arrive. Americans are being vaccinated. But the 50% mark, which should trigger a run towards “normalcy,” is more than a month away. I suspect we could pass 50% first shots by the end of May, but mid-June feels like the target for 50% fully vaccinated. And really, two weeks after that second injection is when you are supposed to be comfortable that it has kicked in.
Of course, Warner Bros dumped their entire 2021 slate – for now – onto “HBO Max and theaters,” which may be the most stupid movie marketing choice in the industry’s history, given the massive expense and the minimal return. For some reason, the media doesn’t want to embrace the reality that deals for 2022 movies, with talent and exhibitors, returns to a theatrical window. A seven-weekend exclusive theatrical window… which is exactly the timing on the VOD window before COVID happened.
For instance, Hobbs & Shaw went to VOD after its seventh weekend in 2019. Joker went to 11 weekends, hoping for a Thanksgiving bump that didn’t happen. The #1 movie, Avengers: Endgame, went 14 weekends before VOD, which was also when it dropped under $1 million a weekend for the first time. Universal’s window deal with AMC anticipates longer windows for bigger hits. But seven weekends to VOD – not Blu-ray or streaming – was pretty standard going into the pandemic year.
As for Disney, here is the undeniable reality… Black Widow will be the most critical moment for the industry, in terms of delivery choices, since Tenet. The true return of theatrical will be launched by F9 on June 25. Disney is, no doubt, happy to have Universal taking the “opening” shot.
Disney must be of two minds on Black Widow and the PVOD on Disney+ possibility. One $30 PVOD sale on Disney+ is the same revenue for Disney as four movie theater ticket sales. So they would love it to do record numbers on PVOD (about $100 million or 3.3 million units). On the other hand, Disney wants Black Widow to be a theatrical hit, where the public will see the numbers, unlike from Disney+, and it will add value to the title as part of the future permanent Disney+ library… plus, of course, the theatrical revenue.
This is where the media tends not to do the math for the public. We have not had a five million-unit PVOD film to date and most likely never will. Just five million movie tickets sold would be about a $60 million gross. By broad calculations, a movie that grosses over $300 million will always make a greater profit via theatrical than in even the most successful PVOD play. And by succeeding in theatrical, it will get the cache that comes with theatrical success, creating value for the streaming window that it will live in FOREVER after the initial release window is over.
Of the last 10 Marvel movies (including Spider-Man), only two haven’t grossed more than $300 million, only in domestic.
I do not think – and don’t think anyone thinking calmly would think – that Black Widow is primarily a toe-dip by Disney into the hybrid release market. I believe the PVOD option is both experimental and self-protective. Because, dear theater owners, the willingness of audiences to return to your theaters is still an unknown. Offering PVOD means that Disney is protecting its back if audiences are not ready to come back in numbers and it is offering consumers who are not ready an expensive alternative.
And there is this… if Black Widow is a record-breaking VOD success for Disney+, that would only cut into the theatrical by about one-third the launch-release market for the film. So… at worst… if movie theaters are widely open… it could siphon $100 million off the domestic gross, leaving a $200 million or bigger theatrical hit.
I haven’t even mentioned international. That is the treasure chest of theatrical at this point. But if you want to mine the world for dollars, you need something close to a worldwide release pattern now. Piracy is a problem, but somewhat under control. Want to see the rest of the world go back to pirating US releases? Put them on streaming and then do a slow roll-out overseas.
Or how about this… The Croods: A New Age will soon become the #1 domestic grosser of The Pandemic Era (March 2020 – May 2021). It is followed by Tenet and Wonder Woman 1984. Let’s look at the shortfalls.
In the last five years, 10 Marvel movies did over $7.5 billion outside of the United States. There is no replacing that money with PVOD or streaming subscriptions.
The Croods: A New Age has done $130 million less domestically and $295 million less internationally than The Croods. And there is a legitimate assumption to make that the sequel would have outperformed the original had it not been a pandemic release. That’s $425 million off. VOD (in its various forms) may have made up for half of that, accounting for the higher return on VOD.
Wonder Woman 1984 had a 31-day giveaway on HBO Max before shifting to a PVOD window with a normal VOD window (and DVD and streaming) to come. $370 million drop domestically and $290 million international. $660 million off.
Tenet. Comparing it to the relatively Nolan-modest success of Dunkirk… off $180 million domestic, off $220 million international. $400 million.
How any one of us, or any company, chooses a perspective on subscription streaming revenue and the impact of a single movie in the context of a premiere is a wildcard.
A million new subs are, as gross revenue, as much as $180m in new revenue if they keep that subscription for a year. The question is, will any movie cause a million households to join a subscriber and stay for a year or more? Of course, the consumer benefit from any streaming business is greater than any one piece of content… and so is the cost to the streaming company.
We are at least a couple years away from having a realistic idea of how the value proposition of streaming businesses translates for consumers. Netflix has taken a “massive amounts of content” position (which they are slowly backing away from). Disney+ has opted for a major event every two months, whether a series or a big movie. HBO Max is in the unique position (like Amazon Prime) of having a massive audience already built in, creating two separate tracks: converting the already subscribed to use the app and finding new subscribers.
This was meant to be about Disney’s latest and perhaps last experiments with theatrical and PVOD. Raya, Cruella and Black Widow will allow the company to triangulate the PVOD potential as well as the return of theatrical through this period. Unless Cruella becomes an outsized hit – on either platform or both – the primary focus will be on Black Widow. And how the numbers that come out of that experience will determine a lot for the studio.
The optimal thing for any studio would be a $30 PVOD sale in 50 million households. That would be their biggest film with a higher percentage (around 25% more) coming back to the studio. But that will never, ever happen.
Say Avengers: Endgame could do 10 million $30m PVOD units ($275m in returns) to go with $350 million in domestic theatrical ($200m in returns), that would be about the same as the theatrical window release the film had in 2019. (Of course, getting to all of this was a 21-film build… but a separate discussion.)
But what about international? The VOD business is not as well established outside of the US and it has never worked in the US. And all the major streamers are heading into the world market to compete right now. The film grossed $1.9 billion internationally. That’s 17.6 million new subscribers who would then keep a Disney+ subscription for a year. For one movie. Does that seem likely?
I am not saying that streaming is not a huge, dominant part of the future of filmed entertainment. It is. It is unavoidable, just as television and then cable was unavoidable.
In America alone, cable/satellite has been a $100 billion a year business for more than a decade, dwarfing the theatrical movie business. Nothing new. Streaming will, in time, surely destroy cable/satellite and exceed that $100 billion, perhaps doubling it worldwide.
But this is about making individual films and maximizing profits for each film. It is not the same argument.
There are films better served by being TV series. Bridgerton or The Queen’s Gambit belong on a streamer. The odds of films of these ideas – not films based on their success – drawing a big enough theatrical audience to support the marketing and production spends is low. It doesn’t make them inferior.
Likewise, a good commercial comedy that doesn’t cost a lot is much better served by a theatrical window and then all the other windows, leading to streaming within a year or even six months. This includes theatrical and VOD. (What was the #1 ever filmed-entertainment VOD before the pandemic? Bridesmaids.) The numbers aren’t Marvel numbers, but if you have a new comedy and can milk each window well, there is significantly more money there than the impact it can have on a streamer or in a premiere premium VOD window.
And there is a lot of guess work. Could Amazon’s The Boys, cast up a bit, be a massive theatrical hit for Amazon (like the counterculture Deadpool) before becoming a strong hit for the streaming network on a significant lower budget per hour?
Alternatively, would WandaVision have been in the upper two-thirds of Marvel grossers? Iffy. Perfect for the streamer and, I suspect, a very successful promotional event for the second Dr. Strange movie, which should improve its box office numbers into the upper half of Marvel films now.
None of this is zero-sum. Disney is covering its ass. They are also experimenting. And they are one of the companies that will lead the way back, not overplaying their hand like Warners or getting blindly enthusiastic like Paramount, shoving A Quiet Place II all the way back to Memorial Day weekend with no streaming back-up (with Paramount+ still too small to expect anything good to come of an internal-only PVOD attempt.)
Even if the new experiments end with Black Widow, the distribution business is still all over the place on strategy. There will be more change. And the facts on the ground are, kinda surprisingly, suggesting that all of this may lead to a stronger exhibition business.
World keeps spinning.
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