Tuesday’s milestone windows agreement between No. 1 exhibitor AMC and Universal Pictures is a near-term positive for the theatrical film business but a potential headache for exhibitors down the road.
That’s the general takeaway from several Wall Street analysts who sized up the deal, which allows Universal releases to head to premium video on demand after just 17 days of theatrical release.
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Michael Nathanson of MoffettNathanson, whose outlook on the exhibition sector is fairly bearish, sees some puts and takes from what he termed “a groundbreaking moment for the film industry.” He pointed out many variables that will play out in the weeks and months to come, principally the individual strategies at various studios and exhibition circuits and the question of how firm a benchmark the AMC-Universal deal will prove to be.
In a note to clients, the analyst said he expects “a higher level of movie attendance cannibalization” as a result of the pact. While that may not exactly be a doomsday scenario in the near term, the longer-term effects are a significant concern for overall profitability. “We have already seen the share of movies that generate under $100 million at the domestic box office fall from 52% in 2010 to 39% in 2019 and we had expected this trend to accelerate,” Nathanson wrote. “If studios can more efficiently market their smaller budget movies while tapping incremental demand in a new window, this could help reverse the recent trend of non-tentpole movies selling off to streamers on a cost-plus model. However, we still don’t know if in the long term a weaker theatrical industry, with less screens, will ever produce the same ROI for blockbusters as before.”
Eric Wold of B Riley cautioned against assuming that the window was de facto reduced from roughly three months to three weeks. “We believe this would be too naive of an interpretation of the agreement—and view this as something that AMC has actually been working toward for a number of years (i.e., a singular theatrical window may not work for every film—and moving it along could be beneficial to both exhibitors and studios),” he wrote.
While Universal’s move to skip theaters on Trolls World Tour is often cited as the galvanizing event of the move toward PVOD, Wold isn’t convinced that the studio-reported demand for that one title should be assumed as a baseline. But the fact that two companies have broken ground likely means other arrangements will follow. Wold said that’s his forecast, “especially as the other exhibitors may be unwilling to keep a film on their screens anyway once it becomes available through PVOD (and they would likely prefer to share in the PVOD economics as well).”
Nathanson sees the “template” created by the AMC-Universal pact putting “the rest of the industry at a disadvantage” because it sets terms at a certain level as a starting point. On the other hand, he argued, “exhibitors would benefit if the PVOD window helps de-risk future movie investments and leads to more green-lighting of movies, especially independent and mid-tier films. This announcement could – optimistically – also help some studios stick to some of their 2020 release dates that were at risk of shifting into 2021 because of the pandemic, which would allow for much-needed content to fill the screens” in the fourth quarter of 2020.
Nathanson sees the deal having an impact on another major logjam in the traditional system between theater circuits and Netflix and other streaming services. “Maybe the biggest positive for theater owners could be using this new 17-day window to reach a similar agreement with Netflix and other SVOD services that are ramping up production of their own original movies (and some acquired from other Hollywood studios),” Nathanson wrote.
LightShed Partners analyst Rich Greenfield, an outspoken critic of traditional theatrical windows, agreed. He tweeted Tuesday, “Huge win for tech companies such as Netflix, Amazon and Apple as movie theaters refused to exhibit movies that did not, at least, adhere to 60 days before SVOD — appears those walls just crumbled.”
Eric Handler of MKM Partners referenced the AMC-Universal deal in a note to clients recommending Imax Corp. stock. The large-format film company reported second-quarter earnings on Tuesday. The pact “caught many people by surprise,” Handler wrote. “While this event is being perceived (rightly or wrongly) as an incremental negative for the industry, we believe Imax is well insulated from any implications from any PVOD developments. Of note, Universal cannot announce a film will launch on PVOD platforms until after the second weekend of its theatrical release.”