As box office revenue plummets due to lockdown, research from Ampere Analysis suggests fundamental changes may be on the cards for future film windowing strategies as Covid-19’s negative impact on box office revenue provides incentives to accelerate the move towards new movie windowing models.
In its research the analyst points to Disney’s announcement that the much-anticipated Mulan will no longer be given a theatrical release but instead will be available to watch as a premium release on the Disney+ streaming service. This it says is a clear indication as to how studios are thinking about windowing and release strategies in a depressed theatrical market.
To examine the options open for film studios in a post-COVID world, Ampere modelled four scenarios of new windowing practices studios may adopt: replace first window theatrical distribution with premium video-on-demand (PVOD); adopt strategies of using PVOD and theatrical windows sequentially, similar to Universal’s recent deal with AMC; replace traditional windowing with a pure direct-to-consumer (DTC) offering; release films theatrically before making titles available exclusively on their own direct-to-consumer services. It also compared these scenarios to the income it would have expected the title to have generated pre-2020, and the income it now expects a title to make under the status quo in 2021.
In a pre-Covid world, many of the scenarios would have offered only marginal gains (with significant risks) compared to a traditional release strategy. However, in post-Covid markets, these options have started to look like viable opportunities. For example, Ampere found that an accelerated PVOD window, like the deal Universal and AMC have recently agreed, is the most stable for exhibitors and studio groups, offering comparable returns for cinemas and increased revenue for the studio on mid- and lower- tier releases. Top-tier titles are likely to be better monetised via traditional windowing models.
Universal’s titles may now be distributed through PVOD as early as 17 days following their debut in AMC’s cinemas, which could represent a template for other studio groups to follow. the analyst noted that the presence of theatrical releases still offers consumers the opportunity to view the movie with a cinema experience, meaning that this model doesn’t risk ‘lost’ transactions unlike some of the other scenarios Ampere explored.
Furthermore, the company says that the success of the model depends on negotiations with exhibitors and retailers. It added that before agreeing to an earlier window, exhibitors will want to ensure that the mid-term future of the theatrical business is not being eroded to the extent that it will side-line them in future periods. Studios will need to work with digital retailers to ensure that films are adequately signposted as premium releases and are not unfavourably compared to catalogues of cheaper rentals.
Looking at PVOD completely replacing the theatrical model, Ampere said that films released on PVOD are sufficiently high-end to normally warrant a cinema release, with recent examples including Disney’s Mulan and Universal’s Trolls World Tour.
It believed that there is a significant appetite for home rental and purchase, with the domestic US transactional video market at roughly 40% of theatrical’s size and that in principle, some titles could earn comparable amounts from PVOD as from theatrical distribution. However, for high-end blockbuster titles, which are typically able to obtain greater cuts of box office revenue, and international releases – especially in markets where the digital rental and retail market is less well developed – Ampere suggested that a pure PVOD approach would be far riskier. To account for this, it said that split models would be more appropriate, with strategies tailored according to local importance of a title and the appetite for home rental and retail.
Finally looking at a DTC mode, the analyst said that such models would be more viable if they incorporated theatrical releases. Ampere’s research reported that a theatrical to DTC model is likely to be more feasible than a pure DTC model (bypassing theatrical entirely). However, both approaches are dependent on numerous influencing factors. Whether the model suits any given title is contingent, it said, on the retention of any new subscribers who signed up to watch the movie, and therefore the strategy is reliant on keeping both wider catalogue costs, and subscriber churn rates, down.
Looking forward, Ampere believes some of the major studios will adopt split strategies that can utilise PVOD while maintaining the benefits of theatrical distribution. “Most of the studios have been experimenting with strategies during lockdown that completely eschew the theatrical window,” said Ampere Analysis analyst Peter Ingram. “However, despite the change we are expecting to the cinema market, theatrical remains one of the best revenue streams for titles throughout their life cycle. Not only do most people see the film in its theatrical window, but tickets are charged on an individual basis. By comparison, when a film is bought via PVOD, or watched via an SVOD service, it can be shared with friends and family under a single transaction.”
To examine the options open for film studios in a post-COVID world, Ampere modelled four scenarios of new windowing practices studios may adopt: replace first window theatrical distribution with premium video-on-demand (PVOD); adopt strategies of using PVOD and theatrical windows sequentially, similar to Universal’s recent deal with AMC; replace traditional windowing with a pure direct-to-consumer (DTC) offering; release films theatrically before making titles available exclusively on their own direct-to-consumer services. It also compared these scenarios to the income it would have expected the title to have generated pre-2020, and the income it now expects a title to make under the status quo in 2021.
In a pre-Covid world, many of the scenarios would have offered only marginal gains (with significant risks) compared to a traditional release strategy. However, in post-Covid markets, these options have started to look like viable opportunities. For example, Ampere found that an accelerated PVOD window, like the deal Universal and AMC have recently agreed, is the most stable for exhibitors and studio groups, offering comparable returns for cinemas and increased revenue for the studio on mid- and lower- tier releases. Top-tier titles are likely to be better monetised via traditional windowing models.
Universal’s titles may now be distributed through PVOD as early as 17 days following their debut in AMC’s cinemas, which could represent a template for other studio groups to follow. the analyst noted that the presence of theatrical releases still offers consumers the opportunity to view the movie with a cinema experience, meaning that this model doesn’t risk ‘lost’ transactions unlike some of the other scenarios Ampere explored.
Furthermore, the company says that the success of the model depends on negotiations with exhibitors and retailers. It added that before agreeing to an earlier window, exhibitors will want to ensure that the mid-term future of the theatrical business is not being eroded to the extent that it will side-line them in future periods. Studios will need to work with digital retailers to ensure that films are adequately signposted as premium releases and are not unfavourably compared to catalogues of cheaper rentals.
Looking at PVOD completely replacing the theatrical model, Ampere said that films released on PVOD are sufficiently high-end to normally warrant a cinema release, with recent examples including Disney’s Mulan and Universal’s Trolls World Tour.
It believed that there is a significant appetite for home rental and purchase, with the domestic US transactional video market at roughly 40% of theatrical’s size and that in principle, some titles could earn comparable amounts from PVOD as from theatrical distribution. However, for high-end blockbuster titles, which are typically able to obtain greater cuts of box office revenue, and international releases – especially in markets where the digital rental and retail market is less well developed – Ampere suggested that a pure PVOD approach would be far riskier. To account for this, it said that split models would be more appropriate, with strategies tailored according to local importance of a title and the appetite for home rental and retail.
Finally looking at a DTC mode, the analyst said that such models would be more viable if they incorporated theatrical releases. Ampere’s research reported that a theatrical to DTC model is likely to be more feasible than a pure DTC model (bypassing theatrical entirely). However, both approaches are dependent on numerous influencing factors. Whether the model suits any given title is contingent, it said, on the retention of any new subscribers who signed up to watch the movie, and therefore the strategy is reliant on keeping both wider catalogue costs, and subscriber churn rates, down.
Looking forward, Ampere believes some of the major studios will adopt split strategies that can utilise PVOD while maintaining the benefits of theatrical distribution. “Most of the studios have been experimenting with strategies during lockdown that completely eschew the theatrical window,” said Ampere Analysis analyst Peter Ingram. “However, despite the change we are expecting to the cinema market, theatrical remains one of the best revenue streams for titles throughout their life cycle. Not only do most people see the film in its theatrical window, but tickets are charged on an individual basis. By comparison, when a film is bought via PVOD, or watched via an SVOD service, it can be shared with friends and family under a single transaction.”
