The Death & Rebirth of the Theatrical Window
The theatrical window is dead; Long live the windowing strategy
The one-two punch of the AMC-Universal deal and Disney releasing Mulan on Disney+ looks like the demise of the theatrical window — a long-standing industry practice to maximize profits for studios and create an artificial moat of exclusivity for the theater business. Netflix famously fought the movie industry to demolish the release window, pushing for same-day releases across theaters and online channels, but eventually relented in hopes of landing some coveted Oscars and pleasing the stars and movie makers. Now that COVID-19 has done what Netflix couldn’t, it is equally fascinating to chart how windowing may reinvent itself into a multi-tier subscription model that differentiates the timing and scope of access at various price points.
From Three Months to Three Weekends
Among the many trends that COVID-19 has accelerated, the dwindling theatrical window is one of the more quantifiable ones. On July 28th, AMC Theaters, the largest movie theater chain in the U.S., struck a deal with Universal Pictures to play future releases from the latter and its subsidiary Focus Features in AMC theaters for at least three weekends, or 17 days, before releasing them on premium VOD platforms for rent or sale. Previously, the industry standard was that theaters usually had the exclusive rights to show new releases for 90 days.
Technically, a 17-day window is still a window; but psychologically speaking, it might as well not exist for an audience base already overwhelmed by the vast amount of entertainment content accessible at home. For one, 17 days is much easier to wait out than 90 days, which means that for most people, there would be few incentives to choose theaters over home-viewing, especially if one was already ambivalent towards the theatrical experience before the pandemic.
For a family of three, paying $30 to rent a movie at home is a much better value proposition than spending over $50 on a trip to the local cinema, and that’s exactly what they have been doing for the past four months. Data from Parks Associates finds that in Q1 2020, 14% of US broadband households had used a transactional VOD service over the past 30 days, a five-point increase from the previous year. With theater reopenings in major cities put on hold, more U.S. consumers would likely embrace watching new releases at home.
Going from nearly 3 months to less than 3 weeks may seem like a drastic change, but the shrinking of the theatrical window has been a long time coming. The proliferation of streaming services and home theaters, coupled with the rise of algorithm-driven content discovery that deprioritizes recency, has been diminishing the appeal of the movie-going for over a decade, as paying for a theatrical experience becomes increasingly reserved for big tentpole releases. And the sad reality is that only a handful of movies every year manage to achieve the kind of “must see now” buzz that can drive people to theaters — everything else can wait until it’s on streaming.
The proliferation of streaming services and home theaters, coupled with the rise of algorithm-driven content discovery that deprioritizes recency, has been diminishing the appeal of the movie-going for over a decade.
One side effect of this shrinking of theatrical window and the resulting accelerated content release schedules is that entertainment industries would potentially be able to combine their theatrical and home video marketing into one long campaign. It certainly won’t make much sense to run two separate campaigns for the same movies when the gap in platform release is about half a month.
The Resurrection Effort
Of course, the theaters are not giving up that easily on one of the key distribution advantages that their entire business model hinges upon. Cinemark has said while it is willing to “have conversations with studios” about shortening the theatrical window, it is not keen on the 17-day window deal AMC struck with Universal. Taking an even tougher stance is Regal Cinemas, the second-largest movie theater chain in the U.S., which said that it will not change its policy and will only show movies that respect the traditional theatrical window.
Yet, talk is cheap, and the grim reality is that most movie theaters have been shut down since mid-March and are only starting to reopen in some states across the country this month. Therefore, they don’t have much leverage to negotiate with the studios as distributors. Trolls World Tour was the first high-profile example, but there have been several more window experiments since, including Warner Bros’ Scoob! and Disney’s Artemis Fowl being released on Disney+ as part of the subscription.
Before reaching the aforementioned deal, AMC theaters and Universal Pictures publicly feuded over the success of Trolls World Tour on digital rental platforms in April, with AMC vowing to stop showing Universal films in its theaters. Similarly, Regal can act tough all they want in a vacuum, but they won’t be able to hold out in any meaningful way once the theaters do reopen and other theaters have struck deals with studios for a more flexible release schedule.
The drastically shortened theatrical windowing is a big compromise for theater owners and a big win for the studios. When theaters reopen, studios will likely opt to let their box office hits play exclusively in theaters longer than 17 days to capture profits, but they will also have the option to put riskier, mid-budget titles into theaters without committing to the high expense of traditional theatrical distribution and a 90-day period where they won’t be able to monetize those films through other channels. Windowing will become more fluid than before, with studios depending on day-by-day box office data analysis to decide when would be the best time to release a movie on digital platforms.
The drastically shortened theatrical windowing is a big compromise for theater owners and a big win for the studios.
Granted, a three-weekend theatrical window is better than none, and it could very well become the new industry standard before long. After all, most films today make the bulk of their box office revenue within the first three weeks of release anyway. And with the pandemic shutting down many regional theaters permanently, in the post-pandemic world, studios may have no choice but to leverage online channels to reach audiences outside urban centers.
Similar to how digital disruption played out in other sectors of the media industry, theaters are middle-man distributors that are no longer necessary to the content owners looking to reach their audiences, especially if they already have their own direct-to-consumer services up and running. Such is the case with Disney.
The Digital Rebirth
Usually a staunch defender of the 90-day theatrical window, Disney surprised the world last Tuesday by announcing that the live-action remake of Mulan, its most highly-anticipated release of the year, is skipping theaters altogether, and will be made available on Disney+ for subscribers to unlock for a one-time fee of $29.99 on September 4.
Disney’s Chief Executive Bob Chapek has said this release is a “one-off” experiment billed as “Premier Access”, (one that Disney’s balance sheet could easily afford,) as opposed to a new windowing model. Reading between the lines, however, it is not difficult to see this special release would set an interesting precedent that, if successful, could herald a sea change in content distribution.
Contrary to the popular narrative that reported this as a “premium rental,” Disney has clarified that viewers will be allowed to access the movie on Disney+ whenever they wish, as long as they remain subscribers to the service. Considering that Mulan will eventually become part of the regular Disney+ catalog, this release is your typical, pay-to-rent model, but rather a pay-for-early-access model. This is an important distinction that points to Disney’s larger ambition in this “pandemic experiment.”
Considering that Mulan will eventually become part of the regular Disney+ catalog, this release is your typical, pay-to-rent model, but rather a pay-for-early-access model.
Up until recently, most streaming services differentiated their subscription at various price points either on the basis of advertising presence (such as Hulu) or number of simultaneous streams (Netflix). Recently, the launch of NBC’s Peacock and HBO Max put forth the idea of differentiation between price tiers based on content access. For Peacock, the free tier only unlocks less than one third of its content library. In the case of HBO Max, the service itself grants additional access to WarnerMedia content beyond a standalone HBO subscription. It is strongly suggested that a revamped CBS All Access will follow a similar model to incorporate Viacom content.
In comparison, what Disney is trying to do with Mulan is differentiation based on timing of access, which captures the essence of the windowing strategy — the optimal price for a movie is proportional to viewers’ eagerness to watch it. Instead of moving the content across multiple distribution channels, now Disney is doing it on its own service, thus guaranteeing it will capture all the data to analyze consumer interests and pinpoint the right time to move Mulan from “Premier Access” into the regular Disney+ library. If Mulan proves to be successful, future tentpole releases could become premium tier offerings on Disney+, driving revenue beyond base subscriptions. Theaters would surely object, but considering Disney owned nearly 40% of the total U.S. box office in 2019, theater owners have even less leverage to negotiate with the Mouse.
Internationally, the backlash towards Disney’s decision to release Mulan online has been rather fierce from the European theater chains. But besides releasing Mulan in theaters in a handful of countries, including mainland China, where cinemas have reopened, Mulan is most definitely skipping a traditional theatrical release. Disney+ may not be globally available yet to support the kind of global rollout of theatrical releases, but this kind of simultaneous release is certainly something that the house of mouse is pursuing, given that it is reportedly preparing to launch a new Star-branded streaming service internationally in 2021.
The future of content windowing release is pointing to a hybrid of differentiating by the timing of access, quality of access, and scope of access. Advertising could be part of the mix too, (e.g. unlock this new release for $5 less if you allow for some ad breaks) especially for the platforms that already carry ads. As much as the term “streaming wars” already feels like an overused buzzword in 2020, we are only past the beginning stage of this OTT revolution in content distribution. Recreating content windowing online is not about copying an antiqued business practice, but exploring new ways to maximize profits — the golden rule of business.
The future of content windowing release is pointing to a hybrid of differentiating by the timing of access, quality of access, and scope of access.
More importantly, instead of letting subscribers keep a downloaded copy of their $30 purchase as transnational VOD usually works, the access to Mulan is tied to being a Disney+ subscriber, which, in and of itself, creates higher lifetime value than any single hit movie would. As I noted in last year’s piece on the film industry, particularly on Disney’s strategic shift, Hollywood has long operated under a precarious hit-driven business model, but the rise of streaming and subscription model means that access to content is becoming just one part of a larger entertainment bundle. By bundling multiple media subscription services across categories (film, TV, music, books, theme park access, etc.) into one attractive combo deal, Hollywood giants can make a compelling case for long-term subscriptions.
The Path Forward for Movie Theaters
Before COVID-19 confined me to my apartment, I was an AMC A-List subscriber who went to the movies at least once a week. I truly enjoy the theatrical experience, and have been longing to go back to the theaters. Personal feelings and preferences aside, however, one must admit that the movie theater business has been on the ropes for years now. Rising ticket prices may have helped mask the decline in movie-goers, but the fundamental business model of Hollywood is shifting. Shuttering the theatrical window demolishes one of the key competitive advantages that theaters have, so the theater business will have to evolve too.
It is already common to see mini-arcades or bars inside multiplexes, and the future survival of movie theaters will hinge ever more so on diversifying the experiences they offer. Some theaters have pursued a more high-end approach, combining dining with movies to attract people looking for a full “date night” package, but diversification doesn’t always have to be so service-oriented. Some theaters were already experimenting with host screenings of alternative content, such as live sports, concerts, esports events, and even special screenings of TV shows. As immersive storytelling continues to gain traction, movie theaters could evolve to accommodate mixed reality activations, escape rooms, and other forms of out-of-home entertainment.
Establishing a long-term strategy will be the key to securing a post-pandemic revival without the protection of a 90-day theatrical window. While hygiene and health safety concerns will deter a lot of people from going back to theaters until a vaccine becomes widely available, theater owners should take advantage of this downtime period to reevaluate their business and pivot to more experience-driven offerings. Right now, theaters such as Cinemark and Alamo Drafthouse have reopened select theaters for private party rentals for people to rent out a whole auditorium for their private watch parties. While this seems like a desperate measure to generate some much-needed revenues, similar premium offerings may be worth exploring even after the pandemic.
Theater owners should take advantage of this downtime period to reevaluate their business and pivot to more experience-driven offerings.
Another likely path for theaters is to become part of the studio-owned experience center. Last week, a federal judge greenlit the termination of the Paramount consent decrees that have restricted major studio control over the exhibition process since the late 1940s. This essentially means that major studios can now buy and operate movie theaters, opening a wide range of possibilities for the future of movie theaters. Disney, for example, could now acquire a small theater chain and convert them into Disney experience centers that offer not only the theatrical experience, but also the experience of a mini-Disneyland, all bundled with a premium Disney+ yearly pass.
Whatever the course, one thing is for certain: theaters have to change with the evolution of content distribution in order to stay in business. Holding onto an old distribution model predicated on theatrical windowing to create an artificial exclusivity is no longer a viable strategy. In response, theater owners ought to figure out how to turn cinemas into an entertainment destination worth visiting in person, and entertainment brands will have to figure out how movie theaters can be transformed into valuable offline touchpoints to engage with their audiences. The cinema doesn’t need to be saved; it needs to be transformed.
