James R | On 10, Jul 2017

Premium VOD could be on offer to as soon as 2018, according to experts, as pressure grows on studios to reach an agreement with cinemas.

The idea of cutting short the theatrical window (the period of time between a film’s cinema release and its home entertainment release) has been a bone of contention in the industry for years, as the rise of VOD has opened up the opportunity to release movies at home sooner after their big screen debut to combat piracy, as well as potentially compensate for any diminishing box office returns. Cinemas, though, have pushed back against the idea, afraid that day-and-date releases, or premium VOD releases, would cause them to lose out on revenue.

Earlier this year, AMC CFO Craig Ramsey told THR that talks had been going for 16 months and still there was no “movement towards a solution”.

Brief experiments have been tried in the past, most notably involving Paramount’s Paranormal Activity sequel in 2015, which Screen Daily reports grossed digital revenues that were three times higher than what would have been earned undera traditional window, but no major blockbuster has yet dared to take the gamble.

That, however, could change in the next 12 months. One analyst at MoffettNathanson Research highlighted the pace at which studios and exhibitors are negotiating – while there is no agreement on revenue-share deals or other terms yet, a common standard could be finalised as soon as the start of 2018.

One factor likely to put pressure on those talks is the weakening stock value of some US cinema chains, with the MoffettNathanson report downgrading their recommendation on Regal Entertainment and Cinemark Holdings – the second and third largest chains behind AMC – to ‘sell’, due to the perceived fragility of the existing theatrical window.

Morgan Stanley’s Benjamin Swinburne has also predicted the launch of Premium VOD in the imminent future, as studios are keen to offset any flatlining in home video revenue, which is facing competition from the burgeoning Netflix et al. market. Netflix’s recent hiring of Scott Stuber to head its feature film development, making the streaming service a studio in its own right, will only heighten that threat.

“The desperation level in Hollywood is at new highs”, Deadline quotes Swinburne as saying, which makes PVOD “almost inevitable”.

Several studios are certainly keen to make the shift, including Warner Bros. and Universal, but Disney is perhaps unsurprisingly against the idea; not all studios are enjoying stellar revenue, with Disney’s “unprecedented” profits from its tentpole franchises masking a more uneven market than may initially appear. Warner and Universal, conversely, are owned by media giants with ties to the cable industry.

As the summer blockbuster season rolls out, talks continue behind closed doors. Shares in Regal Entertainment, meanwhile, dipped 4.2 per cent last week to a 52-week low, while AMC Entertainment and Cinemark slipped 3.7 per cent and 2.5 per cent respectively.

Swinburne says that cinemas’ loss in annual profits could range from $163 million to $592 million, should PVOD be introduced, while studio profits could by $740 million or even as much as $1.8 billion.

What would PVOD look like, should it happen? A survey from RBC Capital Markets found that 87 per cent of consumers would pay no more than $10 to see a film on VOD on the same day it hits cinemas. Only 7 per cent were willing to pay between $11 and $15 for day-and-date access, while 4 per cent were willing to pay between $16 and $20. Only 3 per cent were willing to pay over $20.

Experts, meanwhile, say that PVOD would not spell the death of cinemas, as some exhibitors fear, as cinemas upgrade their auditoria to include better seating, sound and picture quality, while concessions are also improved.

It’s “no longer a given” that 2017’s box office will surpass that of 2016, notes Swinburne, but it is “still likely that a robust Q4 release slate will drive the year higher for a third consecutive year of full-year box office growth”.

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