Streaming New Movie Releases Could Be Here to Stay
Social distancing has given studios an opportunity to test new types of release schedules
In response to the coronavirus pandemic, major theater chains have been closed for weeks and release dates for major blockbuster movies are indefinitely postponed. To offset their losses, studios are creating new ways for viewers to digitally rent movies from the safety of their home. Disney is aggressively releasing films on Disney+ earlier than planned, and Universal is experimenting with $20 streaming rentals. Digital rentals and streaming won’t make the studios as much money as a theatrical release typically does, but they provide some revenue.
The problem, for theaters anyway, is that once viewers get a taste of watching the latest hit movies from the comfort of their own couch, they may not want to go back to public screenings.
While moviegoers may be vaguely aware that there’s a gap between when a movie comes out in theaters and when they can buy it to watch at home, the specifics of the theatrical release window are carefully negotiated between studios and theaters. Typically, theaters enjoy a two-to-three-month window of exclusivity. The cut studios take from ticket sales varies, but they tend to get roughly 60%. The more tickets sold, the more money both sides make.
However, most of the money movies make during a theatrical run is made early in that window. According to research by Nelson Granados, executive director of the Institute for Entertainment, Media, Sports, and Culture at the Graziadio Business School, 80% to 90% of the revenue a film generates is captured during its first month in theaters. While more money can trickle in over subsequent months as the studio’s cut of ticket sales increase, public interest and the effect of the studio’s expensive marketing campaign can wear off over time. On the other hand, pushing theaters to shrink the gap can lead theater chains to drop big films entirely — as many did with Netflix’s The Irishman — and so studios and theaters face an uneasy truce.
The Covid-19 pandemic has changed the math on that truce. With theaters closed, chains have lost their leverage to persuade studios to keep their films locked up. “I think there’s an opportunity here for studios, moviemakers, and content producers to experiment,” Granados told OneZero. “And what may happen is there’s a discovery process wherever they realize this is not so bad… They may discover that bringing down the window a little bit less than 80 days is beneficial for everyone.”
The most prominent new experiment is high-priced rentals. Universal has released new movies like The Invisible Man, The Hunt, and Emma to digital platforms like Amazon and iTunes, where viewers can now rent — not buy — the film for $20. Normally, digital rentals arrive on these platforms around three months after a theatrical release and cost between $3 and $5. While a $20 rental might seem excessive, compared to a couple theater tickets — which consumers can’t buy right now anyway — it’s a downright steal.
With an unprecedented spike in unemployment and lost hours in the United States, it might not be the best time for high-priced movie rental, even if it is a good deal. But movies have historically been something people still spend money on during times of economic hardship. During the 2009 financial crisis, for example, movie theaters saw a substantial uptick in ticket sales and attendance. Though a trip to the movie theater seems expensive — concession prices are famously overpriced to sustain the theaters — it’s also relatively inexpensive compared to entertainment options like concerts, plays, and theme parks. While fewer people may be able to afford $20 movie rentals, there might be just enough interest to demonstrate the value in shrinking the theatrical release window.
Any effect on the theatrical release window is likely to have a ripple effect on the streaming ecosystem. Subscription streaming services like Netflix and Hulu typically only gain rights to films during a phase called “pay one,” which used to be largely the domain of premium cable services like HBO or Starz. After movies have had time on stores like Amazon or iTunes, where they can make money directly from purchases and rentals, subscriptions get their turn. But as the window between theaters and digital storefronts shrinks, so does the window between digital stores and subscriptions.
Disney in particular — which accounted for nearly 40% of the U.S. box office in 2019 and launched its own streaming service that same year — is pushing streaming releases closer to theatrical ones amid the pandemic. Frozen 2, which came to theaters on November 22, was available for digital purchase on February 11, a fairly typical three months later. By February 25, it was available for rentals and on Blu-ray—again, typical. But on March 15, it was released to Disney+, less than four months after its theatrical release. That’s an unheard-of pace, especially for movies that rake in billions of dollars at the box office. Putting a highly in-demand movie on a streaming service too early could eat into digital and Blu-ray sales or rentals, but it remains to be seen if Disney will suffer much of a loss by cutting each phase short.
Pixar’s Onward was released on an even more aggressive schedule. Hitting theaters on March 6, it was made available for a $20 digital purchase by March 20 and will arrive on Disney+ by April 3. The entire release window, which normally takes half a year, has been compressed down to a single month. Onward was already projected to be one of Pixar’s lowest box office openings before communities started isolating in March.
The data that studios gather from these experiments will inform how they negotiate with theaters going forward. As market analyst and former head of strategy for Amazon Studios Matthew Ball writes, “Historically, studios considering such a direct-to-home-video strategy could only speculate as to likely performance or the potential ceiling. Now they will have at least some idea.”
Eventually, theaters will reopen, and studios will go back to releasing their biggest films on the big screen. But like everything else, the post-Covid-19 media world will undoubtedly look different than the one that came before it. Studios have long suspected that they could make more money by offering viewers more options quicker. Now they may have the numbers to back that up.