SVOD (Subscription Video On Demand like Netflix, HBO Max, Paramount plus), PVOD (Premium Video on Demand, favored by Universal), PEST (Premium Electronic Sell Thru which includes ownership, favored by Warner Bros), the animated film “Transylvania 4” sold outright to Amazon Prime (Sony)… What does it all mean, and why now?
For 100 years, there had been little question for those films that could credibly support a theatrical release with the requisite marketing campaign, such a release was a better alternative than a straight sale or accelerated availability to home. Even with the signs over that last 15-20 years of that truth fraying at the edges – the loss of small to mid-size Studio films, a steady decline in attendance from the 2002 peak and the rise of Netflix as an alternative buyer of ever larger films, pre-COVID exhibitors were still generally comfortable about continued film supply of an adequate volume and mix to keep audiences in their seats.
No more. Increasingly, exhibitors have to face the fact that the rational economic decision for even the biggest films might be straight to home. And even if not straight to home, at a minimum every title is now certainly faster to home than ever before. Sure, those releasing decisions may be being clouded by different motivations that actually aren’t about maximizing title value. Whether transitory or not, stock multiples that reward subscriber growth are creating incentives to put films onto owned SVOD services faster, and for the more recent market entrants, providing buying power for even the largest Studio films that is underpinned by equity market enthusiasm. But even assuming an eventual emergence from COVID realities, clearly ongoing changes in consumer behaviors and a general reset in Studio options for film distribution will remain. How then should exhibitors evaluate this new landscape?
First, recognize that all home entertainment options should not be considered equal. From an exhibitor point of view, at any given point in time for a home release (30 days, 45 days, 15 days), incrementally free to the consumer into a widely distributed SVOD service is clearly the worst alternative – yes, Netflix and even now Disney +, absent a significant incremental charge, are the real enemies.
Second, recognize that even as transactional models in the home are competitive, from a filmmaker and talent perspective at least they provide the opportunity to be rewarded directly for their creative works, just as does theatrical performance. And theatrical performance actually enhances in-home transactional performance, with its conveyed seal of approval and sizeable overall marketing investments (strange bedfellows!). To again win the economic argument for theatrical releasing generally, exhibitors should balance supporting transactional home consumption to maximize title revenues, while at the same time thinking creatively about how they might minimize the attendance damage. Clearly agreeing to accelerated windows for PVOD or PEST is one example (and the alternative is no longer an option anyway), but how about offering further window acceleration if the film is played in the home only outside of exhibitor trade areas, and/or perhaps by agreeing to direct and aggressive marketing to loyalty programs in exchange for an Exhibitor only VIP or Red Carpet exclusive, ahead of the broad home entertainment release?
Third, understand the differences even within the transactional world. An exclusive release on Disney + at $30 is likely less damaging than a wide in-home release on all the services for $20. PVOD, as a rental product, is more analogous to the exhibitor experience than PEST, which provides ownership as an added consumer benefit and might therefore be even more cannibalizing. And the PVOD vs PEST debate appears to still be an open one, with Universal favoring PVOD as a path to retaining the opportunity for a later second sale of the title to the same consumer, as is currently a mainstay from theatrical consumption. Here perhaps exhibitors could provide EST re-marketing support as an inducement for Studios to favor a PVOD rental rather than PEST sale model at any given release date and work jointly to identify other such strategies by bringing their consumer data to the table.
Finally, exhibitors should also know they are not alone in the fight for films and consumers! Clearly talent is supportive (Scarlett Johansson is Exhibit A, and the reasons also go beyond financial ones). But other allies are Studio releasing divisions of the major media companies themselves, which will be forced to ever greater overhead reductions to the extent they become single global suppliers to SVOD services (no window or territorial distribution complexity to staff to support, and no basis for capturing value from title release marketing spends!)
To best mitigate the ultimate level of attendance erosion post -COVID, exhibitors will have to dig deep – using their waning, but still preferred, position in the releasing landscape to support overall film economics, now managed across both home and theaters. They must favor those models that drive value to individual films, as does exhibition, over distribution that moves value from films to consumer service brands, which in and of themselves are obviously more directly competitive to exhibitor brands. Bottom line – to maximize profits generated from diverse sources for film supply and a healthy overall mix of titles over the long term, exhibitors must once again make theatrical releasing the economic high ground for more than just a handful of titles. And time is increasingly of the essence.