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Three reasons new push for PVOD in 2019 will fail

domestic box office revenue 2007-2017

I know, we’ve heard this one before. At least two studios plan to push for early release windows for home movie streaming in 2019. It won’t work, and here are three reasons why.

Variety reports that Warner Bros – now owned by AT&T – and Universal Pictures plan to push for an early video-on-demand release window next year. Previous efforts at getting movies into homes more quickly have all failed. For example, earlier this year extensive negotiations collapsed even after the normally intransigent movie theater owners offered to be the streaming agent for so-called premium VOD (PVOD) movies.

There is no reason to believe a new attempt spearheaded by Warner Bros. and Universal will have any more success. Here are four reasons why.

Reason 1: Without Disney, nothing happens

In the last major push for PVOD in 2017, Disney stayed on the sidelines. According to Christine McCarty, Disney’s CFO, the company had plenty of reasons to stick with theater delivery for movie launches:

“Because of that, we don’t feel that we should be moving our movies off of the big screen any sooner than they currently are. So, while premium VOD is probably a strategy that does work for other studios, given their films and genres, for the kinds of films that we do … we’re not engaged in conversations on premium VOD.”

Once Disney owns 21st Century Fox, it will create an even bigger block against PVOD. The combined studios will own some of the highest grossing movie franchises in history and control 40% of the U.S. market. Simply put, if Disney doesn’t come, PVOD doesn’t happen.

Reason 2: Domestic box office holding its own

Though movie theater ticket sales are falling, revenue has been holding its own.  The average number of theater admissions per person in the U.S. and Canada has declined 14% since 2007. However, yearly domestic box office gross has increased approximately 14%, to over $11 billion, over the same period. It is very hard to argue that the sky is falling on the theater business with revenues growing.

electronic and disc movie sales 2013-2018

The same cannot be said for disc and digital movie sales. According to DEG, disc sales have fallen over 40% since 2013 and including digital movie sales only reduces the loss to 15%. The move to SVOD viewing is causing the contraction in movie purchase revenue. However, Disney is liable to be unmoved by this trend. It is launching Disney+ next year and will begin to deliver its movies direct-to-consumer.

Reason 3: Theater owners circling the wagons

Movie studios have not been able to reassure theaters owners that PVOD is anything but a bad thing for them. In the last major push for PVOD in 2017, studios offered to share profits from PVOD rentals with the theater owners. However, after months of negotiations AMC CFO Craig Ramsey said talks had stalled:

“After 14, 16 months of talking, I don’t see movement towards a solution.”

Later in the year, AMC President and CEO Adam Aron suggested a potential solution. He said AMC could act as the streaming agent for PVOD, but the offer appears to have led nowhere.

Since then, the picture has gotten worse for theater owners. Though Disney stands foursquare behind theater deliver, it is using its market power to squeeze more profit from theater owners. The company said it would take an unprecedented 65% to 70% of ticket revenue for the next installment of Star Wars, The Last Jedi. Normally, theaters send 55% to 60% of ticket sales to the movie producer.

That said, though the owners don’t like what Disney is doing, they have no alternative but to go along with it. Moreover, it is likely to make them fight harder against PVOD to keep what they still have.

Why it matters

Two studios are likely to push for much shorter home movie release windows, so called premium VOD, in 2019.

The effort will fail because:

  • Disney will not join the PVOD movement
  • Theater revenues are increasing in the U.S.
  • Theater owners think they have nothing to gain
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