Movie studios pressure cinema chains on digital rentals deal

LOS ANGELES •The plot is thickening in Hollywood. Should the movie studios ignore the objections of cinema chains and offer digital rentals of films mere weeks after they appear in theatres?

Some of the biggest proponents, including Warner and Universal Pictures, are pressing on in talks with Apple and Comcast on ways to push ahead with the project even without cinema chains.

After months of negotiations, the two sides have been unable to arrive at a mutually beneficial way to create a US$30 (S$41) to US$50 premium movie download product.

The leading Hollywood studios, except for Walt Disney, are eager to introduce a new product to make up for declining sales of DVDs and other home entertainment products in the age of Netflix.

They have discussed sharing a split of the revenue from premium video on demand (PVOD) with the cinema chains if they give their blessing to the concept.

But the cinema chains have sought a long-term commitment of as much as 10 years for that revenue split, which the studios have rejected, sources said.

Deals with potential distributors, such as Apple and Comcast, could be reached as soon as early next year to sell digital downloads of major films as soon as two weeks after they debut in cinemas, they added. 

Comcast, the largest cable provider in the United States, is also the owner of Universal Pictures.

Those pacts would give the studios a way to issue an ultimatum to the cinema chains: Agree to a deal, or they will start selling the movie downloads anyway.

The chains could fight back by boycotting films slated for sale via download days after their theatrical debut.

Unless studios definitively decide against a PVOD window, cinema chains will remain under pressure, said Mr Michael Pachter, an analyst at Wedbush Securities.

But he was sceptical that the studios would go ahead with digital rentals without an agreement with the cinemas. "They always claim they're going to do something dramatic and then they don't," he noted.

Some studio executives are taking a less aggressive stance and do not want to fight against the cinema chains, which still wield enormous power in the industry.

The escalating tensions are likely to fuel investor worries about the movie industry as more viewers find reasons to stay at home.

The share prices of leading players such as AMC Entertainment Holdings have been buffeted all year by the uncertainty around the talks as well as a more than 12 per cent decline in the summer boxoffice takings.

The theatrical window of exclusivity over new movies has long been sacrosanct, in part because Hollywood's biggest directors and actors value the big screen over television.

But the industry has allowed the exclusivity period before DVD sales to shrink to about three months after a movie's opening weekend, compared with six months historically.

Walt Disney's recent move to create its own streaming service for some of its films, another nod to the growing demand for home viewing, has also added pressure on the cinema chains to reach a deal with studios.

Disney is not interested in participating in the discussions because it believes in its strategy of focusing on fewer, bigger event movies that need to be seen on the big screen. 

Smaller producers such as Lions Gate Entertainment, the studio behind The Hunger Games franchise, are hoping for a deal.

Lions Gate CEO Jon Feltheimer believes PVOD will be introduced in the next 12 months.

"You're going to see some tests done at least in some territories in the near future. I hope that will happen. I think it will be great for the business," he said.

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A version of this article appeared in the print edition of The Straits Times on August 21, 2017, with the headline 'Movie studios pressure cinema chains on digital rentals deal'. Print Edition | Subscribe