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Cinemas vs VOD: a Disruptive Change after Coronavirus?

The Coronavirus COVID-19 pandemic has been surprisingly disruptive in many areas of society. A significant impact has been made on cinemas and distributors, prompting large scale disagreements, a ban on specific films and threats to make sweeping changes in the industry through an increased use of Video on Demand. But how will the prospect of a disruptive new business model affect moviegoers and the development of Cinemas vs VOD?

Before Coronavirus

By tradition, cinema networks are allowed to show new films for a minimum of three months before any other distribution channel becomes involved. Through innovative technology, moviegoers can enjoy an enhanced cinematic experience. The sheer brilliance of Onyx LED screens and advanced laser projection provide realistic colouration and remarkable clarity, making the most of special effects and spectacular scenery. And an entire soundtrack driven by Dolby Atmos creates a three-dimensional profile that provides viewers with an all-enveloping sound that is unmatched in any other format. Films shown in a cinema setting complete with comfortable seats in a luxurious arena provide a truly unforgettable experience.

The glamour and excitement generated by theatre premieres and the privilege of watching the latest films as soon as they are released, has always ensured a high customer attendance. Lucrative box office receipts are traditionally split equally between the film theatres and the distributors. Just three months later, the films are then released in multiple formats, including Video On Demand, DVD and internet downloads, enabling the movie studios to reach the widest possible audience. It is an accepted procedure that has been in place for many years and it seems that everyone is content with their share of the revenue. However, in early 2020, the unexpected arrival of Coronavirus is about to disrupt their usual agreements by prompting distributors to consider an alternative arrangement.

During Coronavirus

In March 2020, Coronavirus COVID-19 is rapidly increasing and threatening to cause a massive death toll. Widespread lockdown measures are implemented, forcing people to remain in their homes. Along with many other non-essential businesses, cinema venues have no choice but to close their doors. Current movies such as The Hunt and The Invisible Man are unable to capitalise further on their box office receipts and inevitably move to other formats much earlier than expected. Rather than bring the flow of new releases to a complete standstill, the decision is taken by the distributor, Universal, to release Trolls World Tour on VOD. This colourful, animated tale features the voice of Justin Timberlake and has a plot that follows the adventures of two trolls as they discover several other trolls scattered around the globe who adore different musical genres. Surprisingly, in just three weeks, Trolls World Tour takes an astonishing 100 million dollars in rental fees alone. By comparison, the film’s predecessor, Trolls, had to wait for five months of cinema theatre showings to attain a similar figure. And instead of an initial 50% share of the revenue with the theatres, Universal finds its portion has increased to around 80%. And the prospect of such increased profits encourages Universal to take an unprecedented step in the Cinemas vs VOD battle.

Universal decides not to defer the June 2020 release of The King of Staten Island until later in the year when it could be safely premiered through the cinema networks. Instead, the distributor immediately transfers to VOD the semi-autobiographical comedy starring Pete Davidson as a young man who has to finally face up to the loss of his father during the September 11th attacks of 2001. As the potential for a huge increase in profit emerges, other distributors begin to follow suit. Warner Brothers immediately release the animated Scoob!, an entertaining adventure starring Scooby Doo, everyone’s favourite cartoon dog. Alarmed at what is beginning to look like a new trend regarding new releases, the cinema networks are understandably angry at being deprived of their expected share of the revenue and plan to take retaliatory action.

Animosity

As the severity of the Coronavirus crisis increases, so does the animosity between the film theatres and the distributors. It culminates in the accusation that the distributors are using the pandemic as a way of reneging on their traditional agreement regarding film premieres. The Odeon cinema network’s solution is to refuse screening new releases once the pandemic has abated. The ban primarily targets F9, rescheduled for release in 2021. It is another action thriller in the incredibly popular Fast and Furious series with themes of jewel robberies, spies, vendettas and illegal road racing. But why have the distributors chosen to postpone F9 rather than follow up the success of Trolls World Tour and launch it on VOD?

In spite of an initial increase in demand for new VOD film releases at the beginning of the Coronavirus lockdown, public interest quickly begins to wane as people settle into a different, but mundane routine. It quickly becomes obvious that the paying public are not prepared to turn entirely to VOD releases, particularly as the loss of the cinema channel is expected to be only temporary. Reasons could include the narrow time limits for watching rented VOD releases and the lack of excitement involved in a private home launch. Some VOD premieres continue with films such as Disney’s Artemis Fowl, a science-fiction adventure about a criminal child prodigy, but these releases are mostly movies that are not expected to win record-breaking box office receipts. By contrast, the Fast and Furious release, F9, is expected to achieve a similar level of outstanding success to its prequel, Furious 7, which accumulated an astonishing 1.5 billion dollars in 2015. The distributors are clearly not prepared to risk a lucrative movie on home VOD release. But how will the disruption affect the future of new releases in the Cinemas vs VOD game?

After Coronavirus

The shock of imminent lockdown at the beginning of the Coronavirus pandemic prompted many strange reactions such as the widespread panic-buying of six months worth of food in just twenty-four hours. The phenomenal success of Trolls World Tour must only be judged in the context of the unique situation at the time of its VOD premiere. It therefore cannot be considered to provide a credible alternative for every subsequent movie release. Significantly, the distributors wisely postponed the premieres of films with almost guaranteed box office success. The latest James Bond thriller, No Time to Die, with its massive sponsorship deals and huge appeal for movie fans, has its April premiere postponed until November 2020. Films of such calibre can expect nothing but a cinema release complete with the superior picture quality of Onyx LED screens, laser projection and Dolby Atmos sound. With sales of VOD releases declining in just a few months, moviegoers evidently prefer to wait for the ultimate experience in film premieres that only the cinemas can provide.

Conclusion

The bitter exchange of words between film theatres and distributors i.e. between Cinemas vs VOD has exposed the uneasiness behind their hitherto amicable agreements regarding the sharing of the receipts of cinema premieres. The lure of extra profit is always likely to be more disruptive than any pandemic. The threat of boycotting lucrative cinema premiers could eventually prove hollow due to the public’s demand for the traditional red carpet premiere once life returns to normal following the Coronavirus outbreak. The crisis has shown that there is certainly a place for Video On Demand premieres, but they will most probably be reserved for films with less mass appeal or those in a particular artistic niche. Contact us for defining the strategies.

Update: AMC and Universal reach landmark deal for early home releases

By Georg Tichy

Georg Tichy is a management consultant in Europe, focusing on top-management consultancy, projectmanagement, corporate reporting and fundingsupport. Dr. Georg Tichy is also trainer, lecturer at university and advisor on current economic issues.

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