18 Nov Calkins: More Than Ever, Studios (and Their Parent Companies) Need Exhibitors and a Transactional Business
November 18, 2020 | Hollywood studios are at a crossroads. Parent company pressures to feed their direct-to-consumer streaming services, coupled with an exhibitor landscape weakened by the COVID-19 pandemic, are pushing major studios to shift away from the very capabilities that used to be the cornerstone of studio success.
Hollywood studios have over decades cultivated a series of B2B models that price discriminate movie access and are designed to maximize the value back to individual titles – both in the near term, and to create overall library/IP asset value. This focus on creating title value meant studio brands lived in the background for most consumers, but also ensured that Hollywood studio distribution was the best path to outstanding returns for the best IP. But the rise of equity market-fueled subscription economics and the pursuit of SVOD service brand values have for the last five years or so created, from nowhere, near term economics that for many films now rival the potential of a windowed release.
Risk/reward equation tilting toward SVOD
The impact of these SVOD alternatives was felt initially by the transactional home entertainment business, and gave rise to a general feeling of schadenfreude from exhibitors and even the sibling theatrical divisions within the studios. Despite the fact that home entertainment revenues in the late 1990s and early 2000s provided a moviemaking and marketing bonanza for theaters, exhibitors turned a blind eye to the pain the subsequent home entertainment collapse from 2005 was inflicting on their primary suppliers. Even leading into the pandemic, exhibitors were seemingly oblivious to the decision making of studios, and talent, who increasingly are considering alternative releasing strategies for ever-larger titles, as the relative risk/reward of a theatrical decision has gotten worse and worse. And this risk/reward imbalance has obviously only skewed even more markedly with the health risks and challenges in the market today.
Studios, meanwhile, also largely chose to avoid the difficult conversations with exhibitors over monetizing days 30 to 90 of the first window for any particular film, choosing instead to increase their business with subscription platforms hungry even for second tier titles. But unfortunately, in bypassing transactional exploitation with increasing frequency, studios’ positions with physical and digital retailers are weakened, shelf space for films reduced, and the consumer perception of the importance of films that enjoy theatrical exploitation diminished (also impacting catalog asset values).
Ultimately, the studios’ own position in the ecosystem is impacted. In a D2C world deploying “content” to reduce churn (via a single, global all-rights acquisition), what is the role for a gatekeeper that is focused on maximizing long term asset value through managing releasing complexity across windows and geographies? If the upside from a surprise hit is retained by the D2C service rather than the distributor anyway, what over the long term will entice talent to work through a Hollywood studio (with its overhead), rather than with the services themselves, as demonstrated by the numerous showrunners that have already chosen to cut out the middleman through direct deals with Netflix and its ilk?
Using multiple channels to reinvigorate film economics
Unless studios can once again be the best path to maximizing individual title values, the endpoint of all of these decisions will be a shift to having to operate as low-cost production entities, with most output channeled to, and value captured by, a corporate sibling or outside D2C service relationship. Studio parent companies would no longer enjoy competing from a preferred position in the content landscape, but rather be on a newly levelled playing field competing for IP against a handful of trillion-dollar market cap competitors.
To avoid this eventuality will require a continued commitment by studios to their capabilities of managing all the complexities of localized customer avails, pricing, participations, brand management, etc., while finding a path to reinvigorate economics for those films that take a wholesale, windowed releasing approach. And to achieve the latter objective, with a significantly weakened exhibitor and home transactional landscape, in turn suggests that the first window(s) of availability, which is at the very peak of a film’s consumer interest and awareness, will finally have to maximize value through an integrated, efficiently marketed approach to the consumer across all channels: out of home, in home, physical and digital, with little room for wasted marketing spends or “dark periods” with no consumer availability. The recent modifications to traditional windows announced by Universal with Cinemark and AMC are already showing movement in this direction – and hopefully a path forward to reinvigorated film economics overall as the market begins a path back to some form of near-normal in 2021 and beyond.
John Calkins is CEO of transactional OTT movie platform ROW8. He previously was
EVP of Digital Distribution at Sony Pictures, and also President of Programming for AMC Theatres.