“It’s going to be an interesting CinemaCon,” said one major studio distribution chief. “Instead of everyone patting each other on the back, there’s going to be a serious conversation about the state of the business and what we’re prepared and not prepared to do.”
The distribution chief is talking, of course, about the Screening Room, Napster co-founder Sean Parker’s controversial day-and-date streaming servicing proposal that would allow consumers to see first-run films from the comfort of their living rooms on opening weekend. In fact, it’s so controversial that exhibition, distribution and studio executives are all weighing with concerns and questions.
Cinema-Con is the official convention of the National Association of Theatre Owners, and this year’s edition and runs April 11-14 at Caesars Palace in Las Vegas.
We continue to hear from those in exhibition, distribution and now studio execs — including some who have heard the presentation — that the streaming service isn’t a means to a profitable end, rather it would spell doom to the exhibition industry and possibly the film industry itself, much like Parker’s digital file-sharing service Napster decimated the music business.
Most of those we contacted in exhibition want to respond in a united front through its NATO leadership. The organization represents 32,000 movie screens in 50 states, and additional cinemas in 81 countries worldwide. Its membership includes the largest cinema chains in the world and hundreds of independent theater owners.
With various distribution models out there now, the day-and-date-via-streaming concept is not being warmly received and seemingly has pit top filmmakers in the industry against their partners in exhibition who think that it would knock the film industry off its perch, after hitting a domestic high at the B.O. of $11 billion-plus last year.
Studio suits also point to that concern as a legitimate one. “The minute that we allow this (day-and-date) streaming, it will vastly diminish theatrical exhibition,” said one studio exec. “They say it will take 10 to 15 years to impact them, but who knows the time frame? Look at what happened to the music industry.”
In the wake of Napster, the Recording Industry Association of America reports that music sales fell 52% from their peak of $14.9 billion in 1999 to $6.97 billion in 2014. (2015 figures have yet to be released but as of mid-year, sales were at $3.1B, even with the first six months of 2014).Added another studio executive, “I’m not in favor of this at all. Contractually, we can do what we want to do, but we consider (theater owners) our partners. If theater owners work with us on it, but we have to be very, very cautious. They are going after an affluent group. It will hurt filmmakers who need their films to stay in the theater to make their money back — movies like, for instance, The Big Short — which really needed to play out.” He said that there have been many other attempts at this but all face similar issues.
“It’s inevitable that one of these things will come along and succeed,” said yet another studio executive. “Not sure if it will be this one as they are demanding certain things that are probably not obtainable.” For instance, they are saying that they want exclusivity (with their box) to stream the movies into households, which doesn’t jive with contracts and relationships already in existence with Universal and Comcast, Disney (which is doing their own streaming) and Sony which has Playstation. Two of the primary rejections of The Screening Room we are hearing from exhibitors boils down to the fear of piracy and also cannibalizing the theater-going audience. The Screening Room’s plan is to watermark the streaming film, and one studio executive said that piracy seems to be the least of the obstacles for them. Still exhibition is concerned.
Says one insider, “The anti-piracy element of the box isn’t surefire. People come up with very sophisticated ways to prevent piracy and then some 17-year old comes along and hacks into it. If you don’t think piracy is real, you might want to talk with the producers of Expendables 3.” That film was downloaded more than 10 million times around the globe, and posted a dismal stateside B.O. that was just under $40M. In addition, other questions exhibs have raised is what’s to stop a consumer from pointing a hi-def camera at the screen and pirating a copy?
There are reports that AMC Theaters (owned by Chinese comglom Dailan Wanda Group) has signed a letter of intent with the Screening Room, however, the theater chain isn’t commenting on any details in regards to the transaction. Paramount is also said to be supportive.
However, when you talk to those in the industry, their thoughts in regards as to why AMC is going along with The Screening Room stem from their parent company Wanda. At present, movie streaming is still a fertile opportunity in the Middle Kingdom. Currently, no first-run films can be seen outside theater chains, but there is a growing interest in a new profit center of streaming in China. Also, it was Paramount and AMC who challenged the theatrical window previously (see below). There has also been rumors of Wanda kicking the tires of Paramount as an acquisition.
To counter any poison from distributors and exhibitors, The Screening Room has built up an advocacy committee of such directors as Martin Scorsese, Steven Spielberg and Peter Jackson. Many view this as grandstanding and wonder how much filmmakers have invested in the concept and how many shares were given to them to garner support in The Screening Room.
Interestingly, everyone signed non-disclosure agreements and would not talk until we reported the reaction which was not positive. After that, the NDAs were lifted so these same filmmakers can now talk in support of the service — one that they may benefit from financially, if successful.
Some are advisors/investors and some are investors (either given shares or they put money into the operation). The business model and technology is said to have been in development for about three years. “At least conversations have started about how to address all these issues. No one they have met with to this point have slammed a door in their faces,” said one supporter who did not want to be identified. “If all the different stakeholders are not on board, it’s not going to happen. You have to have exhibition, distribution and filmmakers all on board and that conversation has started. We are in a new world and the issues have to be viewed differently and through a different lense and that’s what they are doing.” He said that The Screening Room principals have already met with top exhibition chains about this and that “the conversation is ongoing.”
The other point of contention with The Screening Room’s is the 48-hour rental $50 price point for a title (after a $150 set-top box purchase). Parker’s Screening Room is proposing to cut exhibitors in on the action for as much as $20 a rental, but many predict that the price point eventually would come down, further cannibalizing theatergoing and exhibition. Concessions help drive exhibition profit, which is also a concern we’ve heard.
To counter that, Screening Room would give out two movie tickets to consumers renting the same movie, so that exhibitors can make good on their bread-and-butter business of concessions. “How would they determine which exhibitor even benefits from that bonus, especially if someone lives in a zone where there is a number of theaters?” questioned Hamid Hashemi, owner of the luxury iPic Theaters multiplex-restaurant chain.
One supporter of the Screening Room used the analogy of a sporting event, where some people will watch it at home and others will chose to go out to the stadium. “It’s not equivalent at all,” said one person in exhibition. “That is one spot and they are talking about something that is going to affect 6,000 theaters nationwide. It’s not anywhere near apples to apples.”
One studio executive told Deadline that the Screening Room is really not taking into account what is called “the water fountain effect.” “Say you have a kid’s birthday party and the latest Pixar film is coming out. Would they not use their 50-inch screen to have 50 people watching this film?”
We have been told that some big chains and also small exhibs are not happy about the Screening Room’s recent proposal. Cinemark’s CEO Mark Zoradi said in a statement: “The exhibition window has been the most stable window long-term and the theatrical success of a film drives the value proposition for the studios’ downstream ancillary markets. Cinemark believes that any day-and-date propositions must be critically evaluated to avoid the devaluation of the exhibition window and all subsequent revenue streams of our content providers.”
Nonetheless, the Screening Room does have its proponents in town, particularly as titles like this weekend’s bombs are flushed out of multiplexes. Studios have to wait out a three-month window between theatrical and home entertainment, forcing them to hibernate titles and shell out again for marketing, rather than there being an easy segue between the multiplex and VOD/DVD. “Listen, something has to change,” cried one distribution chief about the window situation. “We sat across from exhibition all summer long and told them that change is coming. We need to be ahead of it and be thoughtful about it.”
The same studio suit addeD: “There’s a weekend-to-weekend trend going on in the marketplace. One movie will overperform its tracking and dominate the social conversation as the ‘it’ movie, while the top spots are continually populated by strong holdovers. As such, the other new movies can’t rise to a value proposition in a way that they should.”
Because not all studios have heard the proposal yet, supporters of the Screening Room believe that the news was leaked to the press too soon as Parker and team still shop the idea around town. One investor/supporter who wished to remain anonymous said that they have been developing the idea for about three years.
Paramount experimented with AMC, Cineplex and some smaller exhibitors on a shortened theatrical to VOD window with its Paranormal Activity: The Ghost Dimension and Scouts Guide to the Zombie Apocalypse (which were released only a week apart), cutting the theaters in on some of the VOD profits. But one mom-and-pop owner in Delaware told Deadline that he has yet to see any cash from buying into Par’s idea. “Not that it would be much, but still,” he said. Another exhibitor told us that they hoped the Screening Room “would fail” because of the devastating impact they predict would happen on their bottom line.
“Anyone who predicts day-and-date for major releases is talking out of their hat,” one insider told us. “It doesn’t work. The revenues just aren’t there. Distributors are experimenting with a shorter window, but even the small guys who do day-and-date know it doesn’t work. Marketing is the biggest problem that distribution faces. That’s the only rationale for day-and-date: reduce marketing costs and hope that the theatrical element draws more attention, gets them better placement on the VOD menu and reduces marketing spend. Any reasonable-sized budget is unrecoverable with a simultaneous release model. Even the people who do day-and-date aren’t happy with the results.”
Another landmark disaster with a same-day major studio theatrical-VOD release was Sony’s The Interview. In the wake of threats from South Korean and the Sony Hack, the studio at first pulled the film from the 2014 holiday release schedule before opting to forge ahead with a 581-theater release in addition to VOD. Despite the film making headlines, Sony only earned $40M on VOD with another $11M at the global box office — numbers that failed to put the $75M production (cost+P&A) in the black.