Could Streaming Lead To The Rebirth Of The Theatrical Experience?

'Army of the Dead'
Netflix

For a big movie that illustrates how the coronavirus pandemic has re-wired the film business, consider Army of the Dead. Released in May, the Zack Snyder zombie action spectacle cost about $90 million to make. Initially set up at Warner Bros. more than a decade ago, it traveled a winding path to Netflix, which grabbed it in 2019 as it was dramatically ramping up its film output. Unlike other prominent titles that the streamer released before the pandemic, Army snagged a one-week exclusive run from Cinemark, the No. 3 U.S. exhibitor. It was the widest theatrical opening of any streaming movie to date, and it came just as turnstiles were starting to spin again. Spring releases had cracked the $100 million mark, and while capacity constraints were still putting limits on the possibilities, the movie business felt more like itself since the Covid nightmare began in early 2020.

Maria Bakalova and Sacha Baron Cohen in 'Borat Subsequent Moviefilm'
Amazon Studios

Here’s the thing, though: Army of the Dead opened to just $780,000 in about 600 theaters, despite mixed-to-positive reviews and strong social media buzz. The gross was about half what industry pundits projected and was surely undercut by the audience knowing it could wait a week to stream it. About 72 million subscribers would do just that over its first month, the company said, making it one of its most-watched films ever. Ticket sales amounted to coins between the sofa cushions for Netflix, which is far more focused on adding subscribers than negotiating theatrical splits or orchestrating thousands of playdates.

Mark Zoradi, the former Disney exec who runs Cinemark as CEO, said the deal was a notable reversal of the impasse over The Irishman in 2019. Because of theater owners’ reluctance to depart from the standard 90-day window, the Martin Scorsese-directed Netflix release did not secure buy-in from any major exhibitors. “If that were today, we would find a way to come to an agreement,” he said at an investor conference. “That was very important to Scorsese to get a theatrical release. I think Netflix actually wanted a theatrical release as well, because it really helps to set up and ‘eventize’ that movie.”

What does an eventized movie look like in the new world, though? That is a very unsettled question. The North American box office has shown signs of life, and a few analysts see it regaining its 2019 level of $11.4 billion by 2022 or 2023. But it’s hardly a given, and the playing field is less level than ever.

Netflix

In addition to streamers’ increased leverage, major studios’ decision to emulate them with direct-to-streaming or day-and-date patterns could create a self-perpetuating cycle. “If windows do shorten more permanently,” a senior Netflix exec told Deadline, “the one thing that means is that theaters are going to need more films.” Zoradi and other top exhibitors acknowledge as much and have been in talks to book more pure streaming fare. Scorsese’s next outing, Killers of the Flower Moon, is aiming for a bigger splash in megaplexes than The Irishman when Apple rolls it out in 2022. “It’s set up to have a theatrical release,” star Robert De Niro said. “We’re still working out the details.”

Given the firepower of major streaming players like Amazon Prime Video, Apple TV+ and Netflix, there could be at least a movie a week capable of playing wide—at least, according to traditional measures. But the leverage has practically reversed from the 2019 dynamic. At that point, theaters were dug in and figured Netflix and others would need access to their screens. Now, after theaters survived brushes with bankruptcy and the kind of existential questions they have never faced before, there is a greater urgency to secure product.

All of the uncertainty has upended compensation for gross players and thrown a monkey wrench into the business model of films. How will the waterfall of revenue from ancillaries be calculated and shared if the theatrical engine at the front of the train is actually powered by a battery instead of a coal boiler?

During WME parent Endeavor Group Holdings’ June 3 call with Wall Street analysts, president Mark Shapiro said the agency has been “more flexible” in its dealings with studios. “We’re having these conversations upfront and they are paying for that flexibility. So that moves right to the benefit of all of our clients.”

Kristen Konvitz, a senior agent at ICM, agrees that the old methods can no longer really apply. “Over the past year, a lot of things have evolved,” she said. “In a world [during the pandemic] where there’s no theatrical and there’s a little bit of veiled mystery to it, we are looking for new ways to guarantee participation.”

For decades, there have been Hatfield-and-McCoy tangles between film purveyors and theater chains over windows, and parallel battles over gross participation. Filmmakers and stars betting on themselves by taking less up front, only to reap rich benefits in success, are being tempted to get their fair market value. For every Joker—which brought windfalls of tens of millions to director Todd Phillips and star Joaquin Phoenix—there are other lost opportunities that a streaming service would have locked in at market rate.

One complicating factor is the role played by streaming services during the pandemic. While most other aspects of American society and business entered hibernation for weeks or months, streaming boomed and kept on booming. Netflix added as many customers in the first half of 2020 as it did in all of 2019. During the theater closures that shuttered venues in major cities for nearly a year, licensing to streaming ended up being a viable business alternative for suddenly revenue-deprived studios. Dozens of films large and small—from Coming 2 America and The Trial of the Chicago 7 at Paramount to Greyhound at Sony and Finch at Universal—have been offloaded to streaming over the past year. In most cases, the figures are vague—Borat Subsequent Moviefilm, Amazon reported last fall, was enjoyed by “tens of millions” of Prime members in its opening weekend.

Eric Wold, an analyst with investment firm B. Riley, is bullish on the ability of both distributors and exhibitors to effectively cleanse themselves of laggard deals thanks to Covid. Good riddance to the old windows, he says, with their stale titles obligated to play to empty auditoriums for weeks. A more variable windowing approach, he says, can “optimize the performance of certain films and the entire theatrical exhibition ecosystem. Strong films will play through traditional window lengths and poor performers will utilize the positive optionality of these agreements to free up auditoriums and potentially drive greater revenues for all involved.”

Warner Bros. remains perhaps the biggest unknown among the traditional studios. Its infamous (or at least infamously communicated) decision to put all 2021 films out on HBO Max at the same time they hit theaters continues to cast a shadow over its relations with talent. While many dealmakers blame AT&T and its pick as CEO of WarnerMedia, Jason Kilar, the regime-to-be may not be a change in the direction of artistic freedom and a belief in theaters. Discovery is about to take the reins of a merged entity with WarnerMedia if it gets regulatory approval next year, and longtime Discovery CEO David Zaslav is a wild card. While he’s signaled a passion for the movie business, buying Robert Evans’ former compound in Bel Air and even planning to rebuild the screening room lost in a fire, his rhetoric, and the facts of the deal, leave an element of doubt.

The companies have forecast $3 billion in merger-related synergies, which is more than the amount of the AT&T-Time Warner deal that saw about 2,000 people leave WarnerMedia, including a number of seasoned executives. Zaslav has long ridiculed the lofty spending in the scripted TV arena, preferring to stay in the realm of inexpensive unscripted fare like 90 Day Fiancée.

In settling with dozens of stakeholders affected by “Project Popcorn” (as the day-and-date initiative was dubbed internally), WarnerMedia forked over hundreds of millions of dollars. Legal action was averted, and the initial furor largely died down once films like Godzilla vs. Kong caught fire in theaters. Warner has a gaudy 35% market share, but funding every release as though it were a hit is extremely capital-intensive. Netflix, with a content budget approaching $20 billion, is built for that kind of investment. Not so a traditional studio.

One of the great ironies of Netflix’s massive $450 million outlay for two sequels to Lionsgate breakout Knives Out is that their financial model does not rely on theatrical play. But the valuation of the sequel deal would not have been possible without the theatrical run of the original film, demonstrating the appeal of the film as a franchise starter.

“There’s no clear answer right now with how this is going to happen,” Endeavor CEO Ari Emanuel said on the investor call on the subject of windows. “We are negotiating on behalf of our clients and our own properties to make sure that we get the proper economics as we go forward, and that’s the way we are going to operate until we find the proper flow, which is going to take a little bit of time as Covid kind of moves on.”

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One thing that isn’t changing is the appetite for streaming players to disrupt the movie business just like they did television. Amazon, even before its game-changing purchase of MGM, was aiming for broader hits. Apple, in addition to Scorsese’s Flower Moon, has landed Will Smith Antoine Fuqua collaboration Emancipation and paid a record-setting $25 million for Sundance acquisition CODA. The shelves are filling at streaming companies at the same moment when Disney is sending a number of titles to Disney+, while Warner has said that half of its 2022 slate will go to HBO Max.

Netflix kicked off 2021 with a trailer promoting its plan to deliver at least one major movie a week to subscribers. “We’re going to have enormous movies over the course of this year,” the Netflix exec said, citing Red Notice with The Rock, Ryan Reynolds and Gal Gadot, and Adam McKay’s Don’t Look Up, which stars Leonardo DiCaprio, Jennifer Lawrence and pretty much the rest of Hollywood. “Theaters are going to want them on their screens.”

But if Netflix isn’t sweating the grosses? Well, what happens then?

This article was printed from https://deadline.com/2021/07/broken-windows-army-of-the-dead-borat-subsequent-moviefilm-netflix-amazon-prime-apple-tv-plus-cannes-magazine-disruptor-1234786382/