Studios Vs. Theaters: Who Will Blink First In War Sparked By ‘Trolls World Tour’?

Like so many films for younger audiences, Dreamworks Animation’s Trolls World Tour preaches the value of getting along while respecting each other’s differences. The film industry doesn’t seem to have heeded this message: the movie’s release earlier this month sparked tensions between the exhibition and distribution sectors that have escalated into a full-blown crisis.

Universal Pictures’s decision to shift Trolls World Tour from a theatrical-only to a simultaneous premium video-on-demand (PVOD) and theatrical release infuriated cinemas, which saw the move as a violation of the longstanding principle of theatrical windows. But the decision seems to have worked out well for Comcast-owned Universal, which reported on Tuesday that the movie grossed $100 million in three weeks (at $19.99 per rental), surpassing expectations.

Emboldened by this result, Jeff Shell, CEO of the studio’s parent company NBCUniversal, told the Wall Street Journal, “As soon as theaters reopen, we expect to release movies on both [theatrical and online].” (It’s worth noting that NBCUniversal will launch the streaming service Peacock nationwide in July.)

This was one step too far for AMC Theatres, the U.S.’s (and world’s) largest theater chain, which retorted that it would no longer play any Universal films on these terms, “effectively immediately.”

Cineworld, which owns Regal Cinemas, the country’s second-largest theater chain, swiftly followed suit. “We will not be showing movies that fail to respect the windows,” it said in a statement.

The National Association of Theatre Owners (NATO) added its voice to the chorus of disapproval: “Universal does not have reason to use unusual circumstances in an unprecedented environment as a springboard to bypass true theatrical releases.”

In a response to AMC’s ban on its films, Universal qualified Shell’s initial statements: “We absolutely believe in the theatrical experience and have made no statement to the contrary. As we stated earlier, going forward, we expect to release future films directly to theatres, as well as on PVOD when that distribution outlet makes sense.” Today, Shell told investors that PVOD releases will be a “complementary element” to theatrical distribution for some of the studio’s films (Variety has more on his latest comments).

As the coronavirus crisis continues, Universal is extending its experiment with VOD beyond Trolls World Tour. On Monday, it announced that it will release the live-action comedy The King of Staten Island straight to online in June. Other distributors are trying similar things: Warner Bros. is releasing the animated feature Scoob! on VOD in May, and Disney will put Artemis Fowl directly on its streaming service Disney+ in June.

The theatrical window — the roughly three-month period during which films tend to play exclusively in cinemas — has long been a bone of contention between exhibitors, who value it as a major selling point, and studios, who believe that they could earn more if it was shorter.

Universal’s decision to bypass the window almost entirely for Trolls World Tour (with the exception of some drive-in theaters) may have angered exhibitors, but it was taken in exceptional circumstances, when cinemas were shut. Which is why Shell’s vow to continue the practice even once they’ve reopened has rankled.

By walking away from all Universal titles, theaters would forgo some lucrative franchises, including Jurassic World, Fast & Furious, Minions, and the newly announced Lego reboot. Cineworld was more cautious in its wording, saying only that it would refuse films that ignore the theatrical window. Whether Universal — and other studios — continue this experiment in VOD, and whether the theaters make good on their threat, remains to be seen.

If the studios do continue it, they are effectively betting that online revenue can compensate for the shortfall caused by being locked out of the country’s biggest theater chains. This leads to the question: is Trolls World Tour an exceptional case?

After all, it benefited from the full weight of a theatrical marketing campaign, and, as a family film, is well suited to a home-bound audience. Is its triumph a one-off, or a sign of a permanent shift in viewing habits? The answer to the question begins with the release of Scoob, The King of Staten Island, and the other straight-to-VOD releases that may well follow.

Shell believes he has an answer already: “I would expect that consumers will return to theaters [when they reopen] and we will be part of that,” he told investors today. “I also would expect PVOD [premium video on demand] is going be part of that offering in some way. It’s not going to be a replacement, but it will be a complementary element and we’re just going to have to see how long that takes and where it takes us.”

The statements from AMC, Universal, and Cineworld are published in full below.

On Tuesday, AMC CEO Adam Aron sent the following letter to Donna Langley, chair of Universal Pictures:

At this time of national emergency and the coronavirus wreaking havoc on the entire world, I hope that you and your loved ones are healthy and safe. I worry – and I wish the best for – the health of all of our industry colleagues. Never in our lifetimes has there been a more challenging time.

Amidst a global pandemic as a backdrop, I wish we were spared from also having to address a different issue that arises from Universal actions currently underway.

For 100 years, AMC Theatres has served as a strategically critical and highly profitable distribution platform for movie makers, and for all that time the exclusivity of the theatrical release has been fundamental. When a movie is “Only in Theaters,” consumers perceive it to be higher quality entertainment. Countless filmmakers and moviegoers believe that their creative works are best enjoyed by consumers on the big screen. And we all know that those theatrical releases indeed boost publicity, positive word-of-mouth, critical acclaim and downstream revenues.

For much of the past four and a half years, I have been in direct dialogue with Jeff Shell and Peter Levinsohn of Universal about the importance of a robust theatrical window to the viability of the motion picture exhibition industry. Throughout that time, AMC has expressed a willingness to consider alternatives to the current windowing strategy common in our industry, where the aim of such alternatives is to improve both studio profitability and theater operator profitability.

Universal stated it only pursued a direct-to-home entertainment release for Trolls World Tour because theaters were closed and Universal was committed to a lucrative toy licensing deal. We had our doubts that this was wholly Universal’s motivations, as it has been a longstanding desire by Universal to go to the home day and date. Nonetheless, we accepted this action as an exception to our longstanding business practices in these unprecedented times.

In today’s Wall Street Journal, Jeff Shell is quoted as saying that:

“The results for Trolls World Tour have exceeded our expectations and demonstrated the viability of PVOD,” Mr. Shell said. “As soon as theaters reopen, we expect to release movies on both formats.”

This radical change by Universal to the business model that currently exists between our two companies represents nothing but downside for us and is categorically unacceptable to AMC Entertainment, the worlds largest collection of movie theatres.

Going forward, AMC will not license any Universal movies in any of our 1,000 theatres globally on these terms.

Accordingly, we want to be absolutely clear, so that there is no ambiguity of any kind. AMC believes that with this proposed action to go to the home and theatres simultaneously, Universal is breaking the business model and dealings between our two companies. It assumes that we will meekly accept a reshaped view of how studios and exhibitors should interact, with zero concern on Universal’s part as to how its actions affect us. It also presumes that Universal in fact can have its cake and eat it too, that Universal film product can be released to the home and theatres at the same time, without modification to the current economic arrangements between us.

It is disappointing to us, but Jeff’s comments as to Universal’s unilateral actions and intentions have left us with no choice. Therefore, effectively immediately AMC will no longer play any Universal movies in any of our theatres in the United States, Europe or the Middle East. This policy affects any and all Universal movies per se, goes into effect today and as our theatres reopen, and is not some hollow or ill-considered threat. Incidentally, this policy is not aimed solely at Universal out of pique or to be punitive in any way, it also extends to any movie maker who unilaterally abandons current windowing practices absent good faith negotiations between us, so that they as distributor and we as exhibitor both benefit and neither are hurt from such changes. Currently, with the press comment today, Universal is the only studio contemplating a wholesale change to the status quo. Hence, this immediate communication in response.

AMC has invested significant time and energy with Universal executives over the past few years trying to figure out a new windows model that would be beneficial both for your studio and for our theatre operations. While Universal’s unilateral pronouncements on this issue are unpalatable to us, as has always been the case, AMC is willing to sit down with Universal to discuss different windows strategies and different economic models between your company and ours. However, in the absence of such discussions, and an acceptable conclusion thereto, our decades of incredibly successful business activity together has sadly come to an end.

Universal issued the following statement in response:

Our goal in releasing Trolls World Tour on PVOD was to deliver entertainment to people who are sheltering at home, while movie theatres and other forms of outside entertainment are unavailable. Based on the enthusiastic response to the film, we believe we made the right move. In fact, given the choice of not releasing Trolls World Tour, which would not only have prevented consumers from experiencing the movie but also negatively impacted our partners and employees, the decision was clear.

Our desire has always been to efficiently deliver entertainment to as wide an audience as possible. We absolutely believe in the theatrical experience and have made no statement to the contrary. As we stated earlier, going forward, we expect to release future films directly to theatres, as well as on PVOD when that distribution outlet makes sense. We look forward to having additional private conversations with our exhibition partners but are disappointed by this seemingly coordinated attempt from AMC and NATO to confuse our position and our actions.

Cineworld then released the following statement:

Cineworld and Regal’s policy with respect to the window is clear, well known in the industry and is part of our commercial deal with our movie suppliers. We invest heavily in our cinemas across the globe and this allows the movie studios to provide customers all around the world the opportunity to watch movies in the best experience. There is no argument that the big screen is the best way to watch a movie.

Universal unilaterally chose to break our understanding and did so at the height of the Covid-19 crisis when our business is closed, more than 35,000 employees are at home and when we do not yet have a clear date for the reopening of our cinemas.

Universal’s move is completely inappropriate and certainly has nothing to do with good faith business practice, partnership and transparency.

Mooky Greidinger, Cineworld’s CEO approached Brian Roberts, the Chairman of Comcast, back on the 19th of March (after Universal announced that Trolls 2 would be released in breach of the window) and told him among other things that:

“Nice words from your team are worthless if we cannot trust you as a partner. The message that the media has portrayed is: “Hollywood breaks the window” – well, this is not true! All our partners called us in a timely manner and told us that in the current situation they want to shorten the window for movies that were already released as cinemas are closing, most importantly, they all reassured us that there will be no change to their window policy once the cinema business returned. Unfortunately I missed a similar message in Universal’s announcement… not only did Universal provide no commitment for the future window – but Universal was the ONLY studio that tried to take advantage of the current crisis and provide a ‘day-and-date’ release of a movie that was not yet released.”

Cineworld’s roots go back 90 years in the industry and it was always open to showing any movie as long as the rules were kept and not changed by one-sided moves. Today we make it clear again that we will not be showing movies that fail to respect the windows as it does not make any economic sense for us.

We have full confidence in the industry’s current business model. No one should forget that the theatrical side of this industry generated an all-time record income of $42 billion last year and the movie distributors’ share of this was about $20 billion.