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Hollywood, Apple Said to Mull Rental Plan, Defying Theaters

Published on .

Credit: Patrick T. Fallon/Bloomberg
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Movie studios are considering whether to ignore the objections of cinema chains and forge ahead with a plan to offer digital rentals of films mere weeks after they appear in theaters, according to people familiar with the matter.

Some of the biggest proponents, including Warner Bros. and Universal Pictures, are pressing on in talks with Apple and Comcast on ways to push ahead with the project even without theater chains, the people said. After months of negotiations, the two sides have been unable to arrive at a mutually beneficial way to create a $30 to $50 premium movie-download product.

The leading Hollywood studios, except for Walt Disney Co., are eager to introduce a new product to make up for declining sales of DVDs and other home entertainment in the age of Netflix. They have discussed sharing a split of the revenue from premium video on demand, or PVOD, with the cinema chains if they give their blessing to the concept. But the exhibitors have sought a long-term commitment of as much as 10 years for that revenue split, which the studios have rejected, the people said.

Deals with potential distributors such as Apple and Comcast could be reached as soon as early next year to sell digital downloads of major films as soon as two weeks after they debut in theaters, the people said.

Those pacts would give the studios a way to issue an ultimatum to the theater chains: Agree to a deal, or we'll start selling the movie downloads anyway. The movie houses could fight back by boycotting films slated for sale via download days after their theatrical debut.

Some studio executives are taking a less aggressive stance and don't want to fight against exhibitors who still wield enormous power in the industry. The studios and movie chains have to negotiate independently because of antitrust rules.

The escalating tensions are likely to fuel investor worries about the movie industry as more viewers find reasons to stay home. The shares of leading circuits such as AMC Entertainment Holdings have been buffeted all year by the uncertainty around the talks as well as a more than 12% decline in the summer box office. In the year to date through Aug. 13, the North American box office is down 4.1%, according to ComScore.

The theatrical window of exclusivity over new movies has long been sacrosanct, in part because Hollywood's biggest directors and actors value the big screen over television. But the industry has allowed the exclusivity period before DVD sales to shrink to about three months after a movie's opening weekend, compared with six months historically.

Walt Disney Co.'s recent move to create its own streaming service for some of its films, another nod to the growing demand for home viewing of movies, has also added pressure on the exhibitors to reach a deal with studios, the people said. Movie distributors argue that selling movie downloads sooner would let them capitalize on the hype generated by opening weekends in theaters.

Different paths
The terms being discussed vary between each studio and each cinema chain, with some talks focusing on a release date of about 17 days after debut, for about $50, or four to six weeks from release for $30, people familiar with the talks said. Another possibility is first experimenting with a new release window overseas before trying it in the U.S., which is the biggest home-entertainment market, one of the people said.

Some theater executives have highlighted to studios that about 50% of a movie's revenue now comes from its theatrical run, which they could be jeopardizing, one of the people said. But studios have countered that theatrical has become a larger share of the revenue because of the collapse in DVD sales, one of the people said. In the first half of 2017, DVD sales were down 10%, according to industry-backed researcher DEG. DVD rentals from stores fell 20% year on year. Digital sales rose 8%, a slowdown from previous years.

Disney isn't interested in participating in the discussions because it believes in its strategy of focusing on fewer, bigger event movies that need to be seen on the big screen. Smaller producers like Lions Gate Entertainment, the studio behind "The Hunger Games" franchise, are hoping for a deal. CEO Jon Feltheimer said he believed PVOD would be introduced in the next 12 months. "You're going to see some tests done at least in some territories in the near future," Feltheimer said on its earnings call this month. "I hope that will happen, I think it will be great for the business."

-- Bloomberg News