Studios want to get you rental movies much quicker — for a price

Confronted with dwindling home entertainment profits, major Hollywood studios are pressuring theater chains to let people watch new movies much earlier than usual.

Though details have yet to be finalized, most of the studios agree that they must come up with new ways to shorten the gap between a movie’s theatrical release and its home video debut, according to people familiar with the talks who were not authorized to speak publicly.

Such moves have previously sparked massive resistance from cinema operators, who feared that consumers would avoid watching movies on the big screen.

But major chains such as AMC and Regal are open to shrinking the so-called theatrical window.

The change would represent a significant departure from the way Hollywood has done business and highlights how rapidly shifting consumer viewing habits are forcing studios and theaters to rethink how they’ve operated for decades.

The main studios pushing the initiative — Warner Bros., Universal Pictures and 20th Century Fox — want customers to be able to watch select movies in their homes 30 to 45 days after they hit the multiplex, less than half the time it usually takes.

Consumers would pay $30 to $50 to watch the movies, and theaters would get a cut of the revenue from the premium video-on-demand offerings.

Such deals with the cinema giants are expected to come by the end of the year or in early 2018, people familiar with the talks said. Discussions have been going on for months and both sides had hoped to make the changes much sooner, but the discussions have been slowed by competing interests.

The issue will certainly be a focal point of conversations at this week’s CinemaCon, Hollywood’s annual gathering of studios and theater owners in Las Vegas.

Studios have been hard hit by declining home entertainment revenue and stagnating box-office revenue. Global box-office revenue leveled off at $38.6 billion last year, up just 1% from 2015. Annual home entertainment sales have fallen 50% to $12 billion in the last decade, gutting one of the studios’ key profit centers.

“Post-theatrical revenues are plummeting, so we have to figure out ways to make up that shortfall,” said Chris Aronson, head of distribution for 20th Century Fox. “There’s a lot of careful and thoughtful consideration going on and I think it will ultimately bear fruit.”

Many consider the traditional 90-day wait to be an outdated act of withholding at a time when consumers are used to getting films and TV shows whenever they want on their devices.

In fact, if people can’t get movies through legitimate online portals like iTunes and Amazon, they’ll get them illegally, studios executives argue.

“There is no doubt that absence does not make heart grow fonder,” said Megan Colligan, president of worldwide distribution and marketing for Paramount Pictures. “Withholding a movie after it’s run in theaters does not increase someone’s desire to buy it.”

Cinema owners have previously balked at attempts to shorten the theatrical window. A year ago, theater companies revolted at the Screening Room, a proposal by Napster founder Sean Parker to stream movies for $50 each while they’re still in theaters.

Paramount in 2015 released two low-budget horror movies early after they dropped below a certain number of theaters. But chains that were not part of the studio’s revenue-sharing deal with exhibitors refused to show the movies. The theater business infamously boycotted the release of Universal’s “Tower Heist” in 2011 after the studio made it known that it planned a truncated theatrical window for the film.

But several factors have now brought theater companies to the negotiating table.

Theaters are contending with greater competition from streaming services like Netflix and HBO Now, as well as high-quality cable shows and video games.

Movie theater attendance among teenagers — the next generation of hoped-for consumers — is falling. People ages 12 to 17 went to the movies an average of 6.1 times last year, down 16% from 2015, according to a recent report from the Motion Picture Assn. of America.

Cinema owners also want to keep the studios financially healthy so they can keep putting out the big movies that get people to the theater year-round. While big spectacles like “Beauty and the Beast” and low-budget offerings like “Get Out” thrive at the multiplex, the mid-tier dramas and comedies for adults are struggling to get audiences into auditoriums.

Chinese-owned AMC, whose chief executive, Adam Aron, has been in the job for a year, has publicly shown a willingness to play ball, as has Regal Entertainment CEO Amy Miles.

“As long as we can find a solution that grows the overall pie, we think it could be good for the overall industry,” Miles said at a recent investor conference.

Movie studio chiefs have been pushing in earnest for a shorter window since late last year, focusing on mid-budget movies that now struggle most at the box office. Many observers had expected deals to come to fruition by CinemaCon.

Warner Bros. Chief Executive Kevin Tsujihara publicly came out in favor of a shorter windows late last year, accelerating the push. 21st Century Fox CEO James Murdoch also expressed support.

“We have to think about these crazy hold-backs that theater owners put in place,” Murdoch said at a conference in September. That comment provoked a blistering response from the National Assn. of Theatre Owners, an exhibition trade group.

But while industry insiders recognize the need to adapt, studios disagree on how the model should change. Studios are legally prohibited from talking to each other about such negotiations, making it difficult to come to an industrywide consensus on the particulars of the new model.

“The biggest problem is all the studios want different things,” said a cinema executive familiar with the talks who was not authorized to speak publicly. “There are a lot of different ideas out there, but until they coalesce, it’s difficult for the exhibitors to say yes or no to anything.”

Different windowing models would be better for different companies. Universal is owned by cable giant Comcast Corp., and Warner Bros.’ parent Time Warner Inc. is in the process of being purchased by telecommunications firm AT&T. Both could benefit from having early access to popular movies to funnel through their massive distribution networks.

Price is another source of disagreement. Few believe that consumers will jump at the chance to pay $50 per rental, but $30 could prove enticing. However, theater owners want the price to be high enough so that their share of home video sales would offset the potential cannibalization of ticket sales.

“It’s really about giving consumers what they want, because if we don’t give it to them, they’re going to go to the pirated version,” Tsujihara told investors in a conference call in February.

Then there’s Walt Disney Co., which is against shortening the window because its movie business is almost entirely organized around the biggest superhero films, computer-animated pictures and “Star Wars” movies that people still want to see on the big screen. Disney proposed an earlier DVD release for “Alice in Wonderland” in 2010 and infuriated theater owners in the process. Disney declined to comment for this story.

While the biggest theater companies engage with the studios, many smaller and mid-sized chains are worried that a dramatic change in the traditional model will destroy their businesses.

“Everyone wants to keep kicking it around, and we don’t like it,” said Phil Zacheretti, president and CEO of Phoenix Theatres Entertainment, based in Knoxville, Tenn. “We assume we’re going to have to keep on the offensive.”

[email protected]

@rfaughnder

ALSO

The reason Hollywood’s studio leadership is in flux: The business model is changing

Netflix will produce four more feature films with Adam Sandler

Disney CEO Robert Iger extends his contract as search for a successor continues