“Trolls” may signal the start of big changes to the theatrical model, but AMC’s blacklist of Universal shows that movie theaters won’t take it lying down

Universal’s success in releasing “Trolls World Tour” direct to streaming — taking in $95 million in its first 19 days online — led the studio to declare its intention to release more movies that way in the future, and led AMC Theatres, the world’s largest movie theater chain, to sever its relationship with the studio. The tension over theatrical windows has now erupted into a full-blown war.

The rapid escalation began with comments by NBCUniversal CEO Jeff Shell in The Wall Street Journal on Tuesday, saying that the success of the digital-only release of the “Trolls” sequel “demonstrated the viability of PVOD” and that “as soon as theaters reopen, we expect to release movies on both formats.”

Those comments prompted AMC to send an open letter to Universal Chairman Donna Langley announcing that until and unless Universal backs off from Shell’s suggested plans to release movies day-and-date in both theaters and on VOD, the chain will no longer screen any Universal films in any of its theaters worldwide. “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,” AMC CEO Adam Aron wrote.

(Late Tuesday, Universal tried to walk back Shell’s comments. “We absolutely believe in the theatrical experience and have made no statement to the contrary,” the studio said. “We look forward to having additional private conversations with our exhibition partners.”)

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Universal had made the decision in March to move “Trolls World Tour” to day-and-date in part because the studio had already spent a significant amount of marketing on the film’s theatrical release when the coronavirus pandemic began to spread, and the studio had moved several other films like the “Fast & Furious” blockbuster “F9” to a later theatrical release date. But movie theater owners were still rankled by Universal’s decision to turn “Trolls” into a PVOD experiment, and Exhibitor Relations analyst Jeff Bock said Shell’s comments are exactly why.

“Now the floodgates have sort of opened,” Bock said, noting that Universal on Monday announced that Judd Apatow’s “The King of Staten Island” would skip its June theatrical release for a straight-to-digital strategy. Other studios have also pulled theater-bound films from their slates in favor of digital-first releases, including Warner Bros.’ “Scoob!,” Disney’s “Artemis Fowl” (heading to Disney+), Paramount’s “Lovebirds” (bound for Netflix) and STX’s “My Spy” (rolling out on Amazon Prime).

“Even considering the extraordinary situation we’re in right now with the pandemic, we’re now fully into this experimental phase where some movies are going to be guinea pigs about how much money studios can make from PVOD alone instead of theatrical,” Bock said.

Theater owners are outraged by the trend, and reject even the suggestion that this could become “the new normal.” “Universal does not have reason to use unusual circumstances in an unprecedented environment as a springboard to bypass true theatrical releases,” National Association of Theater Owners president and CEO John Fithian said Tuesday. “We are confident that when theaters reopen, studios will continue to benefit from the global theatrical box office, followed by traditional home release.”

But even if the circumstances will be hard for other films to replicate, the financial success of the “Trolls World Tour” experiment could encourage other studio bosses to rethink release plans across the board. After 19 days in PVOD release, a Universal studio insider reported that “Trolls World Tour” earned over $95 million in digital rentals. While that is less than the $153.7 million grossed by the first “Trolls” at the domestic box office in 2016, Universal has already made more in revenue from the digital-only sequel, roughly $75 million. (That’s because the studio keeps 80% from all rental sales compared to 50% that studios traditionally take from theatrical box office.)

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But there are still many questions that this experiment will have to answer, the first being the impact that marketing can have on PVOD-exclusive revenue. Part of the reason why “Trolls World Tour” made this move is because Universal already spent a significant amount to publicize the film’s theatrical release before the pandemic forced theaters to close. How much of this success is because of a long-term shift in moviegoing habits and how much of it is because of a strong, theatrical-level ad campaign aimed towards a populace forced to stay home and craving new content?

There’s also the question of downstream revenue. While theatrical release offers studios a smaller percentage of revenues than PVOD, there are also post-theatrical streams like TV and streaming rights, airline rentals, and of course, the VOD revenue that would already have been coming after a theatrical release. At declining price points, that allows studios to re-monetize the same film multiple times. Universal chose to only make the film available for a 48-hour rental at a price of $19.99, and it’s not clear yet whether families who rented the film will be willing to rent it again at the same or lesser price — or buy the film when it becomes available for digital ownership.

These questions could be answered by the next two major films to make the jump to PVOD. Last week, Warner Bros. announced that it would release “Scoob!” on May 15 for audiences to both buy and rent digitally, with digital ownership available at $24.99. Meanwhile, “King of Staten Island” is expected to get a smaller marketing spend from Universal than “Trolls World Tour” did, though it is likely that the Judd Apatow/Pete Davidson comedy will get similar promotion across Comcast’s entire range of networks and digital platforms.

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Bock expects that both films will make the PVOD model even more intriguing to studios.

“For films with a specific audience like family films and genre films, targeted digital marketing is going to make it much cheaper to promote these films to core audiences,” he said. “And if ‘Scoob!’ gets a lot of buys from families as opposed to rentals for just five dollars more, that’s probably going to make studios decide not to wait to make that option available for audiences.”

But AMC’s drastic response to Universal’s plans adds another wrinkle to this growing struggle. Blockbusters like Universal’s “Fast & Furious” sequel “F9” and Warner Bros.’ “Wonder Woman 1984” won’t be able to make back the hundreds of millions spent on marketing and production without a wide theatrical release, and it’s also worth noting that “Trolls World Tour” was only made possible because of the success the original “Trolls” had in theaters. While “Scoob!” is meant to start a cinematic universe based on Hanna-Barbera characters, it’s unclear whether studios can launch a new, popular franchise without the buzz that comes from going to the movies.

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And that necessity for franchises is what AMC is counting on. By essentially blacklisting Universal’s films in much the same way that it refused to screen Netflix films like “Roma” and “The Irishman,” AMC is threatening the moneymaking potential of Universal’s tentpole blockbusters in the hopes of forcing Universal to reconsider their release plans. Of course, if AMC is unable to avoid bankruptcy by the time theaters are able to reopen nationwide, such threats would be rendered moot…unless other theaters chose to follow suit and make a unified stand against day-and-date. NATO and national chains Cinemark and Regal did not immediately respond to requests for comment.

Still, it’s unclear when exactly theaters will be able to reopen, and it will take even longer for them to return to pre-pandemic operations — and possibly just as long for many filmgoers to return in large numbers as well. Bock warns that this may make PVOD even more tempting for studios, especially in the short term.

“For now, most films are committed to theatrical release, but will that change if theaters stay closed for longer than expected and other PVOD films do well?” he asks. “When theaters do open, they’ll have to reopen with 50% capacity to allow for social distancing, so how much are studios going to be able to make from 50% of revenue from theaters at 50% capacity? With so much uncertainty going on in the economy right now, I wouldn’t be surprised if some studios take the 80% from PVOD in the short-term, and that’s going to trigger some big fights over the theatrical window and how many films studios commit to theaters.”

For the record: This story was updated after AMC Theatres informed Universal of its intention to stop screening the studio’s films over its PVOD strategy for future releases.