Analyst Michael Pachter: Breaking Windows Destroys Value

Michael Pachter thinks the right thing for studios to do after the pandemic subsides is to reopen some windows.

Speaking at a DEG: The Digital Entertainment Group virtual presentation March 24, the Wedbush Securities media analyst said the way for content owners to get the most from their content is to once again have a theatrical window, along with several others in which they can maximize the value of content.

“It is suboptimal if a consumer spends the same amount of money … and subscribes to five services and consumes three times as much content,” he said. “Somebody loses. So the creatives can’t get paid and the publishers of their content can’t get paid if the total pie stays the same and people consume more. So it’s in the best interest of everybody in the value chain to maximize profit, which means theatrical, followed by PVOD or VOD, followed by DVD, and then make the streaming guys wait three years.”

He isn’t keen on the moves by several studios of late to send first-run theatrical releases to their streaming services concurrently with theatrical release, and he thinks it shouldn’t last.

“I think that if the world ever returns to normal, and that’s a 2022 prospect at the earliest, but if the world returns to normal, I think greed is going to thrive,” he said. “I think that the studios are going to maximize the theatrical window again, maybe that’s a 45-day window and not a 70-day window, but you’re going to have [a theatrical window] for a while. You have to remember all the constituencies involved in creating film. Directors like to win Best Director, and actors like to be on ‘The View’ and they like to be on ‘Access Hollywood’ and they like to measure their success in terms of box office. So when you release a movie like Bird Box direct to Netflix, what does everybody get paid? It’s impossible to actually track how much revenue that generated. Ultimately, everybody who works in this industry is motivated by getting paid for their hard work and the best way to get paid is to maximize revenue.”

Disney’s strategy of Premier Access on its streaming service (with an additional fee) for first-run films is a short-term phenomenon, he contended.

“I don’t think they’re going to see any meaningful spike in subscribers, that they are going to abandon this pretty quickly,” he said, noting, “Honestly, nobody is signing up for Disney+ to see Black Widow, period, or Mulan or Raya.”

WarnerMedia’s scheme to send all of its first-run films to its streaming service HBO Max for a year “was an overcommitment,” he said.

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“If you remember a famous HBO product, ‘Game of Thrones,’ we can say, ‘You know nothing, [AT&T CEO] John Stankey,’” Pachter said. “That guy knows nothing about anything. And I’m a big fan of Jason Kilar, and he’s I think in charge of the studio at HBO Max. … My bias is that AT&T bit off way more than they could chew when they bought Time Warner. They’re trying to package HBO Max and sell it and maybe later sell the studio, and I think they’re doing everything they can to make the HBO Max asset worth a lot because they think they’re going to get a Netflix multiple on that, so I think they’re making bad decisions for the creatives and for maximizing profit for the content by shoving it onto HBO Max. I really think that’s where that’s all coming from, but again It’s hard to get in the head of somebody who actually doesn’t know what they’re doing, so it’s hard to second guess. I don’t think the guy knows what he’s doing. I don’t think he has a clue — in way over his head.”

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