Nathanson: 17-Day Theatrical Window a ‘Dangerous Precedent’

With the coronavirus pandemic shuttering movie theaters, studios have slowly embraced premium VOD and releasing lesser titles early into digital retail channels. When Universal Pictures and AMC Theatres announced plans to shrink the traditional 90-day theatrical window to 17 days for new-release movies, the studio business model was thrown on its ear.

Perennial box office champion Disney — a long-time champion of the traditional theatrical window — broke ranks announcing it would bypass theaters and offer live-action Mulan to consumers in the home next month.

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“We were not surprised by Mulan. We thought [the movie] would go SVOD direct,” Michael Nathanson, analyst with MoffitNathanson, said Aug. 20 on the DEG: The Digital Entertainment Group Mid-Year 2020 Digital Media Entertainment Report webcast. “We’ve speculated changing the theatrical window for years, and here we’re seeing it happen in real time. It’s been a year of experimentation.”

Nathanson said the theatrical business has been Disney’s domain for years (64% of all industry pre-tax earnings in 2019, according to Nathanson), and CEO Bob Chapek’s decision to alter traditional distribution models will “ripple” through the industry (including home video) for years to come. The analyst contends the country has too many movie screens operating under current market conditions.

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“The number [of screens] has to fall,” he said in response to the slate of original movies moving to SVOD and other digital channels. The analyst said that trend will accelerate as studios and their media parents roll out digital distribution platforms such as HBO Max, Peacock and Disney+.

Nathanson said he believes Disney has no plans to abandon the theatrical window altogether since the studio makes money ($1.4 billion operating profit) on most of its major releases at the box office. And theatrical releases often inspire amusement park rides and consumer goods.

“Disney is not all-in [on shrinking the window],” Nathanson said, adding he never expected the window to shrink below 30 days.

“We were shocked at AMC’s deal,” he said. “We think it’s a very dangerous precedent.”

The analyst said that when analyzing the percentage of box office revenue in the 90-day window, upwards of 30% of most $100 million movies’ box office is generated beyond 17 days.

“It didn’t make sense to us to cannibalize days 17 to 30,” he said. “We’re still puzzled by that decision to go to the shorter timeframe.”

He said much of the economics will be determined by how much Universal charges for the home video releases, but said that at the end of the day it will be a “bad outcome” for exhibitors.

Indeed, despite a saturation of movie screens, rising SVOD, AVOD and digital distribution for non-blockbuster movies has left plenty of opportunity for the traditional 90-day window, according to Nathanson.

“We are the most over-screened country in the world,” he said. “We don’t understand why we won’t see a reduction in screens first. We’ve been waiting for changes in the theatrical business for some time. And this crisis has really escalated behavior by some media companies that feel they have the green light to experiment.”

Analyst: AVOD ‘Under Appreciated’ Market Dynamic

While the growth of subscription streaming video services led by Netflix has dominated home entertainment headlines over the years, growth of ad-supported VOD platforms still remains a lurking presence, according to analyst Michael Nathanson with MoffettNathanson in New York.

Speaking Aug. 20 on the DEG: The Digital Entertainment Group Mid-Year 2020 Digital Media Entertainment Report webcast, Nathanson said during the first three months of the coronavirus pandemic streaming video consumption in the United States increased 86% from the previous-year period — driven by Netflix with 32% market share. Nathanson said that among the 28% of streaming services other than competitors Amazon Prime Video and Disney+, ad-supported VOD is gaining the most traction among consumers.

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Major AVOD services include ViacomCBS’s Pluto TV, Disney’s Hulu, Fox Corp.’s Tubi, The Roku Channel, Redbox TV, IMDb TV, Peacock and Shout! TV, among others.

“That 28% of streaming minutes is where we think the streaming wars are actually happening,” Nathanson said. Calling the ongoing COVID-19 pandemic a “once-in-a-lifetime” moment for SVOD, underscored by Netflix adding as many new subscribers in the first half of the year than it did in 2019, Nathanson said AVOD represents a cost-efficient alternative.

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“If you don’t think you want to get into the streaming wars and chase Disney and Netflix down a rabbit hole of spending, you can have advertisers underwrite the cost of content [via AVOD],” he said. “We think this is a place where [media] companies that don’t want to play in the streaming wars, but have content libraries looking for a home will play the game.”

Nathanson projects a quadrupling of revenue for AVOD over the next four years as traditional linear pay-TV  consumption falls and content holders look for alternative distribution channels outside of SVOD. The analyst believes AVOD and other forms of digital distribution will account for 75% of all ad spending by 2024 as linear TV consumption declines and broadcasters move away from original content spending.

“It’s pretty much going to be a digital-only world,” Nathanson said.

Analyst: Apple TV+ Should ‘Reconsider’ Business Model

Apple TV+ may have been the first of several big-name subscription streaming video services (Disney+, HBO Max, Peacock) to take on Netflix, Amazon Prime Video and Hulu, but its market penetration continues to lag, according to new data from Wall Street analyst MoffettNathanson.

Citing an online quarterly survey of 8,500 homes, the New York-based research firm found that just 7% of respondents used the $4.99 monthly service, that’s down from 8% in the previous survey in May.

By comparison, 73% of respondents used Netflix, which was up 1%, with Prime Video up 1% as well at 52%. Disney-owned Hulu use was unchanged at 36%, while Disney+ increased to 28% (from 27%).

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“The Apple TV Plus data points should force Apple to reconsider their [SVOD] strategies and options at this point,” Michael Nathanson wrote in a note.

Apple TV+ is currently included for free (for 12 months) with the purchase of any Apple hardware product, including iPhone, iPad, iPod Touch and Mac desktop computers. Disney+, which has offered Verizon subscribers a free year of service, saw the number of telecom users decline 18% in the quarter.

Nathanson contends much of the Disney+ shrinkage could be attributed to the lack of new episodes of original series “The Mandalorian” — despite the July 3 premiere of the Hamilton movie.

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“In short, both services are in danger of losing momentum during the current production shutdown,” Nathanson wrote.

Regardless, the analyst, who is bullish on Netflix, believes the SVOD pioneer can add 30 million subs worldwide in 2020. Motivating force behind SVOD growth: pay-TV costs. Nathanson found that 57% of Netflix subs opted for SVOD due to the exorbitant monthly cable bill. Data points reflected by Prime Video (59%), Hulu (56%) and Disney+ (49%).

Netflix reports second-quarter fiscal results at market close today.

Comcast Rethinking OTT Opposition?

NEWS ANALYSIS – Comcast’s surprise $30.9 billion bid last month for British satellite TV operator Sky may be more than an effort to thwart Disney’s global ambitions. It could signal that the country’s largest cable operator is finally coming to terms with over-the-top video.

In December, Disney announced it would acquire select 21st Century Fox assets, including Sky, for more than $52 billion.

To be sure, Comcast CEO Brian Roberts said all the right things: Sky has “great people” and “capable management,” in addition to 23 million subscribers across the U.K., Italy and Germany. What he also admired is Sky’s technological innovation.

After Disney spent billions acquiring New York technology company BAMTech from MLB Advanced Media to further its branded OTT video platforms, Comcast had to reconsider its longstanding opposition to distribution channels other than linear television.

As Netflix revolutionized video distribution by creating the SVOD business model, Comcast responded with TV Everywhere, which attempted to give subscribers on-demand access to programing on digital devices. It then became the first pay-TV operator to offer transactional VOD and digital sell through of Hollywood movies.

While TV Everywhere has finally taken hold with consumers – after lengthy indifference – Netflix has more 117 million subscribers, including 53 million in the United States compared to Comcast’s 21.3 million.

At the same time, executives at Comcast Cable and NBC Universal continued to downplay OTT distribution. In a fiscal call last year, Steve Burke, CEO of NBC Universal, said that while the media company had deals with online TV services such as Sling TV, DirecTV Now, Hulu Live and YouTube TV, he doubted the platforms would make much of an impact.

“They’re off to a relatively slow start,” Burke said.

Indeed, NBC’s attempt at a standalone OTT comedy platform (SeeSo) shuttered after 18 months.

Neil Smit, former CEO of Comcast Cable, in 2016 infamously declared that he hadn’t seen an “OTT model that really hunts.” Less than a year later Smit stepped down as CEO, replaced by company veteran Dave Watson, whose stance on OTT is only slightly changed from his predecessor’s.

But opinions can change in the face of market reality.

NBC, working with Roku, announced the launch of a reality TV streaming service in the U.K. Dubbed, “hayu,” the service offers more than 5,000 episodes of U.S. and British reality TV shows, including “Keeping Up with the Kardashians,” and spin-off, “Life of Kylie,” in addition to “The Real Housewives” and “Million Dollar Listing” franchises.

“[Comcast’s purchase of] Sky brings with it a trove of exclusive content and rights that could be the basis of an OTT service with a genuine moat, capable of rivaling Netflix itself,” analyst Craig Moffett with MoffettNathanson Research wrote in a March 12 note.

Indeed, while Comcast CEO Roberts has embraced Netflix to the point of offering it seamlessly to cable subscribers, he understands well enough that the SVOD pioneer has morphed into much more than global distributor.

“One can assume that Comcast believes that the combination of Sky’s and NBC Universal’s proprietary content will be enough of a deterrent to ensure that the margins available to an OTT provider don’t simply get competed away,” Moffett wrote.