Analyst: Box Office Trending Down 71%

Despite optimism on behalf of some national theatrical chains, the 2020 box office continues to be hammered by the effects of the coronavirus pandemic mandating closure of most screens in the United States and worldwide.

New data from Wedbush Securities in Los Angeles contends the box office through the first half of the year is down 71% from the same period in 2019 — a trend that won’t improve anytime soon as studios further delay new releases due to ongoing spikes in COVID-19 infections.

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Indeed, the second-quarter box office flatlined down 99.9% year-over-year to $3.69 million, compared with Wedbush’s most-recent estimate down 99.4% year-over-year, as most domestic theaters remained closed throughout the quarter.

While major chains such AMC Theatres, Regal Cinemas and Cinemark are eyeing qualified return to normal with Warner Bros.’ Tenet on Aug. 12, followed by Disney’s Mulan on Aug. 21, senior media analyst Michael Pachter believes consumers will remain reluctant to frequent cineplexes until their is a virus vaccine or downturn in infections.

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“While there are clearly many who are eager to return to some level of normalcy, there are still many more who we think will remain reluctant to attend the movies before there is a vaccine, or if the transmission rate falls significantly before then,” Pachter wrote in a note. “Simply stated, we do not expect attendance levels to begin to normalize until the end of the year at the earliest.”

Regardless, AMC reportedly has staved off possible bankruptcy in a deal The Wall Street Journal reported with a private equity group.

Analyst: Studios, Exhibitors Will Shrink Theatrical Window

With the success of Universal Pictures’ PVOD release of Trolls Word Tour, and the studio’s plan to distribute future theatrical feature films concurrent with digital retail, Wedbush Securities media analyst Michael Pachter contends a compromise between studios and exhibitors resulting in a shorter theatrical window is coming.

With studios reportedly making 80% on a movie’s digital release compared with 50% for theatrical, the incentive to go direct-to-consumer is financially appealing. At the same time, theatrical revenue and home entertainment marketing for major movie franchises such as “Fast & Furious,” “Star Wars,” “Mission: Impossible,” “James Bond” and “Spider-Man,” among others, is immense.

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Universal’s next major PVOD release, The King of Staten Island from director Judd Apatow, is slated for June 12. And Disney is expected to release smaller movies on its Disney+ SVOD platform.

“We very much believe in the value of the theatrical experience,” Disney CEO Bob Chapek said on the recent fiscal call. “But we also believe that either because of changing and evolving consumer dynamics or because of certain situations like COVID, we may have to make some changes to that overall strategy.”

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Pachter said he views Disney’s tepid approach to transactional VOD as limited in the long-term. He says Disney’s switch will spark further debate and negotiations on the existing theatrical windows and revenue share agreements.

“What we expect is that the exhibitors will make some small concessions on the windows or revenue share for these smaller films that would otherwise go to PVOD, so that all parties can maximize profitability, but the exhibitors cannot bend on simultaneous releases or they will go out of business,” Pachter wrote in a June 8 note. “The studios do not have any incentive to push the exhibitors out of business, and we believe that a mutually beneficial arrangement can be found before the studios begin releasing new content to theaters later this year or in 2021.”

Pachter: People Aren’t ‘Dying’ to See a Movie in Theaters

NEWS ANALYSIS — Wedbush Securities media analyst Michael Pachter remains bearish on the movie theater business, arguing exhibitors’ aggressive plans to re-open screens during a lull in the coronavirus pandemic is wishful thinking.

A return to moviegoing would in turn help studios market retail sales of DVD/Blu-ray Disc and digital titles — despite the fact home entertainment has fared well during the pandemic due to a larger segment of population being housebound.

Specifically, Pachter is talking about Cinemark, which plans to re-open select screens on June 19, with a national re-opening slated for July 10. Plano, Texas-based Cinemark Holdings, which closed all of its theaters on March 18 due to the virus, operates 554 theaters and 6,132 screens in the U.S. and Latin America.

“People may be eager to visit the theaters once they feel safe doing so, but we think it is unlikely crowds will return to any semblance of normal before a vaccine is widely distributed, particularly in urban and suburban markets,” Pachter wrote in a June 3 note.

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Cinemark June 3 reported first-quarter (ended March 31) domestic admissions revenue per screen was down 25.7% from the previous-year period — and up slightly (0.7%) from the domestic industry box office decline of 25.4%. For the full quarter, Cinemark attendance fell 29% to 27.9 million, while the average ticket price increased by 4% year-over-year.

In Cinemark’s Latin American circuit, admissions revenue per screen declined 32.1% in Q1, which included a 16% negative impact from currency translation and a 26% year-over-year decline in attendance per screen.

Pachter contends that with 30% of moviegoers older than 50 (according to the MPAA in 2018), a significant portion of middle-age consumers are not going to be bold enough to return to theaters. In addition, about 40% of moviegoers are under 30 years of age and losing a portion of this demo could result in studios and exhibitors delaying more releases until a vaccine is found.

“As we face a potential spike in cases nationwide after some seemingly premature re-opening schedules in addition to nationwide protests, we are less sanguine than Cinemark management that enough of the population will risk their health to support the current release slate schedule starting in July,” Pachter wrote.

He estimates the domestic industry box office will end 2020 down 97.8% from 2019, with most domestic screens likely remaining closed beyond the end of the quarter.

“Theatrical exhibition is in the middle of a perfect storm,” Pachter wrote. “Theater closures not only deplete cash reserves and sources of liquidity, but may alter consumer behavior indefinitely.”

Analyst: Q2 Box Office Down 100%

When sales decline 100%, it can’t get much worse for a business. But that’s the reality facing movie exhibitors. Through May 21 of the second quarter, the box office is trending down 100% year-over-year as the industry remains shut down due to the coronavirus.

Wedbush Securities media analyst Michael Pachter expects “very minimal” box office revenue in the current quarter, with most domestic theaters likely remaining closed through June 30.

The first-quarter domestic box office ended down 25.4% $1.79 billion as most theaters didn’t shutter until March. The North American box office in 2020 is trending down 58.1% compared with 2019.

“We do not expect attendance levels to begin to normalize until the end of the year at the earliest,” Pachter wrote in a May 26 note.

The analyst says theaters and studios have some incentive to release new content before a return to normalcy, as a theater would be able to show a single film on all of its screens thereby allowing for social distancing while still providing the studio with the opportunity to drive box office revenue.

Director Christopher Nolan’s Tenet (Warner Bros.) is poised to be the first in line to take that risk, although Pachter doubts the international espionage thriller will be able to hold its current release date target of July 17.

“Our estimates are clearly subject to change given the fluidity of the release slate and the mood on social distancing as stay-at-home orders begin lifting across the country,” the analyst wrote.

He thinks it unlikely consumers will return to cinemas with any semblance of normalvy before a vaccine is widely distributed. Additionally, the dearth of newly produced content may negatively impact theatrical attendance in 2021, while streaming services will be competing at the highest levels for content to bolster their offerings in an extremely competitive environment.

There are now 68 films that have been moved or pulled from the release slate, worth an estimated $7.5 billion. Of these films, seven moved to a streaming platform, worth an estimated $358 million in box office dollars. Fifteen have yet to be rescheduled or slated for streaming, worth an additional $652 million in potential box office dollars.

“All 15 are likely to be moved to streaming platforms, in our view,” Pachter wrote. “When taken together, we expect the negative impact to 2020 domestic box office to be $3.1 billion, only partially offset by a positive impact to 2021 domestic box office of $1.5 billion.”

Analyst: No Virus Vaccine, Netflix to Flourish, Theaters Languish

As local and statewide economies slowly re-open businesses in the face of a COVID-19 pandemic that has killed more than 50,000 Americans, movie theaters today (April 27) will officially be allowed to open in the state of Georgia.

While Georgia Governor Brian Kemp’s order may be wishful thinking, the reality for movie exhibitors is far less rosy with staffing shortages, a dearth of content and a weary consumer, according to media analyst Michael Pachter with Wedbush Securities in Los Angeles.

Pachter expects the 2020 box office to end down 47.1% from 2019 to $6 billion, and 2021 to end 59.5% higher than 2020. He expects minimal box office revenue in the current Q2, with ticket sales down a staggering 96.8% compared to the previous-year period.

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“We think some areas may open in June, but we do not expect attendance levels to begin to normalize until there is a vaccine, or the end of the year at the earliest,” Pachter wrote in an April 27 note. “Studios have no incentive to release new movies until all theatres are open and will be reasonably well-attended, which is not likely until there is a vaccine.”

The analyst says there have been 62 movies either moved or pulled from the release slate, worth an estimated $7.2 billion. Of these films, 17 have not yet been assigned a new release date, worth an estimated $830 million. Of those, The Lovebirds, Scoob! and Artemis Fowl have been slated for streaming or VOD debuts.

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“We expect this list to expand in the coming weeks,” Pachter wrote, adding the negative impact to 2020 domestic box office would be about $2.9 billion.

With Netflix adding an impressive 15.8 million subscribers across all geographies in Q1, the SVOD behemoth expects to add another 7.5 million subs in the current Q2 June quarter — or just below combined Q2 sub additions in 2018 and 2019.

“We think that Netflix will continue to thrive in a shelter-in-place environment, and our best guess is that its current and future subscribers will continue to find themselves spending the majority of their time at home for at least the balance of the current quarter,” Pachter wrote. “We can only conclude that Netflix will continue to deliver outsized subscriber additions for the balance of the year.”

Analyst: Home Entertainment Consumers to Get Bored With Stale Video Content

The death toll from the coronavirus may be declining, but millions of Americans remain working and spending greater amounts of time in the home due to statewide shelter-in-place regulations.

At the same time production of most streaming and commercial broadcast content has ground to a halt while consumption of existing content has increased, creating a dilemma for streaming services.

“We think it is unlikely that content creation will keep up with consumption for the next several months, and expect many consumers to become dissatisfied with the programming over time, particularly if the shelter-in-place regulations persist for more than several weeks,” Michael Pachter, media analyst with Wedbush Securities, wrote in an April 6 note.

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This finding underscores in part the current fascination with Netflix’s new original documentary series “Tiger King.”

In a proprietary survey of 1,338 consumers from March 27 to 29, Pachter found more than 93% of respondents reported practicing greater social isolation and distancing, and roughly 68% reported somewhat higher or significantly higher use of streaming services since the start of the coronavirus pandemic.

As expected, the survey found that SVOD services benefiting the most in terms of recent subscriber additions appeared to be Disney+, Netflix, Hulu and Amazon Prime Video. Overall, the pandemic has made subscribers to both SVOD and pay-TV less likely to cancel — although not driving cable/satellite TV sign-ups either.

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A majority of respondents (54%) continue to have a cable TV or satellite TV subscription, and over three-quarters of cable/satellite subs report having their subscription bundled with their Internet service. Among pay-TV subs, respondents said cable access was the most important feature (41%) of their pay-TV subscription, followed by live news (22%), DVR (18%) and live sports (18%).

“Our survey results suggest outsized streaming subscriber growth in recent weeks, along with more depressed churn [subs not renewing] than would typically be seen during this period,” Pachter wrote.

Analyst: Expect Netflix Q4 Sub Growth Miss

In recent months, Netflix critics have focused on the streaming giant’s stagnate domestic subscriber growth as evidence of cracks in the Wall Street darling’s veneer.

Longtime Netflix bear Michael Pachter, with Wedbush Securities in Los Angeles, suggests the service is going to miss meeting fourth-quarter (ended Dec. 31, 2019) domestic subscriber growth projections of around 600,000. Netflix is projecting 7 million new subscribers outside the United States.

“Domestic subs guidance and overall [earnings per share] guidance may be at risk given the heavy television advertising we observed in the latter half of Q4,” Pachter wrote in a Jan. 17 note.

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Netflix typically ramps up marketing efforts to drive lagging subscriptions when the number of existing subs not renewing (churn) increases.

The analyst contends marketing spending and a “solid slate” of high-profile new content released during the quarter should help dampen overall subscriber churn.

“We expect international subscriber growth momentum to continue,” Pachter wrote.

Indeed, the launch of Disney+ on Nov. 12 and the impending loss of most Disney and Fox content could cost Netflix another 25% of total viewing hours, according to Pachter, who ads that content from Comcast, Fox, Disney and Warner Bros. accounted for 60% to 65% of Netflix viewing hours in 2019.

“We expect most of it ultimately to migrate away,” he wrote.

That said, the flurry of new over-the-top video platforms does not imply the imminent demise of Netflix as Pachter expects the migration of third-party content to be relatively slow due to existing licensing contracts.

While it’s a guess whether Netflix (or any distribution channel) can replace content sufficient to subscribers and viewers loyal, Pachter think it is likely Netflix will pay whatever it takes to attract high quality content, and believe its competitors will be slow to gain scale.

Separate Wall Street reports say Netflix will spend upwards of $17 billion on content in 2020 — dwarfing all competitors, including Disney+.

“We expect the status quo to be largely maintained until the end of 2021,” he wrote. “For now, Netflix provides tremendous value for its subscribers.”

Netflix reports fourth-quarter fiscal results on Jan. 21.

 

Platforms Avoid Netflix Movies in Pre-Oscar Showcases

Netflix earned an impressive 24 Oscar nominations ahead of the 92nd Academy Awards on Feb. 9 — largely around two movies: Martin Scorsese’s The Irishman and Noah Baumbach’s Marriage Story.

Walmart-owned Vudu.com and exhibitors Cinemark, AMC Theatres and Regal Cinema have launched pre-Oscar events showcasing best picture nominated films — with the exception of Netflix’s titles.

That’s because Netflix — per longstanding policy — does not abide by Hollywood’s traditional theatrical release strategy affording exhibitors exclusive 90-day access. Instead, the streamer mandates all original movies be made available across all distribution channels (including theatrical) at the same time.

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This has angered exhibitors and industry insiders domestically and abroad (i.e. Cannes Film Festival) for years — the result being Netflix movies are largely ignored by major theater chains.

Indeed, Cinemark’s “Annual Oscar Movie Week Festival,” which runs from Feb. 3 to 9, enables consumers (for $35) to screen all nominated films — with the exception of Netflix’s titles. Vudu is taking preorders for Oscar-nominated titles, with the exception of The Irishman and Marriage Story (which have not been slated for a digital sellthrough release).

“I don’t see the utility of making a film available on VOD or in theaters, if it’s available for free to anyone with a subscription or trial account at Netflix,” said Wedbush Securities media analyst Michael Pachter. “Netflix would rather people sign up for a free trial and watch these films than it would care for the 50% to 65% it might earn from a movie ticket or VOD.”

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Last year, Netflix’s first Oscar nominated best picture title, Roma, was also ignored by major exhibitors. It went on to win for best director (Alfonso Cuarón) and best foreign-language film (Mexico’s first) — but no best picture. The movie reportedly generated about $200,000 in revenue from pre-nomination screenings over the extended Thanksgiving weekend at select indie theaters in Los Angeles.

The imbroglio made headlines when director Steven Spielberg suggested movies that forgo the traditional theatrical run should not be considered for Oscars. The Academy’s annual board of governors post-Oscar meeting nixed that idea.

Netflix responded (on Twitter) at the time stressing “we love cinema” and ubiquitous distribution. “These things are not mutually exclusive,” the streamer tweeted.

While Roma did become Netflix’s first film to be included in The Criterion Collection on Blu-ray Disc and DVD (due Feb. 11), it arguably left millions of dollars in box office revenue on the table.

“If Netflix wants to really be a movie company, and not just a highly successful television company, why won’t they consider the traditional movie business model?,” John Fithian, CEO of the National Association of Theater Operators, wrote in a 2018 blog post. “Wouldn’t Netflix make more money and establish a much deeper cultural conversation by offering a true and robust theatrical run first, and offering exclusive streaming to its subscribers later?”

 

Tale of the Tape: Streaming Video War Fees

With the streaming video market beginning to resemble a heavyweight prize fight involving numerous contenders, a “tale of the tape” analysis is in order to better understand costs associated with each “fighter” (service).

Apple launched Apple TV+ on Nov.1 for $4.99 — arguably the lowest-priced SVOD service on the market. The service is considered a significant threat to Netflix ($8.99) due to the Apple name and star-studded content (“The Morning Show,” starring Jennifer Aniston, Steve Carell and Reese Witherspoon).

Wedbush Securities contends Apple TV+ can generate 100 million subs in the next four years due in part to a global iPhone install base of around 900 million users.

“While this is an obvious threat to Netflix, Apple TV+ only has a handful of shows at launch,” analyst Michael Pachter wrote in a note.

The Nov. 12 launch of Disney+ ($6.99) could cost Netflix 25% of total viewing hours as much Disney/Fox content migrates from the SVOD pioneer to Disney+, according to Wedbush.

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Disney/Fox controls all of Netflix’s canceled Marvel Defenders Universe series (“Daredevil,” “Jessica Jones,” “The Punisher,” “Luke Cage” and “Iron Fist”) and Disney+’s upcoming Marvel Cinematic Universe series (“The Falcon and the Winter Soldier,” “Wanda Vision,” “Loki,” “What If…?,” and “Hawkeye”), popular series such as “The Simpsons,” and an unrivaled film library.

“We estimate that by the end of 2021, Netflix will have virtually no content from Disney, Fox, Warner Bros. or NBC Universal, and we think its efforts to replace that content with originals will only partially succeed,” Pachter wrote.

Disney earlier this year agreed to purchase Comcast’s stake in Hulu ($5.99) for about $5.8 billion by 2024. While Hulu continues to lose billions, which amount to the excess license fees paid to corporate owners over the revenue it generates, Pachter contends if Disney can grow Hulu’s subscriber base, it should be able to achieve breakeven and manage to gain market share from Netflix.

Disney is offering a subscription package with Disney+, ESPN+ and Hulu to drive greater subscriber adoption of all services.

As Netflix has developed more than 100 original series seasons outside of the U.S., it has relied on ‘second window’ content for the bulk of its viewing hours, according to Pachter.

“We estimate that fully 90% of viewing hours on Netflix are consumed by second window shows, and we estimate that Disney, Fox, Warner Bros. and NBC Universal account for 65% of total Netflix viewing hours,” he wrote.

Pachter estimates that by the end of 2021, Netflix will have virtually no content from Disney, Fox, Warner Bros. or NBC Universal.

“The company’s licensing of ‘Seinfeld,’ beginning in 2021 will help to soften the blow, and we expect [the show] to account for 5% or more of Netflix viewing hours,” wrote the analyst.

In 2015, Amazon Prime Channels began partnering with various third-party SVOD services offering domestic Prime members access to curated groups of content.

Monthly fees vary from $2.99 to $9.95 following a free trial period lasting between seven and thirty days. Showtime and Starz are priced at $8.99 each. Amazon has since added more channels, including HBO for $14.99 and Cinemax for $9.99.

AT&T TV Now: $135.00 Ultimate — 125+ live channels; $124.00 Xtra — 105+ live channels; $110.00 Choice — 85+ live channels; $93.00 Entertainment — 65+ live channels; $86.00 Optimo Más — 90+ live channels; $70.00 Max — 50+ live channels, including HBO and Cinemax; $50.00 Plus — 40+ live channels, includes HBO.

Hulu with Live TV: $50.99 No commercials plus live TV; $44.99 Limited commercials plus live TV.

YouTube TV: $50.00 YouTube TV — stream live TV from 50+ networks; $11.99 YouTube Premium — ad-free and offline video and music.

Sling TV: $25.00 Sling Orange — 34 channels of live shows, sports, and news; $25.00 Sling Blue — 47 channels of local tv, regional sports, and live shows, sports and news.

Netflix: $15.99 four-screen ultra-high-definition streaming; $12.99 two-screen high-definition streaming; $8.99 single-screen standard definition streaming.

HBO Now: $14.99 Standalone subscription to stream HBO on demand.

HBO Max: $14.99 Arriving May 2020; new home of HBO and WarnerMedia (Warner Bros., New Line, DC Entertainment, CNN, TNT, TBS, truTV, The CW, Turner Classic Movies, Cartoon Network, Adult Swim, Crunchyroll, Rooster Teeth, Looney Tunes, and more. Will have original programming, exclusive streaming rights to “Friends,” “The Fresh Prince of Bel-Air” and “Pretty Little Liars.”

Cinemax: $9.99 Max Go — standalone subscription to stream Cinemax on demand.

Amazon Prime Video: $12.99 monthly Prime membership; $9.92 annual Prime membership for $119 per year; $8.99 standalone video subscription.

Hulu: $5.99; $11.99 no-commercials subscription option for all non-live content.

Showtime: $10.99 standalone subscription to stream Showtime on demand.

Starz: $8.99 Standalone subscription to stream Starz on demand.

Apple TV+: $4.99 ad-free monthly subscription for original content; TV App includes access to subscribed cable content and most standalone SVOD subscriptions.

Disney+: $6.99 Standalone subscription to stream Disney, Pixar, Marvel, Star Wars, National Geographic, and some Fox content (“Simpsons”); Will be offered in a bundle with Hulu and ESPN+.

Peacock: Price not disclosed. Expect a standalone subscription from Comcast to stream NBC Universal content to be launched mid-2020.

The Roku Channel: Ad-supported service for accessing live content, movies, and series on demand provided by partners; accessible via Roku device or web browser.

IMDb TV: Ad-supported service for accessing movies and series on demand provided by partners; accessible via IMDB.com or any Fire TV devices.

Crackle: Ad-supported service for accessing movies and series on demand provided by Sony Pictures and content partners, accessible via most connected devices.

Tubi: Ad-supported service claims 20 million average monthly users and more than 132 million hours streamed in September alone.

 

Transactional Movie Marketing: How Big is Your Fan Base?

On Oct. 15, AMC Theatres — the world’s largest movie exhibitor — launched “AMC Theatres On Demand,” a transactional platform enabling its A-List members to purchase or rent studio (notably Paramount, Lionsgate) movies in the home on their retail release.

Key to AMC’s push into home entertainment is the exhibitor’s leverage of its 19-million Stubs A-List loyalty membership base in the same way Amazon Prime entices more than 100-million Prime members with access to movies, TV shows and third-party SVOD services via Prime Channels.

As the retail market embraces transactional VOD and electronic sell through in place of DVD and Blu-ray Disc, media companies are using pre-existing customer loyalty to jumpstart digital success.

When packaged-media kiosk operator Redbox launched Redbox Digital in 2017, its initial marketing thrust was to its 27 million Redbox Perks members.

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Indeed, Redbox claims that nearly half (48% ) of all Americans find out what’s new in home entertainment from its kiosks. The company recently enhanced the Perks program to reward members for each rental night instead of per title.

“The updated loyalty program increases the value of each Redbox experience,” Ash Eldifrawi, chief marketing and customer experience officer at Redbox, said at the time.

Last spring, Fandango launched a loyalty-rewards program — Fandango VIP+ — offering monetary credits for every four movies tickets purchased on its platform. VIP members also have 21 days to use their credit to stream movies and TV shows on FandangoNow.

“We needed to seed the system … to give customers an array of options to redeem their points,” Fandango chief marketing officer Adam Rockmore said in an interview.

While Fandango has not released data on VIP+ signups, Michael Pachter, media analyst at Wedbush Securities in Los Angeles, believes AMC has the upper hand.

“AMC may have a competitive advantage over Fandango and others delivering in-home entertainment given the reach of its rewards program, loyalty of millions [of] A-Listers and studio partnerships,” he wrote in a note. “We see little downside to AMC’s new on-demand offering, given its reach to loyal customers.”

Then again, FandangoNow is part of Movies Anywhere, the movie marketing platform (supported by Warner Bros., Sony Pictures, Universal Pictures, Disney/Fox) directing its 8 million registered users to buy and rent titles from its retail partners, which include Apple iTunes, Prime Video, Walmart’s Vudu, Comcast’s Xfinity Store, Google Play, Microsoft Movies & TV — and just recently: Verizon.