Disney CEO Bob Chapek Defends Hybrid Theatrical/Streaming Release Strategy

Facing litigation and scrutiny over the hybrid theatrical and Disney+ Premier Access release strategy around Marvel Studios’ Black Widow and other movies, Disney CEO Bob Chapek reiterated that the media giant would continue pursuing distribution channels dependent upon each movie’s market potential, among other factors.

Speaking Aug. 12 on the fiscal call, Chapek said the alternative release strategy — whose planning he said involved analyzing global market conditions and consumer behavior, and consulting with creative personnel, senior management, and even executive chairman Bob Iger — was prompted by the unprecedented impact of the pandemic on the traditional theatrical window.

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Bob Chapek

“We needed to find alternatives to provide movies to consumers while theaters were closed,” Chapek said, adding that once theaters began to re-open, moviegoers still remained home, reluctant to return without a vaccination and other assurances.

“So we adopted a three-pronged strategy that consisted of theatrical releases direct to Disney+, and a hybrid of theatrical and Premier Access premium VOD as we did with Cruella, Jungle Cruise and Black Widow — the top performing film for the domestic box office since the start of the pandemic,” Chapek said, adding that distribution of individual films is based on reaching the widest-possible audience.

The result has resulted in strong PVOD revenue from Black Widow and Jungle Cruise, in addition to topping opening box office ticket sales. It also produced a breach of contract lawsuit filed by Black widow headliner Scarlett Johansson, who claims Disney pushed the movie on Premier Access to undercut her theatrical take.

Disney denies the allegations, publicly announcing Johansson has already been compensated $20 million for Black Widow. The movie has generated $175.3 million at the domestic box office; $360.7 million worldwide.

Exhibitor trade group the National Association of Theatre Owners contends Disney has undercut its movies’ box office potential, including downstream home entertainment retail and rental revenue potential with Premier Access.

It claims Disney hasn’t found a new revenue stream with PVOD, but instead, has sabotaged existing ones.

“The many questions raised by Disney’s limited release of streaming data  opening weekend are being rapidly answered by Black Widow’s disappointing and anomalous performance,” NATO wrote in late July. “The most important answer is that simultaneous release is a pandemic-era  artifact that should be left to history with the pandemic itself.”

Chapek says Disney remains a strong believer in theatrical distribution.

“We will always do what we believe is in the best interest of the film and the best interests of our constituents,” he said.

Indeed, Chapek said the upcoming Sept. 3 release of Marvel Studios’ Shang-Chi and the Legend of the Ten Rings would stick with an exclusive theatrical release for a 45-day period, followed by distribution on Disney+.

“On Shang-Chi, we think it’s going to be an interesting experiment,” Chapek said. “The prospect of taking a Marvel title after just 45 days [in theaters] would be an interesting data point.”

Scarlett Johansson Sues Disney Over ‘Black Widow’ PVOD Release

In a significant development, Scarlett Johansson, star of Disney/Marvel Studios’ Black Widow, has filed a lawsuit against Disney for its concurrent theatrical and Premier Access VOD release of the Marvel superhero movie earlier this month.

The suit, filed in U.S. Superior Court in Los Angeles, alleges her contract with Marvel Entertainment and Disney was breached by the distribution strategy that seeks to release select movies simultaneously in a (shortened) 45-day theatrical window and into consumer homes via premium VOD.

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Black Widow was marketed to Disney+ subscribers as a $29.99 add-on, which resulted in Disney reporting more than $60 million in incremental revenue over the same weekend the theatrical release generated $80 million at the domestic box office and $78 million internationally. The dual-release strategy angered some distributors who claimed the PVOD release took revenue away from exhibitors and undermined the movie’s box office lifespan.

To Johansson, whose financial compensation is tied to box office revenue of Black Widow — not streaming — the move resulted in a direct hit on her compensation. A media report suggests the PVOD release cost Johansson $50 million in compensation.

“Disney intentionally induced Marvel’s breach of the agreement, without justification, in order to prevent Ms. Johansson from realizing the full benefit of her bargain with Marvel,” read Johansson’s complaint.

Disney, the global box office champ in 2019 with more than $11 billion in ticket sales — largely from Marvel movies — quietly transitioned some movie releases to Premier Access, beginning with Mulan last Labor Day — as a way of combating the pandemic’s impact on moviegoers and theatrical attendance.

In a media statement, Disney claimed there is “no merit whatsoever” to Johansson’s litigation. It went further to lament the actress’ filing, reportedly saying the actress had already been paid $20 million in compensation for Black Widow.

“The lawsuit is especially sad and distressing in its callous disregard for the horrific and prolonged global effects of the COVID-19 pandemic,” Disney’s statement read.

Disney’s upcoming Jungle Cruise is slated for concurrent theatrical and Premier Access release.

Disney isn’t the only studio to fall in the crosshairs of actors, producers and directors. When WarnerMedia CEO Jason Kilar unilaterally decided to release Warner’s entire 2021 theatrical slate concurrently on HBO Max, many players within the studio system said they were blindsided by the move, in addition to being impacted financially. To meet contractual obligations for films such as Wonder Woman 1984, Warner reportedly paid $200 million in talent bonuses based on projected box office had the movie releases not been impacted by the pandemic.

Kilar says Warner will return to the theatrical window in 2022, while also releasing 10 movies concurrently on HBO Max.

Return of the Theatrical Window? July Domestic Box Office Down 62% From 2019

NEWS ANALYSIS — The domestic box office has returned from the ashes of the lost 2020 COVID-19 year when exhibitors were shuttered due to government mandates. With July ticket sales reaching $485 million, the tally would appear to turn the page from the near non-existent $8 million in revenue generated in July 2020.

But does it really? The current July revenue pales in comparison to 2019, when exhibitors sold $1.27 billion worth of tickets in just the 31 days of July. To be sure, 2019 was a record year at the box office. Disney alone generated more than $11 billion in worldwide ticket sales, much of that from Marvel superhero releases.

Disney’s Jungle Cruise

By comparison, the 2021 North American box office is trending down 10.4% year-to-date, to $1.53 billion, as vaccinated moviegoers cautiously return to the cineplex, underscoring the long path toward normalization among exhibitors.

“We expect shares of theater-related stocks to remain volatile in the coming weeks with the resurgence of COVID cases (i.e. Delta variant) around the country, which potentially threatens the upcoming release slate,” Michael Pachter, media analyst with Wedbush Securities in Los Angeles, wrote in a note.

But the rise in Delta infections nationwide is just one of the issues impacting movie theaters. Expedited access to major studio movie releases in the home continues to undermine ticket sales. Observers contend the freefalling second weekend box office for Black Widow was largely due to Disney’s decision to simultaneously release the Scarlett Johansson starrer, from Marvel, as a $29.99 add-on to Disney+. Sources say Marvel is becoming increasingly frustrated with the same-day availability of its films in theaters and on the streaming service.

While Disney reported the title earned $60 million in PVOD cash opening weekend, the theatrical trade group NATO characterized the revenue as fool’s gold.

“Early analysis pointed at the Premier Access revenue and compared it to the domestic theatrical as a success, especially because Disney keeps every dollar of home release,” NATO said in a statement. “It does not.”

Pachter said he was not surprised by the revenue drop-off as fans of most major titles are likely to see their first viewing in theaters, with subsequent viewings on-demand dependent upon whether that includes repeat viewings.

“We think that the only way for any studio to maximize a blockbuster’s profitability is by preserving the exclusive theatrical window, and not cannibalizing the PVOD or rental windows that follow by releasing the title day-and-date,” he wrote.

The analyst contends that for smaller releases, studios would benefit from combining marketing for both theatrical and streaming windows.

“We believe Disney will return to exclusive theatrical windows for its blockbuster content by the winter holidays and throughout 2022, while sending some of its smaller and family titles direct to Disney+ to shore up subscriber numbers,” Pachter wrote.

Disney releases action adventure Jungle Cruise with Dwyane Johnson and Emily Blunt in theaters and on Premier Access July 30.

“It’s about having a granular understanding of what the consumption patterns are, and then speaking to the consumers in a way that’s going to be relevant to the content that they want specifically for themselves,” Disney CEO Bob Chapek told a virtual investor group last month. “And by doing so, we’ll drive engagement and consumption.”

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.”