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Business

Theaters blast Universal over home-rental plans after ‘Trolls World Tour’

By
Alexandra Steigrad
Published April 29, 2020, 7:52 p.m. ET

A battle is brewing between movie theaters and Universal Pictures over its decision to release “Trolls World Tour” directly to home video-streaming services during the coronavirus lockdown.

Both AMC Entertainment and Regal Cinemas, the nation’s top two theater owners, are threatening to boycott Universal Pictures’ films from its screens after Jeff Shell, chief executive of Universal’s parent company NBCUniversal, said on Tuesday that the release to home screens went so well that he expects to launch new movies simultaneously to theaters and direct-to-home formats from now on.

Shell said the results of “Trolls World Tour” “exceeded” the company’s expectations and demonstrated the surprising “viability” of at-home video rental. The announcement came amid reports that “Trolls World Tour” has raked in $100 million over the past three weeks, more than the first “Trolls” movie made during five months in theaters in 2016, which could pose an existential threat to already struggling movie theaters.

Cinema houses rely on exclusive films for a two-month period in order to draw customers.

AMC, the country’s biggest cinema chain, reacted by putting out a statement on the same day saying it would boycott all Universal films, including its blockbuster series “Fast & Furious 9,” set to hit theaters next April, if the studio followed through with Shell’s plan.

While Hollywood studios have been looking at shortening the theatrical window, analysts were split on whether Universal’s words were merely bluster or if the studio will change the industry post-pandemic.

“Jeff Shell made a rookie mistake saying something to the effect of ‘we’re in an unprecedented situation, and we’ll keep doing it when the world goes back to normal,'” said Wedbush Securities analyst Michael Pachter. “He has no idea if premium video on-demand will work when we’re no longer in our homes, and it was stupid of him to provoke valuable partners who are suffering far worse than Universal is suffering.”

Calling AMC’s response “an overreaction,” Pachter attributed the dustup to heightened emotions and said “cooler heads will prevail” down the line.

But then Regal Cinemas, the second largest theater chain, added fuel to the fire on Wednesday.

“Universal was the only studio that tried to take advantage of the current crisis and provide a ‘day-and-date’ release of a movie that was not yet released,” Mooky Greidinger, CEO of Regal parent Cineworld, said in a statement. “Today we make it clear again that we will not be showing movies that fail to respect the windows as it does not make any economic sense for us.”

Greidinger added that despite the current environment, which has caused over 40,000 movie theaters to close nationally, he has “full confidence in the industry’s current business model.” He pointed to the pre-COVID strength of the movie business, adding that it generated an all-time record income of $42 billion last year and that movie distributors’ share of that was about $20 billion.

The International Union of Cinemas, which represents European cinema trade associations and operators, chimed in saying that the success of “Trolls World Tour” is mostly thanks to the unusual circumstances of the nationwide lockdown.

“When a third of the global population is currently on some form of a coronavirus lockdown and only 4 per cent of cinema screens around the world are open, it is hardly surprising that many have turned to video-on-demand and similar other services,” UNIC said in a statement.

Even so, experts have noted that the overall health of the theater industry has suffered greatly during the pandemic, and there may be no turning back.

AMC furloughed 25,000 workers, including CEO Adam Aron, while trying to thwart bankruptcy rumors. Last week, the company revealed plans to raise $500 million in debt to stay afloat. Regal has also furloughed over 90 percent of its workforce and it warned in March that any “material uncertainty” may “cast significant doubt” about its ability to stay in business and put it at risk of breaching its debt covenants.

According to MoffettNathanson analyst Craig Moffett, while studios and cinema chains have tussled over the theatrical window before, AMC and Regal may not have the strength to keep fighting the battle.

“Universal has toyed with the idea of direct-to-consumer in the past, and AMC responded with the same threats. AMC’s leverage at the time was too great, and Universal backed down,” Moffett said. “Things are completely different now.”

The analyst focused on the biggest theater chain, AMC, which boasts 1,000 screens globally.

With theaters closed, and with no one sure how many people will want a communal movie-going experience when they reopen, AMC has no leverage,” he said. “AMC needs top-flight product a lot more than Universal needs theaters.”