In 2020, at the height of the pandemic, Universal Pictures and its art house company Focus Pictures rang alarm bells in Hollywood by ending a longstanding practice of giving theaters roughly 90 days of exclusive access to new movies. Instead, their movies (including Jurassic World: Dominion, Belfast, Cocaine Bear and M3gan) will be available to rent or buy digitally at a premium in just 17 days.
The launch of the service, known as premium video-on-demand, has raised widespread concerns for an industry averse to change that still sees the introduction of armrest cupholders in 1981 as a major innovation. Filmmakers and theater owners worry that ticket buyers will be even more reluctant to leave their couch if they can see the same movie on their TV or iPad weeks later.
Universal’s competitors have mostly stuck to the status quo.
But Universal’s willingness to try — to challenge the idea of ”this is how we’ve always done it” — seems to be paying off. Universal has generated more than $1 billion in premium VOD revenue in less than three years, with little decline in ticket sales. In some cases, box office receipts have even increased when movies hit homes, which Universal believes is a side effect of premium VOD advertising and word of mouth.
For example, Universal Pictures will offer “Minions: Rise of Gru” on premium VOD 33 days after its release in 2022. The film has since gone on to play in theaters, outselling 2015’s “Minions” 33 days after its release, according to analytics firm Comscore. Figures for Universal’s “Jurassic World” and “Fast and Furious” franchises show a similar effect.
An interesting question: Donna Langley, chairman of Universal Filmed Entertainment Group, which includes Focus Features, said the company saw only a slight drop in revenue from traditional VOD, which lets viewers rent or buy movies for a lower price after 90 days in the theater. Premium products are “an additional, important new revenue stream that didn’t exist three years ago,” she said.
In other words, Universal believes that, in a way, it has found a whole new customer.
“It’s had a huge positive impact on our business,” Ms. Langley said, adding that without it, Universal may have had to make fewer films. Universal and Focus will release 26 films in theaters this year, more than any other Hollywood studio.
Universal rents a movie for as much as $25 for 48 hours, and buys it for as much as $30 during its premium VOD sale. Those prices could drop to $6 and $20 in subsequent traditional sale windows.
About 80% of premium VOD revenue goes to Universal Pictures, while sales platforms like iTunes and Google Play keep most of the rest. (Theatrical chains like AMC Entertainment get a small cut of the revenue—get them to agree to lower exclusivity.) Ticket sales are typically split 50-50 with theaters.
Premium VOD revenues are small compared to box office revenues. But it sure isn’t anything.
Universal said the “Super Mario Bros. Movie” has generated more than $75 million in premium video-on-demand revenue since May 16. “Jurassic World: Dominion,” “Original Age” and “Nova 2” each grossed more than $50 million. Universal said 14 films, including period dramas “News of the World” and “Bournemouth” starring Tom Hanks, each grossed more than $25 million.
Movies from Focus, including ‘Belfast’ and ‘The Lady’. Harris Goes to Paris,” each of which generated roughly $5 million. Julia Alexander, director of strategy at research firm Parrot Analytics, said the theatrical release had become valuable for some arthouse films. , primarily as a “marketing tool” for premium VOD rentals and purchases.
Like DVD sales in the 1990s and 2000s, premium VOD has begun to provide a financial safety net for box office misses. “Especially Spotlight,” said Peter Levinsohn, chief distribution officer for Universal Pictures Entertainment. “Those smaller films aimed at older moviegoers have become, I wouldn’t say rely on it, but they’ve benefited enormously.”
It’s also about flexibility, Mr Levinsohn said. Studios generally consider 17 days (three weekends) of theater exclusivity to be sufficient. Sometimes, depending on ticket sales, it allows for longer periods of time. The “Super Mario Bros. Movie” ran exclusively in theaters for 41 days.
“We’ve also taken back the decision of when to stream our content in homes based on the best timing for each movie,” Mr Levinson said. NBCUniversal It said in January that revenue from its studios (film and television) would rise 23% in 2022 from a year earlier to $11.6 billion.
Every studio is struggling to find creative ways to maximize movie profits in an ever-changing industry. Part of Universal’s challenge is guessing what effect premium VOD might have on streaming: If movies are sold or rented more widely (in Universal’s case, on Peacock and Netflix) before they hit streaming services ), is this a tool that devalues movies and encourages people to sign up for streaming services?
“The impact on streaming isn’t as big as one might expect, but it’s still notable,” Ms Alexander said.
