With nothing left to watch, the entertainment business turns on itself
Relations between content companies and distributors were strained before. COVID-19 is pushing them to the breaking point.
The gloves are off in the movie business: AMC Theatres announced late Tuesday that it will not show any films from Universal Studios in any of its 1,000 theaters around the globe going forward. The threat came just hours after reports broke that Dish and other TV service providers were feuding with Disney over hundreds of millions of dollars in fees for ESPN — the most expensive cable network, and one that has become a lot less valuable with live sports shut down.
Conflicts between content production and distribution companies are nothing new. But while the two sides have ultimately always made peace in the past, these latest spats may be a sign that some of these relationships, and the business models they are built on, may not survive in a post-coronavirus world. It's yet another example of the way the current crisis could reshape the power balance between old and new media.
AMC's boycott threat comes after Universal revealed that it had generated around $100 million with premium streaming rentals of the movie "Trolls World Tour," which it released online earlier this month just days after its official theater release date due to the COVID-19 shutdown. "The results for 'Trolls World Tour' have exceeded our expectations and demonstrated the viability of PVOD," NBCUniversal CEO Jeff Shell told The Wall Street Journal, using industry shorthand for premium video on demand. "As soon as theaters reopen, we expect to release movies on both formats."
AMC took Shell's words as a direct attack on the theatrical window — the time a movie is shown exclusively in theaters before making its way to internet and cable on-demand distribution. "This radical change by Universal to the business model that currently exists between our two companies represents nothing but downside for us and is categorically unacceptable," said AMC CEO and President Adam Aron.
"Jeff's comments as to Universal's unilateral actions and intentions have left us with no choice," he added. A Universal spokesperson shot back later Tuesday, telling Variety that it was "disappointed" by AMC's statement, alleging that the theater chain was looking to "confuse" its position.
The back-and-forth between AMC and Universal happened just hours after the New York Post reported that Dish was looking to skip the $80 million to $100 million it is supposed to pay Disney for the right to carry ESPN this month. Dish isn't the only operator unhappy about the April ESPN bill, according to Lightshed Partners analyst Richard Greenfield. "We believe multiple [TV service operators] informed ESPN that affiliate fees should not be paid starting in April 2020 because sports content is not being delivered as specified in their affiliation agreements," Greenfield wrote in an analyst note this week.
Cable subscribers pay around $10 per month for ESPN and Disney's other sports networks, a fact that has long bugged TV fans who are not interested in sports. All together, Greenfield estimated that close to half of a $100 cable bill is going to sports channels — channels that haven't been showing live sports in weeks.
Disney has reportedly rebuffed any demands to reimburse operators, but the conflict isn't likely to go away anytime soon. Outlining plans for reopening his state, California Gov. Gavin Newsom said Tuesday that live sports with audiences won't return until all of the stay-at-home restrictions are lifted, which could take many months. Even sporting events produced for TV without live audiences are being classified as a higher-risk workplace and won't be allowed soon.
The same is true for movie theaters, which will likely have to institute significant social distancing measures before getting the go-ahead to reopen in California and a number of other states. And if there's a second wave of COVID-19 in the fall, as many health experts predict, chances are that most of us won't see the inside of a theater until well into 2021.
That's bad news for AMC, which recently announced that it was raising $500 million in debt to keep the lights on, leading Greenfield to quip on Twitter that "no movies will be released in theaters until after [AMC] files for bankruptcy."
At the core of both disputes are long-simmering conflicts over the business agreements between content companies and distributors, which have a lot to do with the emergence of the internet as an alternative distribution channel. Theater chains have, for instance, long boycotted Netflix for its insistence on releasing movies simultaneously on the big screen and on its service, resulting in the streamer buying its own theaters just to qualify for awards.
Similarly, TV operators have long balked at the fees they have to pay studios to carry their networks, especially as cord-cutting, prompted by cheaper streaming options, is accelerating. This has regularly led to retransmission disputes, with cable networks going dark on some operator services for days or weeks. In the past, networks have had the upper hand in these disputes, but that power dynamic is quickly shifting. Not only is the current crisis, and the economic outfall from it, likely going to accelerate cord-cutting, media companies like Disney are also finding that sports networks, their erstwhile sports network crown jewels, are a lot less valuable these days.
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At the same time, Hollywood is set to benefit from a power shift on the theater side. Studios like Universal aren't just finding premium video rentals that have consumers paying $20 for one-time-access to a newly released movie to be increasingly profitable. Many media companies are now also running their own video subscription services, with NBCUniversal's Peacock set to launch in July. The widening rift with theaters could accelerate plans to boost the subscriber base of these services by streaming movies to paying subscribers — something that Disney has already begun to do with films like "Artemis Fowl."
Outlining his plans to open up California, Newsom cautioned that we will have to face a new reality once the shutdown is over. "Our stores will look different. Offices will operate differently," he said. And if this week is any indication, the business of media, sports and entertainment will look very different as well.