AMC Theaters Drop Universal Films as ‘Trolls’ Fight Explodes

(Bloomberg) -- It’s a fight worthy of the big screen.

AMC Entertainment Holdings Inc., the largest U.S. cinema chain and a subsidiary of Chinese billionaire Wang Jianlin’s Dalian Wanda Group Co., will no longer show movies from Universal Pictures, arguing that the studio is “breaking the business model” that has sustained the companies for decades.

In an open letter to Universal Studios Chairman Donna Langley, the theater chain said the ban was in reaction to the film company vowing to make more films available online the same day they’re released in theaters.

Universal’s decision followed the success of “Trolls World Tour,” which was sent to home video this month after theaters were shuttered because of the pandemic. “As soon as theaters reopen, we expect to release movies on both formats,” Jeff Shell, the head of Universal Pictures parent NBCUniversal, told the Wall Street Journal.

AMC Chief Executive Officer Adam Aron claims Universal is breaking a longstanding agreement to give cinemas exclusive access to new movies before they’re made available on other distribution channels -- a concept known as the theatrical window. In a letter filled with pointed language, the chain said it won’t “meekly accept a reshaped view of how studios and exhibitors should interact.”

But Universal, owned by Comcast Corp., responded by saying it was misunderstood.

Theatrical Experience

“Our desire has always been to efficiently deliver entertainment to as wide an audience as possible,” the studio said in an emailed statement. “We absolutely believe in the theatrical experience and have made no statement to the contrary.”

AMC said it had nothing further to add in response to Universal’s latest statement.

Theaters across the U.S. have been shut down since March because of the coronavirus pandemic, prompting studios to release some movies directly online. That’s made the chains like AMC increasingly concerned that the strategy will stay in place after the crisis passes. With Tuesday’s ban, the exhibitor has made clear it won’t stand by and watch.

“AMC is willing to sit down with Universal to discuss different windows strategies and different economic models between your company and ours,” Aron said in the letter. “However, in the absence of such discussions, and an acceptable conclusion thereto, our decades of incredibly successful business activity together has sadly come to an end.”

Enough Cash

AMC has furloughed employees and cut pay for top executives to tackle the impact of the Covid-19 contagion. This month, the company announced plans to offer $500 million in notes, assuring investors it would have enough cash to last until movie theaters start reopening. Wanda, which has itself closed its cinemas back home in China, acquired AMC in 2012 but cut some holdings six years later.

Universal’s film slate for 2020 includes “Candyman” in September, “Halloween Kills” in October and a sequel to the animated “Croods” in December. The studio will have bigger pictures next year, when “F9,” a Fast & Furious installment, and “Jurassic World: Dominion” are set to debut.

After spending millions of dollars marketing “Trolls World Tour,” NBCUniversal rushed the film to home video to salvage its release. It turns out the picture did about as well for the studio as similar movies released exclusively in theaters. That’s heightened the concerns for AMC.

‘Symbiotic Partnership’

It wasn’t immediately clear if other major theater groups would follow AMC’s lead. Cineworld Group Plc, the owner of No. 2 exhibitor Regal Entertainment, said Universal’s actions were “completely inappropriate” and that it wouldn’t show any movies that violate the windowing agreement, though it stopped short of saying it would drop all films from the studio. Cinemark Holdings Inc., the industry’s No. 3, declined to comment.

“Most major studios have expressed their support for the theatrical window,” said Shawn Robbins, chief analyst at the Box Office Co. “Studios and theater owners function in a symbiotic partnership and ultimately rely on one another.”

“Trolls World Tour,” an animated kids film, has generated about $100 million in at-home rentals since its April 10 release, a person familiar with the matter said. It has taken in roughly as much for Universal as the original “Trolls” picture, said the person, who asked not to be identified because the numbers are private.

Important Test

“The results for ‘Trolls World Tour’ have exceeded our expectations and demonstrated the viability of PVOD,” or premium video on demand, Shell told the Wall Street Journal.

“Trolls World Tour” is an important test for the industry. While studios opted to delay most of their new blockbusters with theaters closed due to coronavirus, Universal made the film available to home audiences on its original premiere date.

The film’s performance prompted a quick response from the trade group for theaters, whose members, including AMC, depend on the usual two to three months of exclusive rights they get with new movies. The National Association of Theatre Owners said Tuesday the sales figures are the result of millions of people being quarantined and heavy marketing by Universal, not changing audience preferences.

“Universal does not have reason to use unusual circumstances in an unprecedented environment as a springboard to bypass true theatrical releases,” John Fithian, the group’s CEO, said in a statement. “Theaters provide a beloved immersive, shared experience that cannot be replicated.”

‘Scoob!’ Release

Universal isn’t the only studio testing its strategy during the shutdown. Walt Disney Co. is releasing a new movie on its Disney+ streaming service, and John Stankey, the incoming CEO of Warner Bros.’ parent, AT&T Inc., said he is rethinking the theatrical relationship because of coronavirus. Warner Bros. also plans to release its kids film “Scoob!” for on-demand home viewing, rather than in theaters.

The performance of “Trolls World Tour” may help Hollywood reassess the value of theatrical runs, historically the industry gold standard for releasing new films.

Though the original 2016 “Trolls” made more at the box office domestically, Universal has done about as well with the sequel, priced at $20 for home rental. The studio collected more than $75 million from the new movie because on-demand services take only a 20% cut, the person said. Theaters typically take half.

Sequel Cost

The sequel was also much cheaper to make, at $90 million versus $125 million for its predecessor.

“Our goal in releasing ‘Trolls: World Tour’ on PVOD was to deliver entertainment to people who are sheltering at home, while movie theaters and other forms of outside entertainment are unavailable,” Universal said in its statement. “Based on the enthusiastic response to the film, we believe we made the right move.”

It knocked AMC and the theater association for misinterpreting its remarks -- and making it public.

“We look forward to having additional private conversations with our exhibition partners,” the studio said, “but are disappointed by this seemingly coordinated attempt from AMC and NATO to confuse our position and our actions.”

In response, NATO said it had no involvement with the AMC letter, nor knowledge of it “before reading about it in the press.”

©2020 Bloomberg L.P.