AMC Backs Down on Hollywood’s Once-Sacrosanct Theatrical Window

AMC Entertainment Holdings Inc., moving to settle a potentially costly feud with Universal Pictures, agreed to a historic cut in its exclusive rights to new movies.

The largest U.S. theater chain will allow Comcast Corp.-owned Universal Pictures to offer its films to premium on-demand viewing services just 17 days after they debut in cinemas, cutting the normal run on the big screen by more than two-thirds. In return, AMC will get a cut of on-demand sales.

The agreement sets a new precedent in Hollywood, where the so-called theatrical window for theaters, once lasting up to 90 days, has long been considered sacrosanct. It also resolves one of the biggest industry disputes in years, prompting AMC shares to rally in late trading on Tuesday. AMC and Universal executives were barely speaking during the early days of coronavirus-related shutdowns in the U.S. after the studio said it planned to bypass theaters completely with some movies.

“AMC enthusiastically embraces this new industry model,” said Adam Aron, AMC’s chief executive officer. The company agreed “because we are participating in the entirety of the economics of the new structure, and because premium video on demand creates the added potential for increased movie studio profitability, which should in turn lead to the green-lighting of more theatrical movies.”

The agreement comes at a sensitive time for AMC and other theater chains, which have been shutdown by the Covid-19 pandemic and forced to raise new capital to survive without revenue. The exhibitors are in a weak position against such industry giants such as Amazon.com Inc. and Walt Disney Co., according to Bloomberg Intelligence analyst Amine Bensaid.

“Theaters are set to lose the most unless they can capture a significant share of premium-video-on-demand sales,” he said. Neither AMC or Universal disclosed how they’ll split sales from these higher-priced home-video options, and there won’t be a real test of the model until next year. Universal won’t release any new installments of its big franchises, including Jurassic World and Fast & Furious, until at least 2021.

Investors initially applauded the move -- a sign they welcome theater chains’ attempts to adapt to the Netflix era and avoid more conflict with their biggest suppliers. But the shares drifted back down after a spike in late trading.

The stock is down 43% this year through Tuesday’s close.

Boycott Threat

The dust-up between the two companies started earlier this year. After movie theaters across the country were forced to close in March over health concerns, Universal and other studios delayed the premieres of some films and put others out for online rental, bypassing cinemas completely.

Universal executives touted in late April that one of the studio’s franchise films “Trolls World Tour” made as much money through online rentals as its predecessors did at the box office. They also said they may debut more films that way, threatening the key source of revenue for movie theaters that were already struggling to avoid bankruptcy because of the pandemic.

The studio’s claims prompted a furious, first-of-its-kind response from Aron, who vowed to stop showing any Universal movies in his chain until they came to a new arrangement. The No. 2 and No. 3 chains, Regal and Cinemark, also said they’d refuse to show movies that didn’t honor contractual agreements.

Aron said in a statement he could live with a 17-day agreement because most of a film’s box office revenue is generated during that time. The new arrangement may also boost AMC’s own on-demand platform, AMC Theatres On Demand, as films more quickly become available for rental and purchase.

Studios have pushed for more flexibility for a long time, because typically they get a bigger slice of revenue from online rentals and purchases than cinema ticket sales. The theaters usually roughly split revenue 50-50 with studios.

“The partnership we’ve forged with AMC is driven by our collective desire to ensure a thriving future for the film distribution ecosystem and to meet consumer demand with flexibility and optionality,” Universal Pictures Chairman Donna Langley said in a statement.

©2020 Bloomberg L.P.

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