Disney-Fox deal shunts talks between studios and theater chains over so-called PVOD

By Ben Fritz 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 15, 2018).

Hollywood's push to offer movies at home sooner for a premium price has become a casualty of Walt Disney Co.'s deal to acquire most of 21st Century Fox Inc.

There are currently no talks happening between the main proponents of so-called premium video on demand, including Comcast Corp.'s Universal Pictures and Time Warner Inc.'s Warner Bros., and major theater chains, according to people with knowledge of the fizzled discussions.

That is because the Twentieth Century Fox movie studio was also a key backer of the move, while Disney is not. Since deal talks between those two companies became serious this past fall, Fox has withdrawn from the discussions, the people said.

Disney in December agreed to buy key parts of Fox for $52.4 billion.

Currently, major studio movies are available to purchase online no fewer than 75 days after they premiere in theaters, and to rent or buy on disc two weeks later. The lag period has been shrinking in recent years, but theaters believe a significant "window" of exclusivity is critical to keep people buying tickets.

Many Hollywood executives, however, believe that practice isn't in keeping with the emerging world of on-demand digital entertainment and that the result is increased piracy and a long-term decline in studios' economic fortunes.

Making movies available sooner to watch at home, even at a high price, would relate better to current consumer behavior, executives have argued.

PVOD, as the concept is known, would provide an urgently needed new revenue stream at a time when the biggest global blockbusters continue to deliver profits but other types of movies are struggling.

Universal and Warner executives wanted many movies to be available to rent digitally 17 days after they premiere in theaters, while Fox was proposing 30 days, the people familiar with the discussions said. Proposed prices ranged from $30 to $50, more than five times the current cost of a video-on-demand rental. The studios offered to share some of that revenue with theaters to alleviate concerns about reduced ticket sales.

Because antitrust laws prevent studios from coordinating, each studio separately discussed their proposals with theatrical exhibitors. That has made coalescing around a single plan complicated, people involved in the talks said. Even before Fox pulled back, it wasn't certain a deal could be achieved.

Several digital and cable companies also have attempted to spur premium video on demand. Apple Inc. was pushing a 30-day plan with studios, one person with knowledge of the discussions said.

Disney has been the only major studio absent from the talks, and that is because it produces fewer, bigger-budget titles than competitors, which generate more on average at the box office than rivals' releases.

For much of last year, it seemed likely that studios and theaters would reach an agreement or that one studio would unilaterally announce its intention and others would follow.

AMC Entertainment Holding Inc., the largest cinema chain in the U.S. by number of locations, had been more open to PVOD than its largest competitor, Regal Entertainment Group, one of the people said.

AMC's chief financial officer said at an investor conference last month that PVOD discussions had "lost momentum" but didn't specify the reasons.

Disney and Fox had a combined 34% box-office market share in 2017, making it difficult for other studios to enact any plan without them. In addition, Warner Bros. has been reluctant to take the lead on a controversial issue as the company tries to keep its head down amid government opposition to AT&T Inc.'s proposed purchase of Time Warner.

Both AT&T and Comcast own distribution platforms that distribute movies digitally, which could influence their stance on PVOD.

Fox, as a pure content company, was viewed as the only unconflicted leading proponent of PVOD. Its executive chairman, Lachlan Murdoch, said at a September investor conference that the current system of delays between theatrical and home release is "highly inefficient" and that it "has to change."

21st Century Fox and Wall Street Journal parent News Corp share common ownership.

Sony Corp.'s Sony Pictures Entertainment has been promoting its own plan to move up digital and DVD sales by a couple of weeks in an effort to combat the piracy that typically occurs after movies have finished their theatrical runs, according to a person with knowledge of the proposal.

However, that proposal, too, appears to have little momentum at the moment, according to knowledgeable people.

Most top executives in Hollywood believe it is inevitable consumers will get earlier access to movies at home but don't expect any movement on the issue until the current wave of merger deals is complete.

Write to Ben Fritz at ben.fritz@wsj.com

 

(END) Dow Jones Newswires

February 15, 2018 02:47 ET (07:47 GMT)

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