Business

By Jeff Berman Movie theater owners probably shouldn’t be overly concerned about Screening Room and other potential streaming services that would allow consumers to view films in their homes at the same time that those movies are in theatrical release, according to Stifel analyst Benjamin Mogil.

“While at first blush, the introduction of such a service would likely be viewed as a zero-sum entrant, directly taking share from the exhibitors, this doesn’t necessarily have to be the case,” Mogil said in a July 13 research note. He was referring primarily to Screening Room, a new startup by Napster co-founder Sean Parker and Prem Akkaraju, its CEO, that aims to make theatrical releases available to consumers in their homes at a cost of $150 for a dedicated set-top box and a per-movie rental fee of $50.

One key reason why such a service won’t have a big impact on movie theater owners is that the negative attendance trends seen over the past five years in domestic exhibition, especially among the targeted demographic range of viewers 25-45 years old for in-home theatrical windows, is not likely to change, said Mogil. Those folks probably won’t be returning to the theaters in the same numbers seen in the past, he said.

A viewing window such as the one proposed by Screening Room also “has the potential to be incremental, so as to not cause cannibalization within the industry,” he said. One “key” factor is that these services are “being priced as such that the sanctity of the film distribution windowing system — whereby each subsequent window has lower marginal revenue than the one that preceded it — is adhered to,” he said.

“More importantly, these proposed services, notably Screening Room, actively involve the exhibitors in the discussions regarding windowing while offering them financial terms that largely make-whole any potential cannibalistic attendance shifts,” he said. That’s “far better than the bargaining position (or lack thereof)” that the music labels had when Apple developed iTunes, he said. Unlike TV and film producers whose licenses to subscription video on demand (SVOD), notably Netflix, came on fixed license terms with no payments tied to the growth of the services, the proposed Screening Room business model includes the exhibitors participating on a linear basis from inception though payments tied to box office and concession revenue, he said. That acts as “a hedge should the service cause more cannibalization than originally viewed,” he said.

Mogil views Screening Room as a service “largely targeting a market currently comprising infrequent moviegoers” due to the pricing proposed for the needed hardware and rentals, he said.

This won’t, of course, be the first time that movies have been made available to consumers at home the same day they are released theatrically. Aside from illegal services, the movie studios themselves have already made select films available on demand digitally at the same time those films can be seen in theaters.

“In the past, same-day theatrical/home releases have been unsuccessful,” largely because the studios “only allowed these tests for relatively weak films and the consumers could easily read through this,” Mogil said. “Concerns over theatrical cannibalization and piracy ring-fenced the choices for releases to be relatively weaker titles.”

Mogil chalked up the current push towards more day-and-date home and theatrical movie availability mainly to the “relatively stagnant” North American box office results seen of late. “Despite the increase in the number of films being offered along with the introduction of 3D, the commercial expansion of IMAX, the material re-investment in seating, and an expansion in concession offerings, box office attendance … has been weak,” he said.

Movie theater owners, however, don’t necessarily see the potential threat of Screening Room and other potential streaming services quite the same way as Mogil. The National Association of Theatre Owners said in a March 16 news release that it has “consistently called on movie distributors and exhibitors to discuss as partners release models that can grow the business for everyone.” It conceded that “more sophisticated window modeling may be needed for the growing success of a modern movie industry.” But it said “those models should be developed by distributors and exhibitors in company-to-company discussions, not by a third party.”