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» Film-Tech Forum   » Operations   » Ground Level   » Disney Empire Using Its Force Against Theatre Owners on 'Last Jedi' terms

   
Author Topic: Disney Empire Using Its Force Against Theatre Owners on 'Last Jedi' terms
Jonathan M. Crist
Jedi Master Film Handler

Posts: 522
From: Hershey, PA, USA
Registered: Apr 2000


 - posted 11-01-2017 10:58 AM      Profile for Jonathan M. Crist   Email Jonathan M. Crist   Send New Private Message       Edit/Delete Post 
Disney Lays Down the Law for Theaters on 'Star Wars: The Last Jedi'

LOS ANGELES—The box-office domination of the “Star Wars” franchise has given Walt Disney Co. unprecedented power over the nation’s movie theaters.

Before exhibitors can begin screening “Star Wars: The Last Jedi” this December, they must first commit to a set of top-secret terms that numerous theater owners say are the most onerous they’ve ever seen. Disney will receive about 65% of ticket-sales revenue from the film, a new benchmark for a Hollywood studio. Disney is also requiring theaters to show the movie in their largest auditorium for at least four weeks.

Ignoring the terms carries an unusual penalty. If a theater violates any condition of the distribution agreement, Disney can charge it an additional 5%, bringing the studio’s total haul to 70% of sales on a movie likely to gross more than $500 million at the domestic box office.

The case of “The Last Jedi” highlights a perpetual but growing tension between the business partners who bring movies to the public: studios and theaters. Negotiations between the two parties have grown pitched as Disney has become one of the most powerful studios in Hollywood and theaters have lost leverage as box-office sales fall. Box-office revenue is down 5% so far this year.

That dynamic has exhibitors across the country resigning themselves to a new condition of doing business: If you want to play Disney’s blockbuster movies, get used to Disney’s rules.

“They’re in the most powerful position any studio has ever been in, maybe since MGM in the 1930s,” said one film buyer.

A Disney spokesman declined to comment on the negotiations.

The studio’s slate of surefire hits this year has included “Beauty and the Beast” and “Guardians of the Galaxy Vol. 2,” with “Thor: Ragnarok” coming this weekend.

Last year, with just 13 new releases, Disney had a 26% market share in total domestic box office, according to Box Office Mojo. The No. 2 studio, Time Warner Inc.’s Warner Bros., had a 17% market share with 23 movies. Disney is expected to top the market-share ranking this year, too.

Disney’s string of hits in recent years—fueled by its acquisition of Marvel Entertainment in 2009 and Lucasfilm in 2012—gives it sway over theater owners, many of whom described the studio as exercising more control over every detail of a film’s release than any of its rivals.

Few operators can afford to turn away a Disney windfall. But some independent theaters have decided not to screen “Last Jedi” when it’s released, saying the company’s disproportionate share of ticket sales and four-week hold make little economic sense—especially in small towns.

“There’s a finite number of moviegoers in my market, and I can service all of them in a couple of weeks,” said Lee Akin, who operates a single-screen theater in Elkader, Iowa (population: 1,213).

Toward the end of a month long run, Mr. Akin said he would be unable to swap in more popular titles and instead have to play “Last Jedi” to near-empty auditoriums—while still giving Disney 65% of those paltry sales. The studio is applying the 65% split across all weeks of the film’s release, rather than some studios’ practice of beginning a split at a high figure and then lowering it in subsequent weeks.

“When [studios] get much bigger than the other guys, that’s when all these wacky rules come into place,” said Mr. Akin.

Most theatrical releases send about 55% of ticket sales back to studios, though the average split is about 60% on major hits. Hollywood makes more money on tickets sold in the U.S. than in overseas markets, where the split averages about 40%. Disney has deals with some exhibitors that give it less than 65% on “Last Jedi.”

Disney’s rules on “Star Wars” begin before tickets go on sale online, when the studio outlines presale terms to theaters in contracts that are individually watermarked to prevent exhibitors from leaking them. Previous “Star Wars” installments gave Disney 64% of ticket sales and included four-week holds, and other releases from the studio usually require theaters to commit to a minimum of two weeks of screenings.

But Disney’s 5% penalty for not meeting terms on “Last Jedi” is unusual. The charge will be implemented for various violations, including if a theater pulls even one “Star Wars” screening from its schedule or begins marketing the movie before Disney gives the OK, according to theater operators.

The four-week hold in a theater’s largest auditorium, meanwhile, has frustrated distribution executives at rival studios that also have major releases hitting theaters around Christmastime. Soon after the “Last Jedi” opens on Dec. 15, movies such as Sony Pictures Entertainment Inc.’s “Jumanji: Welcome to the Jungle” and Twentieth Century Fox’s “The Greatest Showman” will begin jockeying for screen times. Twentieth Century Fox’s owner, 21st Century Fox Inc., and Wall Street Journal parent News Corp share common ownership.

Of course, most exhibitors make more money on concession sales than box office, and a theater receiving 35% of ticket sales on a hit that grosses $700 million is in better shape than one receiving 50% on a $200 million movie.

Disney’s terms on “Last Jedi” kick in if the movie collects more than $500 million in the U.S. and Canada, which box-office prognosticators say is a near certainty. The studio’s first installment of the space opera, “The Force Awakens,” opened in December 2015 to $248 million and became the highest-grossing domestic movie of all time, collecting $937 million in 2015. “The Last Jedi,” which has Mark Hamill returning as Luke Skywalker, is expected to draw gargantuan crowds.

Exhibition executives have already promised impatient investors the movie would help balance out a summer full of duds. Adam Aron, chief executive of No. 1 exhibitor AMC Entertainment Holdings Inc., called “Last Jedi” a “gift from heaven” earlier this year.

Disney’s terms have annoyed theater owners before. In May 2015, a trade group representing theater owners took the rare step of sending Disney a letter outlining “an avalanche of complaints, concerns and fears” from its members over conditions imposed on theaters that wanted to show the studio’s “Avengers: Age of Ultron.”

On the “Avengers” movie, Disney tried to limit matinee discounts and issued a rule stating theaters must use a national-average ticket price when calculating the box-office split. Disney retreated from both rules following the trade group’s letter.

Disney Empire Uses Its Force Against Theatre Owners

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Mike Blakesley
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 - posted 11-01-2017 12:05 PM      Profile for Mike Blakesley   Author's Homepage   Email Mike Blakesley   Send New Private Message       Edit/Delete Post 
This whole article is not really news, it just states the usual. The terms for "Star Wars: The Last Jedi" are mostly no different than they were for "Rogue One" or "Force Awakens." Disney has their "sliding aggregate" scale in place for this movie just like any other movie.

The one thing that's different is the 5% penalty for "not meeting terms." But it only makes sense to play this movie in the biggest auditorium. If it's good, then it'll draw the crowds.

If the movie were to tank out, then Disney would probably renegotiate. But as stated in the article, that's about as likely as BB-8 getting athlete's foot.

We played "The Force Awakens" and "Rogue One" for four weeks each -- the only time we've ever played movies for four weeks. Both were still doing business in week 4. In fact, "Force Awakens" did more business for us in week 4 that a lot of movies do in their first week. We're currently playing "Blade Runner 2049" (off the break), and both "Force Awakens" and "Rogue One" did more week 4 business than "Blade Runner" has done for us so far. I could give plenty of PG and PG-13 examples too.

I will say that "Last Jedi" does not seem to have the same giddy anticipation building for it that "Force Awakens" did, so we'll see how it does. For us, though, the bottom line is these long Disney play times work as long as the movies (and the presentation) are good -- word of mouth is the best advertising.

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Martin Brooks
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 - posted 11-01-2017 01:02 PM      Profile for Martin Brooks   Author's Homepage   Email Martin Brooks   Send New Private Message       Edit/Delete Post 
Looking at AMC's financials, their film rental costs for the first two quarters of 2017 was 50.71% of box-office. We're losing theaters. It seems to me that 65% is going to put more theaters out of business even if it has been done before.

Average ticket prices in the U.S. are only $8.65, although big cities charge closer to $15 and more if it's IMAX or Dolby Vision or other special formats. But at $8.65, the theater would only get $3.03. No one can survive taking in $3.03 per customer when there's only a max of 4-5 turns per day.

Why is it that media industries love to commit suicide?

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Martin McCaffery
Film God

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 - posted 11-01-2017 01:05 PM      Profile for Martin McCaffery   Author's Homepage   Email Martin McCaffery   Send New Private Message       Edit/Delete Post 
quote: Jonathan M. Crist
Disney will receive about 65% of ticket-sales revenue from the film, a new benchmark for a Hollywood studio.
Since when is this a new benchmark? Unless I was misinformed, 90-10 splits were pretty common in the days of exclusive first runs.

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Jonathan M. Crist
Jedi Master Film Handler

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From: Hershey, PA, USA
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 - posted 11-01-2017 02:14 PM      Profile for Jonathan M. Crist   Email Jonathan M. Crist   Send New Private Message       Edit/Delete Post 
quote: Martin McCaffery
Unless I was misinformed, 90-10 splits were pretty common in the days of exclusive first runs.
Martin:

The 90/10 calculated split was after subtraction of a fixed house allowance. The house allowance was supposed to be your actual cost of operation of the theatre for the week with the exception of film rental. For example: If your gross was $10,000 for the week and your house allowance was $3,500.00 then the film rent payable calculation was: $10,000.00 - 3,500.00 = $6,500.00 x 90% = $5,850 or 58.5% of based on that $10,000.00 gross.

Those who were astute theatre owners would keep submitting yearly applications for increases in their per screen house allowances regardless of actual costs. The result was that house allowances often ended up wildly exaggerated. That was one of the main reason for studios doing away with that pricing scheme.

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Mike Blakesley
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 - posted 11-01-2017 03:28 PM      Profile for Mike Blakesley   Author's Homepage   Email Mike Blakesley   Send New Private Message       Edit/Delete Post 
Disney has had the sliding aggregate thing in place for years. I don't have the chart in front of me (and maybe it's not supposed to be posted on a public forum anyway), but the bottom line is the better a movie performs, the higher the rental is. Warner Bros. has used a similar strategy since the first Harry Potter movie came out, at least. It's nothing new.

quote: Martin Brooks
It seems to me that 65% is going to put more theaters out of business even if it has been done before.
When I first got into the business (1979), a huge blockbuster hit would be 70% for the first week, usually decreasing by 10% each week until it hit 40%, then 35% the weeks after that. Super-blockbusters like a Jaws or a Star Wars might keep the 70% for the first two or three weeks. For a smaller exhibitor like us, we couldn't play movies on the break in those days but even when we did play them, a huge hit movie would still cost 60 to 70%. So that led to a lot of small theaters waiting ungodly amounts of time to get releases, until the rental terms came out of the stratosphere.

For a long time now, the rental average still figures out to about 50 to 55% of ticket revenue going to the studios.

Disney probably gets a little bit more than that due to them mostly being in the tentpole business these days, but other than that nothing's changed much in terms of film rental. What's changed is how long a movie will stick around. You used to have a good long time to make good money at 35% -- that's what's gone now.

I think the short video window, high concession prices and stupid management practices are going to put more locations out of business than film rental ever will.

At least this article is casting a little bit of sympathy on theater owners, which is unusual for a news article these days.

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Marcel Birgelen
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 - posted 11-01-2017 03:59 PM      Profile for Marcel Birgelen   Email Marcel Birgelen   Send New Private Message       Edit/Delete Post 
I wonder what they want to achieve with their 5% penalty for moving the engagement to a smaller screen. Do they really expect to lose ticket sales? When was the last time a show would sell out the biggest house after a 4 week engagement?

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Frank Cox
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 - posted 11-01-2017 04:49 PM      Profile for Frank Cox   Author's Homepage   Email Frank Cox   Send New Private Message       Edit/Delete Post 
Probably just to keep competing pictures off of the biggest and nicest screens.

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Steve Guttag
We forgot the crackers Gromit!!!

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 - posted 11-01-2017 05:11 PM      Profile for Steve Guttag   Email Steve Guttag   Send New Private Message       Edit/Delete Post 
And that is it. Personally, I think a restraint of trade sort of thing should be sought on the keeping it on one's largest theatre (and is it the largest seat count or largest screen size...they are often the same but not always). The only reason to force it in the biggest theatre is to deny space to competitors. It is in the theatre owner's best interest to have the busiest movies in the theatres with the most seats. They are not going to move Jedi down to the little house at week 3 if it is still packing them in. They want as many butts in those seats as possible because those butts often have mouths to fill their stomachs with as much food/drink as possible (they come as a set).

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Rick Raskin
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 - posted 11-01-2017 05:30 PM      Profile for Rick Raskin   Email Rick Raskin   Send New Private Message       Edit/Delete Post 
I think a good anti-trust lawyer could make a killing here.

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Marcel Birgelen
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 - posted 11-01-2017 05:52 PM      Profile for Marcel Birgelen   Email Marcel Birgelen   Send New Private Message       Edit/Delete Post 
They might be trying to keep the movie in the house with the highest margin e.g. the "PLF screen", which is often, but not always the biggest house.

But those kind of arrangements can have "funny" consequences. If you have a location, where the "PLF screen" doesn't have the largest seat count for example. Since the newest trend is to introduce all kinds of recliners and other luxury seating options, this will happen.

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Alexandre Pereira
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 - posted 11-01-2017 06:30 PM      Profile for Alexandre Pereira   Author's Homepage   Email Alexandre Pereira   Send New Private Message       Edit/Delete Post 
The way to deal with Disney is to say F#CK YOU. And simply not play their pictures. I did that. The Kingsway cannot play first run day and date with the CP QW down the street. Of course this is completely against the Competition Act - but the competition board exists as gatekeepers for the likes of CP. Welcome to the oligarchy of the future. Government exists only to serve the transnationals.
Regardless playing Disney is simply not worth it - the percentage and terms are too high. Concession sales will never catch up with the terms - so why bother? Disney still wanted 64% after the QW ditch the last Star Crapper after 15 weeks.
It is far better for movie theatre chains to focus on upgrades and service - including food and alcohol than to deal with the likes of Disney. There is plenty of other product - but more critical is to focus on self reliance - which pulls the exhibitor away from the dysfunctional business model of high percentage - high volume - big scale films.
Why serve the satanists at Disney - by absorbing all the costs of operation, have the theatre run into the ground with Star Track hoards and still make NO MONEY!.

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Mike Blakesley
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 - posted 11-01-2017 09:53 PM      Profile for Mike Blakesley   Author's Homepage   Email Mike Blakesley   Send New Private Message       Edit/Delete Post 
Um, we play all the Disney movies and we're profitable, so....

They're not doing what any other studio wouldn't do if they had a known quantity.

Disney has gotten too important to the marketplace to just say "no thanks." I guarantee if you're doing that, your patrons just think you're stupid for not playing the big hits. (Most people don't equate Marvel and Star Wars movies with Disney.)

Besides, they make good quality movies.

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Monte L Fullmer
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 - posted 11-02-2017 03:06 PM      Profile for Monte L Fullmer   Email Monte L Fullmer   Send New Private Message       Edit/Delete Post 
^ you have to play the game if you want to stay in business.

You just don't isolate yourself and set conditions from the rest of the market.

Your patrons will also notice and they're the ones keeping your doors open

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Marcel Birgelen
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 - posted 11-02-2017 04:06 PM      Profile for Marcel Birgelen   Email Marcel Birgelen   Send New Private Message       Edit/Delete Post 
In a competitive first-run market, it's almost suicide not to run any Disney movies. Sure, Disney did have their bombs too, but they've consistently delivered profitable movies for a long time now. Also, with the current market dominance, it's simply close to impossible to ignore them.

Maybe, if you're in a non-competitive market, you could do without them entirely, yet I still think you end up losing money.

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