When the coronavirus pandemic forced the closure of movie theaters, it gave Hollywood studios an opportunity to test the market for premium video-on-demand.
So-called PVOD releases are new, theatrical movies streamed directly to homes at much higher prices than traditional video-on-demand movies, which arrive three months or more after they debut in theaters.
The biggest test yet of the PVOD business model comes Sept. 4 with the release of Walt Disney's live-action remake of "Mulan." Disney plans to charge $29.99 for people to watch the movie in their homes. Complicating matters, viewers also must be subscribers of Disney's $6.99-a-month Disney+ subscription video service to see the "Mulan" PVOD.
Since the pandemic forced all U.S. theaters to close in mid-March, over a dozen movies that would have otherwise received a normal theatrical run have gone to PVOD. But they haven't been as high-profile as "Mulan," which cost $200 million to produce and millions more to market.
Premium Video-On-Demand Could Be 'Titanic Change'
"We're going to see a big move to PVOD, particularly for certain movies, in the short term," Colin Dixon, digital media analyst and consultant with nScreenMedia, told Investor's Business Daily.
Consumer response will determine if PVOD remains a big deal after the pandemic has passed, he said. Premium video-on-demand could represent a "titanic change" for the entertainment industry, Dixon said.
On a conference call with analysts Aug. 4, Disney Chief Executive Bob Chapek called the "Mulan" PVOD release a "one-off" event. However, the company will use it as a learning experience, he said. Disney wants to test the consumer appetite for premium video-on-demand and see whether it helps draw new subscribers to Disney+.
Chapek said he believes "Mulan" will be a "fairly large stimulus to sign up for Disney+."
Opportunity For Variable Pricing
The $29.99 PVOD price for "Mulan" surprised some industry watchers. The standard price for most premium video-on-demand releases has been $19.99. That compares with $5.99 for traditional VOD movies.
Wedbush Securities analyst Michael Pachter expects to see a "sliding scale" for PVOD pricing as the market develops. Prices could depend on the type of movie and how long it's been available for streaming, he told IBD.
"We know that after 90 or 135 days, people are very comfortable paying $5.99" for traditional video-on-demand movies, Pachter said. "It should be on a sliding scale from $30 down to $6."
After the Covid-19 pandemic shuttered theaters earlier this year, Hollywood studios offloaded some films to subscription video-on-demand services. They sold theatrical movies to Amazon Prime Video, Apple's Apple TV+ and Netflix.
Other cinema-bound movies have shifted to studio-owned subscription streaming services like Disney+, HBO Max from AT&T-owned WarnerMedia, and CBS All Access from ViacomCBS.
In recent months, Disney has added three movies to its Disney+ service that it originally planned for theatrical release. They are "Artemis Fowl," "Hamilton" and "The One and Only Ivan." That fresh content helped Disney+ attract 60.5 million subscribers in its first nine months.
Theaters Reopening, But PVOD Releases Still Coming
Cinemas in the U.S. are starting to reopen. However, the major markets of Los Angeles and New York remain closed because of Covid-19.
The first major theatrical movie on the domestic release schedule is sci-fi spy thriller "Tenet" from Warner Bros., a unit of AT&T. "Tenet" hits U.S. theaters on Sept. 3. It opened internationally on Aug. 26.
Meanwhile, there's a steady stream of premium video-on-demand releases scheduled.
On Friday, MGM's Orion Pictures released "Bill & Ted Face the Music," the third installment in a comedy franchise, simultaneously in theaters and on PVOD services.
Lionsgate will release its time-shifting horror drama "Antebellum" as a premium video-on-demand title on Sept. 18.
Paramount Pictures, a unit of ViacomCBS, is releasing its thriller "Love and Monsters" as a PVOD movie on Oct. 16.
Paramount also plans to release its animated children's flick "The SpongeBob Movie: Sponge on the Run" as a premium video-on-demand release in early 2021. It next will be available on subscription streaming platform CBS All Access.
"SpongeBob" will follow family films "Scoob!" from Warner Bros. and "Trolls World Tour" from Universal Pictures in bypassing the theatrical box office for premium video-on-demand.
Streaming video platforms from Amazon, Apple, Alphabet's Google and Roku are seen benefiting from the PVOD trend as they'll get a share of the transactional revenue.
When A Window Closes, A Door Opens
The shrinking theatrical distribution window also is making the premium video-on-demand market happen, Benchmark analyst Mike Hickey told IBD.
"Demand (for PVOD) might be a little artificial now because many people are scared to go to the theaters because of Covid," Hickey said. "We'll probably have a shorter theatrical window as we come out of this pandemic."
On July 28, AMC Entertainment, the nation's largest theater chain, and Universal Pictures, a unit of Comcast, signed a landmark distribution agreement. The deal gives AMC at least three weekends, or 17 days, of theatrical exclusivity for Universal movies, after which time the studio will have the option to make its titles available across premium video-on-demand platforms, including through AMC Theatres On Demand.
Financial terms of the agreement were not disclosed. But AMC expects to get a share of streaming revenue.
The deal dramatically shortens the historic theatrical exclusivity window, which is typically at least 90 days.
In a report titled "The Day the Windows Broke," MoffettNathanson analyst Michael Nathanson called the AMC-Universal deal "a groundbreaking moment for the film industry."
If consumers are trained to wait only a few weeks to watch a movie at home, especially while Covid risks exist, the near-term impact on theater attendance could be "substantial," Nathanson said. However, consumers might end up consuming more new releases with the option to watch them at home, he said.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
