It was the shot heard round the multiplex. Comcast's (NASDAQ:CMCS.A) Universal Studios and leading movie theater operator AMC Entertainment (NYSE:AMC) announced a landmark deal on Tuesday afternoon. The two companies -- stuck in a game of chicken since Universal promised that digital releases would continue to be released in conjunction with theatrical debuts following its successful springtime release of Trolls World Tour -- have made peace.
Comcast's movie arm will give AMC and rival theater chains three weekends of exclusivity. After 17 days, it will begin to offer its theatrical releases through streaming outlets. It's a big change from the window of movie house exclusivity, which typically lasts as long as 90 days, but it will give multiplex operators a fighting chance here. This is a good deal for Comcast, since AMC was threatening to not screen any of its future releases. This is also a good deal for AMC, as three weekends are better than none. It remains to be seen the impact that this will have on Netflix (NASDAQ:NFLX), but the prognosis is probably better than you think.
Waving through a window
Netflix isn't a name you may immediately gravitate to in sizing up winners and losers of this groundbreaking partnership. It's easy to size up where the other key players stand. Smaller exhibitors will follow AMC's lead. It's not as if they have much of a choice. Most -- but not necessarily all -- movie studios will likely rip a page out of the Universal playbook. It's not as if they have much of a choice.
Netflix is different. It's the world's leading premium streaming service with nearly 193 million paying subscribers worldwide. The good news is that this should open the door to its own big-budget films on the silver screen. As Variety points out, Netflix has tried to get films including The Irishman and Marriage Story into theaters, even offering theatrical release windows that dwarf the 17-day run that Universal and AMC are now rolling out. It will be that much easier for Netflix to have a new revenue stream in the form of a cut of box office receipts, and following that up with streaming debuts on its own service a couple of weeks later while still building on the original silver-screen buzz.
The bad news is that the market for compelling streaming content is about to heat up. Comcast films will be offered only as a premium video on-demand -- the $19.99 digital rentals we've been seeing since the pandemic. It will still abide by the 90-day window before digital rentals and sales in the $3 to $6 range that consumers typically see.
Netflix doesn't sell piecemeal releases, and that's bad. This will draw more consumer attention to many of its rivals including Prime Video, Hulu, and YouTube that will benefit from the new video on-demand opportunities.
Netflix doesn't sell piecemeal releases, and that's also good. If it ever decides to turn on that spigot, it's going to be a gusher. Right now, a lot of smaller players, including AMC Entertainment itself, offer newer streams as digital purchases. It's going to be a whole new ball game in terms of lifting the ceiling on its revenue-generating potential the moment Netflix allows its 193 million members to buy streaming rentals and purchases on top of its flagship smorgasbord service.
For now, the winners are AMC and Comcast. The news flow has been largely negative for AMC, outside of its ability to raise money and clean up its balance sheet. It has pushed out the reopening of its theaters to the latter half of August, and that date could change if COVID-19 case counts remain pesky and Hollywood delays more of its tentpole releases. Comcast would've lost a major distribution partner if the two hadn't been able to negotiate a solution, especially with big installments in the Jurassic World and Fast & Furious franchise slated for next year.
However, months -- or perhaps a year or two -- from now, the biggest winner here could be Netflix. It's the one with scale. It's the media stock mogul with a revenue run rate approaching $25 billion, giving it more ammo than anyone else to feed theaters content and the largest audience by far of paying consumers for streaming entertainment. You didn't even think that Netflix was suiting up for this particular game, but it's already the predetermined winner.