For years, blockbuster movie releases played exclusively in theaters for 75 to 90 days. Due to COVID-19, studios completely overhauled their agreements with distributors, and the theatrical release window has shrunk as the popularity and emphasis on streaming grows.
This week, The Batman became available for streaming on HBO Max after only 45 days in movie theaters. The change in the distribution model is having an industrywide ripple effect, and here's what it means for AMC Entertainment (AMC 5.33%) and Warner Bros. Discovery (WBD -1.99%).
How the pandemic changed the game for movie distribution
Even before the pandemic, annual U.S. movie theater ticket sales had been consistently declining since their peak in 2002, seeing 1.57 billion tickets sold. During that pre-pandemic era, studios agreed to a 75-day to 90-day window where theaters exclusively showed their movies.
Then in 2020, when theaters mainly were closed, everything changed. Studios opted to skip the theatrical run for many of their films altogether instead of selling them to the highest bidder or using them to attract new subscribers to their streaming platforms.
Image source: Getty Images.
When movie theaters started opening up again, WarnerMedia decided to simultaneously release their new movies in theaters and stream them the same day on HBO Max. As a result, HBO Max would see a spike in subscribers when blockbusters like Wonder Woman 1984 were released, but the movie would often have a disappointing theatrical run. Wonder Woman 1984 only grossed $166 million worldwide compared to its predecessor Wonder Woman, which raked in $822 million worldwide during its 2017 release.
In 2022, WarnerMedia ditched the same-day streaming and theatrical release of its movies and, like other studios, created new terms with movie theaters: an exclusive 45-day window. Now the studios can give their blockbusters a run in theaters and show them on their streaming service sooner than ever.
That scenario played out with The Batman, the biggest movie year to date, as it landed on HBO MAX this week, 46 days after its theatrical release. So far, the blockbuster has grossed $365 million domestically. For comparison, The Dark Knight Rises -- the last stand-alone, Batman live-action film released in 2012 -- had grossed $433 million domestically during the same time period.
Movie theaters like AMC are taking measures to counteract the shorter windows in theaters. With The Batman, AMC charged a slightly higher price than other movies playing simultaneously, marking the first time the company used variable pricing in the United States.
The move aligns with AMC's strategy to squeeze more revenue from moviegoers, as its average revenue per patron in the fourth quarter of 2021 was $20.46, up 24.5% from Q4 2019. The increase was driven mainly by its food and beverage segment -- up 35% during that period -- where guests could choose their refreshments in advance.
AMC will have to continue to find creative ways to earn more money out of its guests since ticket sales may unlikely never recover to pre-pandemic levels. On AMC's most recent earnings call, CEO Adam Aron said that he expects the domestic box office to double from 2021, which equates to about $9 billion. That would be $2 billion less than the 2019 domestic box office, which had cheaper ticket prices.
The streaming wars wage on
The "streaming wars" started another chapter this month when AT&T (T 1.47%)spun off WarnerMedia to merge with Discovery Communications, forming Warner Bros. Discovery. The prized streaming service in the new media giant is HBO Max, with a reported 46.8 million subscribers -- up 11% in 2021.
By shortening the theatrical window of its blockbusters, Warner Bros. hopes to have its cake and eat it too. Studios like Warner Bros. typically receive 55%-60% of the total gross box office numbers. As mentioned, in 2021, WarnerMedia released its movies on HBO Max and in theaters on the same day, which hurt box office results.
Using Wonder Woman 1984 as an example, the sequel grossed $656 million less than the original, equating to about an opportunity cost of $360 million to $393 million for the studio. However, according to Antenna, a subscriber measurement company, HBO Max received nearly 450,000 signups on the day Wonder Woman 1984 was released. Now with a 45-day exclusive window in theaters, Warner Bros. hopes to capitalize on the box office and grow its subscriber base by having newer movies available sooner for consumers who prefer to watch movies at home.
What's next for AMC and Warner Bros.?
With the summer blockbuster season coming up, AMC will likely continue to test the limits with its variable pricing, raising its average revenue per patron in the process. However, with consumers knowing they will only have to wait 45 days to see new movies, it's worth monitoring if those blockbusters see a dip in overall box office sales. And if box office sales fail to bounce back to pre-pandemic levels, AMC stock may flop.
For Warner Bros., management will closely monitor box office receipts and its HBO Max subscriber base. If either of those disappoints, the company could reconsider the 45-day window for theatrical releases, reverting to the older model of a 75-day to 90-day theatrical run. However, if Warner Bros.' new strategy is a win-win for the box office and its streaming services, then the stock may be a smash hit.
