AMC Theaters and Comcast Declared a Truce: What does it Mean and What Comes Next?

A major skirmish between two entertainment giants in the Streaming Wars ended last week when AMC Theaters and Comcast agreed to terms on a deal to bring theatrical films to the home entertainment market after three weeks of release in theaters.

The war started when Comcast decided to send Universal Studios’ Trolls World Tour straight to digital after theaters closed for Covid-19. Then, Comcast escalated further, saying it would do this for all its films. AMC Theaters responded with a, “Well, in that case, we won’t carry any of your movies.” And then the other theater chains joined them.

(I gave one explanation for why Comcast started this battle last May.)

Finally, peace has come to these warring tribes. But many questions remain. Why agree to this deal? And what comes next?

The Biggest Misconception: This isn’t a shortened window, but a new one.

While a lot of the talk is about this shortening the home entertainment window, I disagree.

Together, AMC Theaters and Comcast have created a brand-new window.

Traditionally a film starts in theaters, goes to home entertainment (physical and digital), then on to premium cable, streaming, and basic cable. The names for digital home entertainment are a strange and convoluted set of acronyms: VOD, TVOD, EST, CVOD, IVOD. But those all mean the same thing: the ability to buy a movie at home to stream for a period of time, it just differs on where you buy it. (Cable set top box versus laptop versus smart TV and so on.)

I like this move for both sides. And it was a smart move to break through a negotiation stalemate: instead of battling over a specific point, change the entire perspective. Meanwhile, it allows both sides to save face from backing down on their key demands. This is key to understanding why the two sides agreed to this deal.

Why this deal?

Economically, this is a complicated set of factors to untangle.

The first thing to know is that there is a big gap between “three weeks” after launch and “day-and-date” (when a movie comes out on home entertainment on the same day). Most movies—and especially blockbusters—earn the bulk of their revenue on the first weekend they come out. (Something on the order of 33-50%.) Then each weekend earns progressively less. Comcast initially wanted to release films on PVOD the day they get to theaters; that’s a no go for theaters. This splits the difference.

That doesn’t mean that the theaters are willing to just sit by revenue gets diverted to studios/VOD distributors. Which is why Comcast agreed to share some revenue with the theaters. Reportedly 20% of PVOD sales will go to theaters. Typically, theaters and studios split box office 50/50, but theaters don’t get any digital sales revenue. So this is a big change.

So how will Comcast get by? As I wrote back in May, Comcast owns Vudu and Fandango, which will sell these movies on PVOD. They’re both a movie studio and a VOD distributor. (Though admittedly Comcast’s platforms lag well behind Apple and Amazon in digital sales.) If Comcast owns the distributor, they’ll still keep 80% of the PVOD revenue. (AMC actually owns a digital video distributor too, but they’re even smaller.)

What Comes Next?

Well, the rest of the industry has to decide what to do.

Do other theaters follow? Likely.

Given how intensely AMC Theaters was dug in, I’m inclined to think the terms are fairly generous for theater owners. Comcast needs Cinemark, Regal and smaller chains to still agree to the new PVOD framework. If they can’t get at least the big chains on board, the plan will collapse.

Do the other studios follow? Maybe.

The other studios don’t have the same incentives as Comcast, so they’ll be less willing to forgo theatrical revenue. Remember, Comcast owns a distributor, and Paramount, Disney and Warner Bros. don’t. Given the increasing front loading of theatrical box office, if the overall revenue pie increases with this change, other studios may consider it.

Notably, both Comcast and AMC Theaters have emphasized this new window isn’t for every film, and especially not blockbusters. Studios like Disney, which primarily focuses on blockbusters, will be even less interested.

Will Netflix Come to Theaters Now? Unlikely.

Netflix doesn’t just skip the theatrical window, they skip home entertainment, premium cable, streaming and basic cable. You can’t and won’t ever find 6 Underground on iTunes for purchase. Unless Netflix is willing to share revenue with the theaters when films go to streaming—and they aren’t—then Netflix films won’t be coming to a theater near you.

Will “day-and-date” be next? Unknown.

The one thing we know about windows is that they don’t get longer. The home entertainment window has been shrinking ever since the first VHS tapes came out.

While that’s the trend, the timing can be fairly long. For all the sturm und drang about shortening windows, the 90-day windows for theatrical to EST has been holding steady for a quite a few years now. Likely the PVOD window will show similar resilience, especially if the 90-day TVOD window stays intact.

(The Entertainment Strategy Guy writes under this pseudonym at his eponymous website. A former exec at a streaming company, he prefers writing to sending emails/attending meetings, so he launched his own website. Sign up for his newsletter at Substack for regular thoughts and analysis on the business, strategy and economics of the entertainment industry.)