Broken Windows
Have studios finally solved their windowed release strategy post-pandemic, or are they still shadowboxing with the future?
When I was in the graduate film program at NYU, I took a class called The Business of Producing with the esteemed film producer Peter Newman. This was 2010, and one of our major discussions at the time was on the new release window of digital VOD. It appeared to many that this model might DESTROY THEATERS!!! as moviegoers could simply enjoy quality faire such as Tower Heist for a cool $50 from the comfort of their couch. Whatever would happen to the industry, however, we surmised it would certainly be figured out quickly.
Smash cut to 13 years later and, somehow, we’ve made the whole damn thing even more confusing. Not only is there the theatrical run of a film, but also:
the digital sale
the digital rental
the streaming premiere
the advertising video-on demand (AVOD) play
the Free Ad-Supported TV (FAST) debut
And even the occasional physical release (steelbook hive rise up!) And that doesn’t count very cool and not at all stupid strategy for films that never see a theatrical release because they launch as streaming exclusives.
For audiences, when and where you can watch a film has become an indecipherable riddle. But for the studios releasing the movies, it seems as though they may be starting to round into a conventional wisdom. Of course conventional doesn’t mean clear, as Atlantic film critic and co-host of Blank Check with Griffin and David, David Sims, tweets here:
Creed III opened on March 3rd, so a March 31st VOD released would coincide with just its fifth week at the box office.
This seems like it would clearly cannibalize the audience who may not have had the chance to make it to the theaters in the film’s first four weeks, and in the end harm the its overall financial performance.
But is this true?
Fortunately, Sims follows up with a point of comparison:
And thus, a natural experiment! The box office magic of Top Gun: Maverick cannot be denied, but it can be examined.
So I did. Below, I took a look at the theatrical comparison of the two films to give idea of why the release strategy of Creed III likely happened the way it did.
The Toppest of Guns
Top Gun: Maverick is an outlier, and I mean that in the best possible way. Its $718,732,821 and 19 weeks of over $1 million at the domestic box office were a shot of adrenaline to the heart of a dying industry. Recognized by both the Academy and audiences (and this guy) as the best of the best, to borrow a phrase, it stands alone.
In more ways than one, it hearkens back to the glory days of Hollywood, but for the purposes of this comparison let us focus on the financial part. Traditionally, studios could survive the losses from production and marketing of poorly performing films if they had a few massive hits that brought them back into the black.
One paradoxical point to think about is we have seen a growth in the number of these supposedly rare “unicorn” films. Much like society as a whole, the rich are getting richer and everyone else, well, isn’t. Looking at the number of films in the all-time top 200 for Adjusted Gross (meaning it accounts for inflation) and we see more representatives from the 2010s than any other decade:
Put simply: We are seeing more huge movies and fewer of almost everything else.
Hollywood is more reliant than ever on the home run. With so many more huge hits crowding out mid-budget films in terms of audience spend, what is a studio to do?
A False Creed
Let’s look specifically at Top Gun: Maverick’s performance compared to Creed III. In the below graph, I’m comparing the first five weeks of Creed III with the first 10 weeks of TG:M based on the revenue percentage of their opening weekend. This allows us to compare them directly even with different revenue values and gives a rough look at how much money is “left in the market” at a given point. These degrading charts will look very familiar to anyone who works in film finance:
The quick takeaway is that Creed III dropped faster than TG:M. Duh.
At first glance, we can see pretty clearly that Creed III is not Top Gun: Maverick. It had shorter staying power at the box office and, by the time it was released on VOD in the fifth weekend after it entered theaters, it was down to just 8.6% of its opening draw. TG:M started at both a higher initial number and fell slower, meaning there was plenty of meat on the bone in the theatrical market. The same was not true for Creed III.
Put another way: In its fifth week, Creed III made $5 million; Top Gun: Maverick made more than $5 million every week until week 13.
TG:M started at both a higher initial number and fell slower, meaning there was plenty of meat on the bone in the theatrical market. The same was not true for Creed III.
A Puncher’s Chance
“But wait! Forest, you idiot! You damned fool!” you say, rudely. “There’s still more money to be made in the theaters! And if people didn’t have the option of VOD, they would go to the theaters!”
I’m not sure any of this is true. To the latter point, the VOD announcement was made on March 24th, the Friday of Creed III’s fourth weekend. The drop in that weekend was similar to that between both weeks 1 to week 2 and week 2 to week 3, around 50%. The drop from week 4 to week 5 was actually the less steep, and this was the weekend where the film premiered on VOD. As such, I’m unconvinced that the VOD access is deterring theatrical audiences.
To the first point, we can use numbers from TG:M to estimate what Creed III may have left in the tank going forward.
What if Creed III declined at the same rate as TG:M from when they were at roughly the same point?
Below, I took the % Box Office numbers from TG:M when it was 7.7% of Opening Box Office and applied them to Creed III. Here is what those forecasts look like for a 17 week run:
This is a generous assumption of relative staying power, and below is what that means for total revenue (cells in green are the assumptions based on TG:M past performance):
The total value of the potential Creed III revenue based on this model is about $7.87 million. Certainly not nothing!
But keep in mind, the movie is still in theaters. It just made $5 million theatrically while it was simultaneously available to buy and rent. While the film may certainly sacrifice some of that to the VOD market, it is arguably more likely that those who go to theaters and those who pay to watch at home are two different groups of people.
This leads us back to my opening point: all streaming isn’t all streaming.
One Step, One Punch, One Round
If Creed III had gone straight to Peacock or whatever, this piece would not exist and I would have already conceded the point. I have no doubt that would have destroyed the remaining value of the theatrical release.
Keep in mind though, they are charging more to see the film on your shitty TCL than the price of a movie ticket ($25 to own/$20 to rent.) Probably a great deal for parents like us who can’t find time to get out of the house, but certainly not a replacement for those who simply hadn’t found time to head to the theater yet.
The next relevant question is: How much money was Creed III supposed to make theatrically anyway?
There are several metrics to tell you what it might make, or how much it may total. But in general, you want to see a film at least make back both their production and marketing budgets in theaters. Do that and all the other windows are gravy.
Creed III reportedly cost somewhere between $75 and $90 million, depending on whom you believe, and for the sake of simplicity let’s assume they spent equal the amount on marketing. This would give an all in budget of about $150 to $180 million, which is a reasonable starting point.
The movie is already there domestically, at over $150 million (and $262 million worldwide!) So they did it, everyone pat yourself on the backs and go home, I guess. Right?
That certainly seems to be what the studio is saying. They accomplished their goal in the first window and are ready to move to the next one, in this case premium VOD.
The studio does still seem to be focusing on one window at a time, but the speed at which they move from one to the next is faster than ever. This results in potentially sacrificing some long tail revenue, which they hope is outweighed by the more expensive VOD offering, but here’s the deciding factor: it allows them to cut future marketing costs.
It’s much cheeper to make Creed III pop in the VOD marketplaces 28 days after its theatrical release rather than three full months. Amortizing costs is never a sexy, artistic discussion but it absolutely describes why studios are much more ruthless when deciding to move on from a theatrical release.
Efficiency Over Power
It would be great if the theatrical lifecycle of every film were more like Top Gun: Maverick. But barring that fanciful world, it seems like MGM and United Artists did the best they could in this case.
Does that mean I think David Sims is wrong? Actually, not really.
While he may be mistaken in the particulars of this release, we have just spent the last several years watching studios trip over their own feet with almost every release. And Warner Brother’s decision to take everything direct to HBO Max in 2021 left many thinking the studios were doing everything possible to ruin theatrical distribution full stop.
The intuition to distrust the studios here is a natural one. With more media conglomerates owning their own streaming platforms it seems as though they may be stuck in a race to the bottom, pouring films into the bottomless pits of the internet forever more. And as always, corporations are not your friends.
But as an eternal optimist (jk definitely not,) I feels like we may be learning a few things that will help both theaters and mid-budget films. Studios can take a more bespoke approach to releases that allows mega-hits to continue to support theaters while every other movie can get the value of an amortized marketing campaign and a premium digital price point.
The windows are still broken, and much like I thought over a decade ago, we may finally see if they will be repaired or shattered.
f.