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Hollywood, Apple said to mull rental plan, defying theatres

[LOS ANGELES] Movie studios are considering whether to ignore the objections of cinema chains and forge ahead with a plan to offer digital rentals of films mere weeks after they appear in theatres, according to people familiar with the matter.

Some of the biggest proponents, including Warner Bros. and Universal Pictures, are pressing on in talks with Apple Inc and Comcast Corp on ways to push ahead with the project even without theatre chains, the people said. After months of negotiations, the two sides have been unable to arrive at a mutually beneficial way to create a US$30 to US$50 premium movie-download product.

The leading Hollywood studios, except for Walt Disney Co, are eager to introduce a new product to make up for declining sales of DVDs and other home entertainment in the age of Netflix. They have discussed sharing a split of the revenue from premium video on demand, or PVOD, with the cinema chains if they give their blessing to the concept. But the exhibitors have sought a long-term commitment of as much as 10 years for that revenue split, which the studios have rejected, the people said.

Deals with potential distributors such as Apple and Comcast could be reached as soon as early next year to sell digital downloads of major films as soon as two weeks after they debut in theatres, the people said.  Those pacts would give the studios a way to issue an ultimatum to the theatre chains: Agree to a deal, or we'll start selling the movie downloads anyway. The movie houses could fight back by boycotting films slated for sale via download days after their theatrical debut.

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Shares of three of the largest movie theatre chains were down Friday. AMC dropped 4.2 per cent to US$12.60, Regal Entertainment Group fell 4.3 per cent to US$15.68 and Cinemark Holdings Inc slid 2.6 per cent to US$34.65 at 10:29am in New York.

Some studio executives are taking a less aggressive stance and don't want to fight against exhibitors who still wield enormous power in the industry. The studios and movie chains have to negotiate independently because of antitrust rules.

The escalating tensions are likely to fuel investor worries about the movie industry as more viewers find reasons to stay home. The shares of leading circuits such as AMC Entertainment Holdings Inc have been buffeted all year by the uncertainty around the talks as well as a more than 12 per cent decline in the summer box office. In the year to date through Aug 13, the North American box office is down 4.1 per cent, according to ComScore Inc.

The theatrical window of exclusivity over new movies has long been sacrosanct, in part because Hollywood's biggest directors and actors value the big screen over television. But the industry has allowed the exclusivity period before DVD sales to shrink to about three months after a movie's opening weekend, compared with six months historically.

Walt Disney Co's recent move to create its own streaming service for some of its films, another nod to the growing demand for home viewing of movies, has also added pressure on the exhibitors to reach a deal with studios, the people said. Movie distributors argue that selling movie downloads sooner would let them capitalise on the hype generated by opening weekends in theatres.

The cinema chains have downplayed the severity of the threat even as shares have plummeted this year. AMC Chief Executive Officer Adam Aron spent "days and days devoted to meeting with investors" in mid-May, he told analysts earlier this month on an earnings call with investors. They were focused on "PVOD, PVOD, PVOD," Mr Aron said. The uncertainty he said was "driving investors bonkers."

So Mr Aron held one-on one, "emergency meetings" with studio CEOs on the topic over the past two months and concluded there was no consensus and no deal was likely in the US in 2017.

In a call with analysts last month, Regal CEO Amy Miles read aloud from the New York Times an article that claimed the need for PVOD was urgent because of the decline in DVD sales. The article was from 2010, she revealed. "Here we sit today, seven years later, still discussing the urgency of premium VOD," Ms Miles said.

"There is not a consensus amongst the studio partners with respect to what any kind of long-term windowing structure should be."

Yet the talks continue. The terms being discussed vary between each studio and each cinema chain, with some talks focusing on a release date of about 17 days after debut, for about US$50, or four to six weeks from release for US$30, people familiar with the talks said. Another possibility is first experimenting with a new release window overseas before trying it in the US, which is the biggest home-entertainment market, one of the people said.

Some theatre executives have highlighted to studios that about 50 per cent of a movie's revenue now comes from its theatrical run, which they could be jeopardising, one of the people said. But studios have countered that theatrical has become a larger share of the revenue because of the collapse in DVD sales, one of the people said. In the first half of 2017, DVD sales were down 10 per cent, according to industry-backed researcher DEG. DVD rentals from stores fell 20 per cent year on year. Digital sales rose 8 per cent, a slowdown from previous years.

Disney isn't interested in participating in the discussions because it believes in its strategy of focusing on fewer, bigger event movies that need to be seen on the big screen. Smaller producers like Lions Gate Entertainment Corp, the studio behind "The Hunger Games" franchise, are hoping for a deal.

CEO Jon Feltheimer said he believed PVOD would be introduced in the next 12 months. "You're going to see some tests done at least in some territories in the near future," Mr Feltheimer said on its earnings call this month. "I hope that will happen, I think it will be great for the business."

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