Scarlett Johansson and Florence Pugh star as Natasha and Yelena in Marvel’s “Black Widow.”

Disney

Temperatures are running hot in the entertainment industry in the wake of “Black Widow’s” second week in theaters.

The Marvel film, which tallied $80 million domestically during its debut weekend, the highest box office opening of the pandemic, saw a significant drop in ticket sales over the most recent weekend.

Falling 67%, “Black Widow” had the worst second-weekend performance of any Marvel Cinematic Universe film, just behind “Spider-Man: Homecoming” which dropped 62% from its $117 million debut and “Ant-Man and the Wasp,” which fell 62% from $76 million.

The slip led the National Association of Theatre Owners to blast Disney’s decision to make the film available in theaters and through Disney premier access (a $30 price tag) on the same day. The studio reported last weekend that it had garnered $60 million from Disney+ sales.

“Why did such a well-made, well-received, highly anticipated movie underperform?” NATO wrote in a lengthy press release Sunday. “Despite assertions that this pandemic-era improvised release strategy was a success for Disney and the simultaneous release model, it demonstrates that an exclusive theatrical release means more revenue for all stakeholders in every cycle of the movie’s life.”

The group, which represents more than 30,000 screens in 50 states, called “Black Widow’s” ticket sales drop a “stunning second weekend collapse in theatrical revenues.”

NATO’s concerns are not new, but come at a time when the coronavirus pandemic is resurging, even in heavily vaccinated areas. Some local governments have started to reestablish social distancing and masked safety measures.

The entertainment industry is in a precarious spot, with studios and movie theater operators at odds about how and when movies should be released in theaters and through streaming services. Many studios have already said these hybrid release models are only temporary pandemic precautions and have plans to release movies exclusively in theaters in late summer and early fall.

The case for a hybrid release

The pandemic upended the cinema industry, as chains big and small were forced to shutter locations due to country-wide safety measures. While studios were able to postpone a large portion of content that had been earmarked for theaters, the prolonged closures and uptick in coronavirus cases led some to release films on streaming platforms or create a hybrid model.

Disney postponed “Black Widow” for more than a year in order to ensure it would have a theatrical release. However, with a massive slate of other MCU films waiting in the wings, the studio was forced to make a decision about how to bring the film to market.

Disney ultimately opted to put the film in theaters and on Disney+ for a fee in order to allow fans to see “Black Widow” on the big screen or, if they were more comfortable, from their couches. The decision was made well before vaccination rates were on the rise and before the delta variant was running rampant in the U.S.

“There are two camps out there right now — those that feel comfortable going back to the movies and those that don’t,” said Jeff Bock, senior analyst at Exhibitor Relations. “NATO blaming streaming is a knee jerk reaction that is wholly self serving. It’s almost like they don’t understand the current marketplace.”

“Also, ‘Black Widow’ was never going to be the strongest Marvel film because of its place within the MCU timeline,” Bock said. “The statement NATO released will not age well. In fact, it seemed dated the minute it was released.”

Disney is no stranger to box office success, in 2019 it had seven films top $1 billion globally. Executives at the company have stated their intention to continue to release films in theaters, particularly big budget movies that are tied to major franchises.

While box office receipts have been on an upswing in recent months, the pandemic is not over. Outside the U.S., vaccine rates have lagged, leading to delays in releases in other countries and smaller returns in regions that are open.

Not to mention, there is a significant portion of Americans that are not vaccinated, including children.

“It’s probably fair to write off ‘Black Widow’ as an experiment during a time of many uncertainties where no one has the perfect answer for how to strategize a global property during the late stages of a pandemic,” said Shawn Robbins, chief analyst at Boxoffice.com. “But going forward, windowless release strategies may significantly devalue more life cycle performances from highly lucrative brands like those of Disney and Marvel.”

The pitfalls of day-and-date

There’s no denying that Disney left money on the table because of this release model. The $60 million in Disney+ sales is not box office revenue. It’s home video sales. This money would traditionally have been made after “Black Widow” completed its time in theaters.

“I don’t think it’s a huge surprise that week two box office dropped substantially, as there was always the possibility that first-time viewers would attend the theater and repeat viewings would be on Disney+,” said Alicia Reese, senior associate of equity research for Wedbush.

Reese noted that Disney did not share Disney+ sales data for the second weekend, so it is unclear what kind of drop streaming saw compared to theatrical.

“The point that NATO makes is a good one; It is not solely about lost theatrical revenue with this day-and-date model, but cannibalized second-window (normal PVOD) revenue that will end up hurting Disney in the longer-run,” she said. “Since Disney+ subscribers who pay for premium access to ‘Black Widow’ can view the movie as many times as they want, and for as long as they have their Disney+ subscription they will have no incentive to buy the film or rent it in the following window.”

At present, the two highest-grossing movies of the year domestically are “A Quiet Place Part II” and “F9,” both of which had an exclusive theatrical window. It should be noted that “F9” also saw box office receipts drop 67% between its debut weekend and its second weekend, according to Comscore data.

“The entire industry is still trying to carefully navigate this staggered global recovery,” Robbins said. “Disney took a notable step by reporting streaming numbers on opening weekend, but they’ve so far negated that perceived transparency by staying silent on premier access numbers for the week since.”

“We know how much the second weekend decline was at the box office, so why don’t we know how much earnings dropped on Disney+?” he said. “The answer almost seems obvious, but we shouldn’t have to read between the lines. Whether it’s being shielded temporarily or will never be revealed at all, the optics of withholding that information simply aren’t good.”

Scarlett Johansson and Florence Pugh star as Natasha and Yelena in Marvel’s “Black Widow.”

Disney

Prior to “Black Widow’s” release Disney had already stated that “Free Guy,” “Shang-Chi and the Ten Rings” and the rest of its 2021 slate, including “Encanto,” “Eternals” and “West Side Story,” would all be released exclusively in theaters for at least 45 days.

Disney CEO Bob Chapek reiterated the company’s commitment to movie theaters during its May earnings call, but recognized the “fluid nature” of exhibitions recovery and the possibility of another major outbreak.

The company is keenly aware of how powerful the box office can be and how devastating piracy can be to potential earnings. After all, in 2019 Disney scheduled the release of “Avengers: Endgame” to coincide in China and North America on the same date to ensure that the majority of potential audiences could see the film in theaters before it was pirated online.

That strategy also led “Endgame” to haul in a record-breaking $1.2 billion worldwide during its opening weekend, including more than $350 million in the U.S. and Canada.

“Clearly, in this digital age, the ability of a high-quality pirated copy of a movie to made it around the world in an instant is a risk that every studio needs to consider when releasing a film to streaming platforms ahead of or simultaneously with a theatrical release,” said Eric Wold, senior analyst at B. Riley Securities.

“I believe that we have seen the impact this had on domestic box office results for ‘Black Widow’ during opening weekend and the subsequent weekend as well as the fact that Disney has yet to announce a theatrical release date in China even though the film was green-lit quite some while ago,” he said.

An uncertain future for movie theaters

The domestic and international box offices have made great strides in recent months, with ticket sales outpacing 2020 levels. However, a return to normal isn’t expected until at least mid-2022, with some analysts predicting 2023 as the recovery deadline.

“I believe the industry has entered uncharted territory where content creators are trying to figure out the most profitable ways to monetize their product,” said Doug Stone, a box-office consultant and former theater operator. “We are not there yet and even if all theaters were operating at full capacity, I don’t believe the riddle will have been solved.”

Around 82% of movie theaters were open over the most recent weekend, according to data from Comscore.

And the threat of Covid on the industry is not over.

“The country has made great strides in this area, but there still is a hill to climb,” he said. “When that happens certainly depends on vaccination rates and the transition into herd immunity … Given all this I would not expect us to reach whatever the new normal is until at least mid 2022 and possibly later depending on all of the above.”

Over the weekend, Los Angeles, the largest movie theater market, reinstated its mandatory mask policies due to a surge in Covid cases in the county.

Studios have not pulled back on movie releases due to this recent rise in case numbers, but audiences may become less comfortable attending cinemas if these outbreaks persist.

“No doubt this remains a very unusual theatrical marketplace with the effects of the pandemic continuing to impact the number of open theaters, consumer behavior and of course box-office results,” said Paul Dergarabedian, senior media analyst at Comscore.

“While it’s understandable that some studios are opting for a hybrid release strategy to deal with this challenging environment, the data clearly shows that long-term playability and final gross revenue is enhanced for films that utilize a ‘theatrical first’ model,” he said. “But of course there are so many variables in play that it may be wise to let the dust settle before we can properly assess which of these release models (or combination thereof) is the most advantageous in the long run.”



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