Desperate times call for desperate measures. That's how the National Association of Theatre Owners is explaining the digital success of Universal's "Trolls World Tour."
On Tuesday, The Wall Street Journal reported that the animated sequel to "Trolls" had been more profitable for Universal than the original because of its on-demand release.
Since theaters typically take about 50% of box office sales, "Trolls" only deposited around $77 million into Universal's pocket by the end of its run in North America. For comparison, Universal retained about 80% of the digital rental or purchase fee for "Trolls World Tour," which in three weeks has garnered around $100 million, a person familiar with the situation told CNBC.
While that has given Universal confidence in releasing future films on-demand, NATO president and CEO John Fithian sees "Troll World Tour" as an outlier, not the new normal.
"Universal does not have reason to use unusual circumstances in an unprecedented environment as a springboard to bypass true theatrical releases," Fithian said in a statement Tuesday. "Theaters provide a beloved immersive, shared experience that cannot be replicated – an experience that many of the VOD viewers of this film would have participated in had the world not been sequestered at home, desperate for something new to watch with their families."
Universal released the following statement after AMC said it would not play any Universal Studios films in any of its theaters globally:
"Our goal in releasing Trolls: World Tour on PVOD was to deliver entertainment to people who are sheltering at home, while movie theatres and other forms of outside entertainment are unavailable. Based on the enthusiastic response to the film, we believe we made the right move. In fact, given the choice of not releasing Trolls: World Tour, which would not only have prevented consumers from experiencing the movie but also negatively impacted our partners and employees, the decision was clear," the statement said. "Our desire has always been to efficiently deliver entertainment to as wide an audience as possible. We absolutely believe in the theatrical experience and have made no statement to the contrary. As we stated earlier, going forward, we expect to release future films directly to theatres, as well as on PVOD when that distribution outlet makes sense."
Universal added that the company looked forward to having "additional private conversations with our exhibition partners but are disappointed by this seemingly coordinated attempt from AMC and NATO to confuse our position and our actions."
Theater owners had been understanding when movies that had already been in theaters went to the home video market after the coronavirus caused widespread closures because of the extenuating circumstances. However, that sentiment has not crossed over to studios opting to take films that had theatrical releases scheduled and placing those on demand without a run in theaters.
Jeff Shell, head of the film studio's parent division, NBCUniversal, told the Journal that when theaters reopen, the company expects to release movies in theaters and on-demand.
"For Shell to say what he did at this point and time, with theaters already hurting, is a slap in the face to theater owners," Jeff Bock, senior box office analyst at Exhibitor Relations, said.
Theater owners have been forced to shutter their cinemas in the wake of social-distancing restrictions and have had to furlough and lay off thousands of employees.
NATO said the performance of "Trolls World Tour" was indicative of hundreds of millions of people being isolated in their homes and seeking entertainment, not a shift in consumer viewing preferences.
Parents, in particular, are looking for content for their kids during the coronavirus outbreak to keep them entertained. It's part of the reason that movies like Warner Bros. "Scoob" will go straight to on-demand in May and Disney's "Artemis Fowl" is headed for Disney+.
Additionally, the movies that have gone to video on-demand or plan to were low- to mid-tier budget films that weren't forecast for massive box office receipts. Unlike Universal's "F9," which has moved to 2021 so that it can play in theaters.
"The notion that the bypassing of the traditional theatrical release window will become the new normal is simply misguided and reflects a misunderstanding of the importance of the movie theater experience in terms of the profit potential, prestige and desirability that a big screen release brings to the table," Paul Dergarabedian, senior media analyst at Comscore, said.
NATO, which represents more than 35,000 movie screens in the U.S. and 33,000 internationally, noted that sales and rentals of individual movies at home had actually drastically decreased in the last two decades. In 2004, the market was $24.9 billion, it said. By 2019, that had shrunk to just $9.3 billion.
It also cited a Morning Consult poll that said U.S. adults would be willing to pay for an in-home movie that was in theater for $5 to $8 during normal circumstances. Typically, the titles that have gone straight to on-demand have cost between $15.99 and $24.99 depending on if the film was rented or purchased outright.
NATO also argued that Universal had not disclosed its marketing budget, which would have eaten into some of its profits.
"While Universal may be pleased with the PVOD results of "Trolls World Tour," this outcome should not be interpreted as a sign of a 'new normal' for Hollywood," NATO said in a statement.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.