How Big Data Can Save the Big Screen
Major motion picture audiences have long been shifting from the big screen to the small screen. Home entertainment grew 24% worldwide in 2019, while box office sales crept up only 1%, according to the Motion Picture Association.
Still, theaters, in partnership with film studios, have been largely successful in enforcing the exclusive theatrical release windows that underpin the industry's revenue model. Even as digital streaming cannibalizes legacy revenue streams in segments like music and television, the film industry has continued to bet on box office paydays. Theatrical runs are the basis of multibillion-dollar production budgets, blockbuster franchises, and talent contracts.
The COVID-19 pandemic has abruptly inverted that paradigm. Box office sales sank to their lowest point in over 40 years in 2020, as health restrictions kept moviegoers at home. Studios are scrambling to reinvent distribution on the fly, with little historical data and precedent to guide their strategies. Theaters have been left to raise money and slash costs in the short term.
Film distribution will be never be the same—and neither should studio revenue strategies. The disruption of 2020 presents an opportunity for the motion picture industry to seize on, rather than resist, digital transformation. Those that are quickest to embrace data-driven, predictive decision-making will survive and thrive in the uncertainty that looms over 2021 and beyond.
Three Strategies, One Question
As box office sales decline, studios are experimenting with three primary models to compensate: adjusted theatrical release windows (shortened or delayed altogether), virtual theatrical release, and simultaneous release.
On Christmas Day 2020, Warner Bros. made history with its simultaneous theatrical and direct-to-streaming release of Wonder Woman 1984. The film debuted exclusively on the HBO Max SVOD platform the same day it hit theaters. While box office revenues fell short of the series' first release by $86 million, HBO Max subscribership grew by over 400% in December in anticipation of the film's availability. (Earlier that month, HBO announced plans to release all of its 2021 films simultaneously to theaters and HBO Max.)
Disney also tested simultaneous distribution for titles including The Croods: A New Age and Soul, but delayed the release of cash cow franchises Avatar and Star Wars, among others. Taking advantage of its Disney+ streaming platform, Disney also experimented with bypassing theatrical runs altogether; the PVOD release of Trolls World Tour yielded profits roughly equal to projected theatrical ticket sales.
Success has been mixed, and studio executives are wondering: Which strategy has the best chance of recovering box office losses?
It Starts with Data
There is no magic formula. But the diversification of release window revenue streams, including the inevitable rise of direct-to-consumer and simultaneous models, can confer considerable advantages to studios that capitalize on the wealth of digital data now available.
Traditionally, theatrical ticket sales drove home entertainment distribution deal terms. Strong sales—particularly on opening weekends—increased studios' leverage in licensing negotiations with VOD platforms and other digital distributors. But the timing forced a gamble: by the time box office data is available, production budgets have been spent and talent contracts negotiated. If revenue performance falls short, studios are at a disadvantage—forcing them to accept less favorable agreement terms for subsequent release windows.
In the future, virtual releases will reduce that guesswork. Granular, up-to-the-second data will enable more informed decision-making and greater flexibility. A film that performs poorly on virtual opening weekend could, for example, trigger EST pricing strategy adjustments; low VOD revenues could be recouped with an accelerated AVOD release schedule or adjusted run times.
In a theatrical model, audience data is limited to what theaters can provide. Digital audience intelligence provides sophisticated insight into viewer engagement patterns. This data can, and should, be leveraged to target ad spend and personalize promotional messaging in real time. As studios gain insight, consumer tastes will begin to influence content themes and release schedules to an extent never seen in the industry.
Consumer data is more accessible and distribution more flexible for studios that control digital platforms, like Disney+. But as virtual releases become a Hollywood mainstay, multiplatform release models are likely to emerge. Any studio would be wise to take three steps: push for real-time, granular viewership data into their distribution terms (behavioral and demographic), digitize agreement management to optimize analysis, and equip decisionmakers with intelligent data and analytics tools to understand and act on the information available.
Rethinking the rofit Equation
Deep consumer intelligence and accurate financial forecasting will enable studios to make smarter investments while maximizing their revenues in new ways.
Virtual releases can entice subscriber signups, as Wonder Woman proved. Studios with the ability to predict audience demand for unreleased and future titles will gain an advantage; the more subscriptions (recurring revenue for most streaming platforms) a title can produce, the greater its value in exclusivity licensing negotiations. Predictive intelligence capabilities are crucial; the studios with the most accurate forecasts will establish their reputation as a reliable revenue source among VOD distributors and command better revenue sharing terms.
For those that virtually release titles on their own streaming platforms, data-driven forecasting will inform a more balanced approach to film financing. Large production and promotional budgets may drive revenue, but they can sink profits when ticket sales do not meet expectations. Studios can hedge that risk by predictively modeling demand, then budgeting accordingly.
The film industry historically segments content by genre, roughly correlated to high-level demographics. Robust behavioral data available for digital viewers changes the game. Studios can predict which films will perform best virtually versus theatrically. Incorporating audience insight throughout production, promotion, and distribution maximizes profit in the face of potential revenue decline.
Both studios and streaming platforms that harness behavioral data will capture greater value per title and user. With adequate technology, an unprecedented number of factors can be correlated to revenue potential with unprecedented accuracy. A subscriber whose behavior signals high churn risk could be enticed to renew with a film release announcement – delivered at the time of day when they are most engaged, featuring a promotional trailer fine-tuned to the storyline, character, and even length they prefer. At scale, that data can be used by VOD providers to win subscribers and by studios to find the right audiences and distribution platforms for future releases.
The potential to creatively monetize data is unlimited, but the time to seize it is not.
The Future Favors the Data-Driven
At no point in the history of media and entertainment has a company survived by clinging to outdated distribution models. To be sure, the upheaval of the COVID-19 pandemic has dealt a painful blow to the motion picture industry. Theatrical distribution may rebound, but virtual releases are forever in the picture.
Data intelligence is the surest path forward. Studios that immediately begin deriving insight from the massive amount of data in the digital ecosystem can respond to—and even find opportunity in—current and future disruption. The rest will be left guessing: where did we go wrong?
The 21st century box office is here to stay. And so are the studios that can adapt to it.
[Editor's note: This is a contributed article from Symphony MediaAI. Streaming Media accepts vendor bylines based solely on their value to our readers.]
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