Disne DIS y announced during the Q3 conference call on August 4 that the live-action Mulan will go directly to Disney+ as a premium video on-demand (PVOD) in select markets, most notably the U.S. and Canada. The company will charge a rental fee of $29.99. In markets where cinemas are open and there is no real presence of Disney+, the company will launch the film in theaters.
Disney is between the proverbial rock and a hard place. While the company’s intention was to give Mulan a full theatrical push, there was no clear idea on when COVID-19 would subside enough to allow a critical mass of theaters to open worldwide. In the meantime, financial pressures kept mounting as the company faces large revenue declines from the legacy businesses: theme parks, cruise lines, studio entertainment and media networks (see earlier article).
But how much does Disney stand to lose or gain from forgoing a theatrical debut and going to PVOD? The answer is messy and uncertain, yet there’s evidence that Disney could be in for a bigger payday with PVOD than it would have with a theatrical launch.
Let’s start with what Mulan might have made in a normal environment without the coronavirus. For a comparable, the live action version of Beauty and the Beast did $1.26 billion at the box office in 2017. In early March, Mulan was tracking to have a domestic opening weekend of about $90 million which would have been about 51% of Beauty’s domestic opening weekend of $175 million. But we also know that Mulan’s animated 1998 version did $304 million worldwide over its entire run which was 69% of what the 1991 animated version of Beauty and the Beast achieved worldwide over its entire run – $440 million. So, let’s give live-action Mulan the benefit of the doubt and say it does 69% as well as live-action Beauty. That brings the potential worldwide box office for a live-action Mulan to $869 million (69% of $1.26 billion). It’s a big guesstimate, but it works to illustrate the point.
Disney’s studio/theater split would have been about 50% of the box office receipts, giving it $434 million in revenue for the live-action Mulan. When we subtract Mulan’s production costs that are reported to be about $200 million and a guestimate of its marketing and distribution of $150 million, that gives us profit of $84 million for the theatrical launch.
Now we turn to PVOD. Because Disney+ now has a critical mass of 60.5 million subscribers, the potential becomes encouraging for a $29.99 PVOD rental. The company only needs about 14.47 million subscribers to rent the film on its company-owned platform (24% of the total subscribers) to achieve the same $434 million revenue that it would have achieved in theaters (14.47 million households x $29.99 rental = $434 million). When we deduct production and marketing costs of $350 million (most of the marketing expenses were probably spent in anticipation of a theatrical release), we arrive at the same profit of $84 million ($434 million in rental fees minus $350 million in expenses).
The upside of a PVOD release is staggering. If more than 24% of Disney+ subscribers rent the film, the profit soars. And if Disney gets a bump of 1 million households who sign up for only one month just to see Mulan, the company generates an added $37 million (1 million households at $6.99/mo + the $29.99). If half of these 1 million subscribers decide to continue their monthly subscriptions at the yearly discounted rate of 69.99/year, that is nearly $35 million per year extra (500,000 subscribers x $69.99).
And we have not even counted the potential profit from markets that are releasing the film in theaters.
Not only might this be a windfall for Disney, but it would be a windfall for parents. Instead of spending nearly $80 or so for a family of four on tickets and food to see Mulan in theaters, they can do it for only $29.99.
My rough guesstimates are for illustrative purposes to merely show the potential of a PVOD premiere. I am sure there are financial aspects I have not considered, but the raw numbers are eye-popping.
Disney’s Mulan PVOD experiment will reveal the actual potential, and this may indicate that a blockbuster can make more money with a streaming launch than a theatrical launch. Using fewer windows also makes it more efficient marketing-wise.
We have to keep in mind that every case is different. In an earlier article, I challenged the financial aspects of Disney’s decision to stream Hamilton instead of waiting for its theatrical release, especially since Disney gave Hamilton to Disney+ subscribers at no extra charge.
Credit has to be given to Universal when the company circumvented theaters earlier this year and successfully launched the Trolls World Tour as a $19.99 PVOD. That began an avalanche of strategic thinking across the entertainment world (see earlier article). Disney must have figured that if people were willing to pay $19.99 to rent Trolls, they must be willing to pay an even bigger premium for Mulan.
Launching blockbusters – and lesser films – as PVOD creates significant emotional hurdles. Theater chains will scream. They threatened to boycott Universal Pictures UVV for even suggesting that the studio might circumvent theaters in favor of streaming, though AMC has now made a deal with Universal to shorten the theatrical window to three weekends, after which a film could show up as a $19.99 PVOD rental on Universal’s new streaming service, Peacock. And make no mistake, if studios discover they can make as much money in a PVOD release as they can in a theatrical release, theaters will suffer greatly.
Filmmakers will also scream, as they love to see their movies on the big screen. But even Martin Scorsese succumbed to the lures of streaming for his 2019 film, The Irishman, that ran primarily on Netflix NFLX after only a limited run in theaters.
Emotions aside, the traditional belief – that a blockbuster film needs to start with a theatrical release – is about to be tested and perhaps even destroyed. And with it, a new age will be ushered in.