Movie studios face an unprecedented choice as summer drags on: resort to high-priced digital rentals or wait for theaters to reopen

• Movie studios have recently delayed tentpole releases like "Tenet" and "Mulan" as coronavirus cases surge in some states, including Texas and California.
• AMC Theatres, the world's largest theatre chain, delayed its reopening from July 15 to July 30.
• Movie studios have recently turned to premium video-on-demand for some releases, but should rely on PVOD even more if theaters remain closed for the foreseeable future, according to Exhibitor Relations box-office analyst Jeff Bock.
• But instead of completely tainting their relationship with movie theaters, studios are likely to examine releases on a movie-by-movie basis.
• Shawn Robbins, the Box Office Pro chief analyst, is less confident about PVOD's long-term viability, calling it a "worst-case scenario for the vast majority of high-profile releases."

More than three months after movie theaters throughout the US shut down due to the coronavirus pandemic, the industry's immediate future is still up in the air.

Coronavirus cases have surged in states like Texas, Florida, and California, which have begun to roll back reopening strategies to slow the spread.

Warner Bros. recently pushed back Christopher Nolan's "Tenet" to August and "Wonder Woman 1984" to October. Disney delayed its live-action "Mulan" remake from July to August, as well.

The release changes prompted AMC Theatres, the biggest theater chain in the world, to delay its reopening from July 15 to July 30.

The National Association of Theater Owners said earlier this month that it expected 90% of the global theatrical market to be open in time for "Tenet's" initial release date of July 17. But since then, the movie has been moved twice and the two biggest theatrical markets in the world — the US and China — remain in flux. China's 70,000 movie theaters have been closed since January, costing the Chinese box office billions compared to last year.

"Studios and theaters are dealing with a constantly changing marketplace with state and local health and safety protocols that dictate whether or not theaters can open," Paul Dergarabedian, the Comscore senior media analyst, told Business Insider. "These are never-before-seen issues that have made the theatrical release calendar a constantly evolving document."

PVOD is looking more and more reasonable, one expert says

One alternative to theaters that studios have started to embrace is premium video-on-demand (PVOD) releases, often at $20 a rental.

Movies that were briefly in theaters hit digital retailers soon after theaters shut down, like "The Invisible Man" and "Bloodshot." Universal went one step further by releasing "Trolls World Tour" to PVOD on the same day that it was supposed to hit theaters. Warner Bros. followed with the animated "Scoob!" and Paramount will release "SpongeBob: Sponge on the Run" to PVOD in 2021 and then CBS All Access. So far, the major studios have mostly experimented with the aforementioned family films or smaller fare.

A person familiar with Sony's thinking told Business Insider that its position hasn't changed since March, in that it doesn't believe in closing the theatrical window and it will be "business as usual" once theaters reopen. The other major studios have previously expressed commitment to the theatrical experience, but were mum for this story. Representatives for Disney, Paramount, and Warner Bros. did not return requests for comment. Universal declined to comment.

But PVOD is looking like a more viable option even if studios don't want to fully admit it — even for more expensive movies — according to the Exhibitor Relations box-office analyst Jeff Bock.

"I'm willing to bet as many as 75% of the standard audience will stay away from movie theaters if they try to reopen in July or August," Bock said. "That's a number that studios will absolutely not be comfortable with. And the only thing they can do right now is lean on PVOD."

He added, "There is an opportunity to make a significant amount of money. For the right film, the time is now — the studios will never have a more captive audience to make an in-home event out of a blockbuster film."

According to a Morning Consult survey published June 15, 23% of US adults say they would be comfortable going to a movie theater, up slightly from 22% earlier this month and 21% in May. But it's still lower than people's comfort with going out to eat or going to a shopping mall. And the comfort level among younger people actually dropped, among millennials from 29% earlier this month to 25%, and from 31% to 28% among Generation Z.

Studios could make decisions on a movie-by-movie basis

While PVOD is looking more attractive, it would be difficult for studios to earn the profits through PVOD that they would through the theatrical box office with major releases like "Wonder Woman 1984" and "Mulan." If studios want to remain committed to theaters while experimenting with PVOD, they might examine releases on a movie-by-movie basis.

The Wall Street Journal reported in April that "Trolls World Tour" had generated $95 million in rental fees and $77 million in revenue domestically, prompting NBCUniversal CEO Jeff Shell to say that the studio would "release movies on both formats" when theaters reopened (he later said during an earnings call that PVOD would be "complementary" to theaters).

That didn't sit well with AMC Theatres, which has vowed to not play future Universal releases once theaters reopen. It highlights the difficult choice studios will have to make if theaters remain closed for the long term: releasing movies on premium digital formats to make money in the short term, or keep delaying theatrical releases and reaffirm their commitment to theaters.

Shawn Robbins, the Box Office Pro chief analyst, is less confident in PVOD being an alternative to theaters.

"PVOD has been and will remain part of the conversation so long as theaters aren't up and running, but it remains a worst-case scenario for the vast majority of high-profile releases," Robbins said. "Tentpoles, and the studios that depend on them, simply cannot thrive financially without the theatrical window."

Even if studios resort to PVOD more in the coming months, Robbins said it would be an "extreme exception to the rule, not a long-term change of the business model that is expected to return to normalcy once the virus is under control."