By Anne Thompson and Tom Brueggemann | Thompson on Hollywood July 21, 2014 at 5:21AM
Thirty years in, Harvey Weinstein knows the distribution business. While he's a wily theatrical animal who knows when to spend big on a wide release and when to dump a movie, he took a radical route with Bong Joon-ho's action adventure "Snowpiercer," starring Chris Evans and Tilda Swinton, seizing the chance to try something new. Weinstein's decision to open an action picture with major movie stars via autonomous subsidiary RADiUS with a video-on-demand release two weeks after its theatrical opening is rippling through the film community.
As the Hollywood studios struggle with a depressed summer box office, losing the fickle young male demo and locked into a standoff with theater chains on release windows, they're watching the independents experiment with video-on-demand release models. "Snowpiercer" marks a tipping point in the movie industry's shift from analog to digital. Why? It marks the most commercial movie to ever open in theaters and quickly go to VOD.
According to Weinstein, following two weeks in theaters, "Snowpiercer"'s first week on VOD earned $2 million, a company record. That's a serious number, exceeding the performance for their previous breakout "Bachelorette" (VOD cume: $8.2 million). Movies with stars have always performed better on VOD.
Three indie companies, IFC, Magnolia and Roadside Attractions, have had significant VOD success with big-name films that also had some theatrical impact. The first major "multi-platform" release, Magnolia Pictures' 2007 heist film "Flawless," starring Demi Moore and Michael Caine, used a well-promoted theatrical launch to build the imprimatur of quality as well as a sizable VOD audience to the tune of $2 million; in 2010 Magnolia's "All Good Things," starring Ryan Gosling and Kirsten Dunst, returned over $5 million on VOD alone. The current multi-platform record-holder is reportedly Roadside Attraction's "Arbitrage," at $11 million on VOD. The balancing act is when to exchange the hefty marketing costs of a theatrical release for a smaller VOD number--without the promo expense. Many filmmakers still resist this shift, insisting that a theatric release remains the best way to enhance a movie's ultimate library value.
Recognizing the shifts in the market, Weinstein banked on the VOD future three years ago by starting an autonomous division at The Weinstein Co., RADiUS, headed by two presidents, Tom Quinn and Jason Janego, who had pioneered theatrical/VOD releasing at Magnolia under president Eamonn Bowles. Believing passionately that there's a bigger audience to be found on VOD, the duo have been experimenting with different models for multi-platform releases, from premium video-on-demand, which makes a film available at a high premium price-point ahead of theatrical, to theatrical with a much shorter VOD window.
Most of the big theater chains demand that distributors preserve a 90-day window before releasing films on VOD, and refuse to book films that open in advance of that window. About 500 theaters are willing to book VOD titles. (Roadside Attractions, on "Margin Call" and "Arbitrage," had to four-wall some theaters--buying out the runs--in order to get around this. The upside is you collect all the returns.)
A multi-platform release was not Weinstein's original plan for "Snowpiercer," which he acquired after reading the French graphic novel and screenplay and seeing some early footage. Korean producer-distributor CJ Entertainment and Bong wanted a 2500-screen release.
But when Weinstein saw the final film with moviegoers he decided that the picture wouldn't play for a wide audience without editing changes, especially in the Korean language sections. But Bong didn't want to alter his film. That was the crux of the much-publicized debate over the film. Go with the director's cut theatrically and risk spending $25 million on prints and ads and possibly disappoint a mass audience, or stick with the artist's vision?
Weinstein looked at the film's performance in France, where it fell off after the opening week and scored only $5.3 million, even though the graphic novel was popular there, which told him it was a cult release. And he saw that Rotten Tomatoes' score from critics was 94% vs. users' 77%. That showed him that the film would not play widely with a mainstream audience.
So Weinstein renegotiated (for a much smaller minimum guarantee and P & A commitment) a compromise release of Bong's uncut film with RADiUS, who had earned Bong's trust at Magnolia, having championed three of his earlier films, including "Mother"--critically praised subtitled genre fare that was not being chased after by other distributors. Quinn and Janego saw a chance to finally try the paradigm that they had wanted to use for "Spring Breakers," but couldn't get those filmmakers to agree--instead taking a more conventional approach via A24.
Quinn and Janego passionately argued with Weinstein to let them release "Snowpiercer" for two weeks in the theaters that were willing to book it--not always the top-ranked performers in each market--and go to VOD on the third weekend, taking full advantage of market awareness. The theatrical marketing--a fraction closer to $5 million than $25 million--provided the launchpad for VOD. "We've devised a multi-platform model," says RADiUS's Quinn. "We're here to crack that no man's land between a boutique movie and a blockbuster where there's no middle ground."
"RADiUS did it perfectly for a giant financial success," boasts Weinstein. "We've done $2 million in a week on VOD. We've never done that much, it's our biggest weekly number. I think we wind up grossing $4-5 million theatrical beyond VOD, which makes for us all with ancillaries like TV very profitable. That's the reason I brought in Tom and Jason to TWC, to do an amazing job. I'm not just an old theater guy, I want to be innovative and make movies work."
RADiUS-TWC has been active since September 2012 (their initial VOD release was "Bachelorette"), but also focused on theatrical ("20 Feet from Stardom"). Nothing among their VOD titles has had close to the potential of "Snowpiercer," based on how it performed in its brief two-week theater play without VOD competition.
In an uncertain theatrical world, Weinstein was convinced that the uncut "Snowpiercer" was not a guaranteed success in theaters. But its theatrical performance reveals that it was potentially one of the year's biggest specialized releases, with the potential to gross between $40-60 million theatrically, perhaps as much as "Grand Budapest Hotel," the year's biggest specialty success, which is now just under a $60 million total. Only "Chef" from Open Road has grossed over $25 million as a conventional word-of-mouth theatrical release.
This estimate is based on "Snowpiercer"'s extraordinary opening weekend performance. The PSA of the eight initial theaters was $21,000, slightly above average for a five-city release. Because exhibitors knew of the imminent VOD release, most top-grossing theaters in initial cities--including industry specialized exhibition leader Landmark Theatres-- were not available to RADiUS, either based on a policy of not playing releases without a minimum 90-day window, or because they recoiled at playing a film with higher appeal than any previously slated for parallel or near-term streaming.
RADiUS wisely did not announce the imminent VOD date (it leaked), so as to encourage moviegoers to go to the movie. Also, when a movie pops up on VOD menus, the news lights up on social media, providing free and instant publicity.
If we compare the "Snowpiercer" grosses at two locations in New York and Los Angeles, the film's performance clearly indicates that the film was a high-end specialized performer. The film opened with less initial advertising from RADiUS than the TWC buy for same-day release "Begin Again."
If "Snowpiercer" had opened at the four best possible theaters in these two cities, with multiple screens ("Snowpiercer" on one Angelika screen in New York outgrossed "Begin Again" on three), this would have had a likely PSA of between $40-60,000. That number is higher than recent Weinstein films "August: Osage County" and "Philomena," both of which grossed almost $40 million. The numbers include records at the Sundance Sunset in Los Angeles, and strong results elsewhere.
But the film also showed much wider than usual specialized success, suggesting appeal beyond the core often older, critic-influenced crowd. It gave signs of playing for the younger, male, recently increasingly difficult to reach Comic-Con crowd (as this summer's overall disappointing grosses reveal).
Weinstein will also be releasing "Snowpiercer" in several hundred theaters in the UK, which has less sophisticated VOD apparatus, and will watch the film's performance closely this weekend in Australia as well.
Here's TOH box office analyst Tom Brueggemann's financial projected breakdown based on a 2500-screen theatrical release reaching a projected $50 million, based on sources inside and outside TWC and RADiUS.
The theatrical breakdown:
- Marketing expense of $25 million
- Film rental (45%) of $22.5 million
- Weinstein has an ongoing deal with Netflix (RADiUS as an autonomous company owned by Weinstein doesn't fall under this). Sources familiar with gross-based Netflix deals suggest that the payout to TWC could have been around $10 million.
- Blu-Ray/DVD would have grossed around $6 million (split revenue, with around $3 million net to TWC).
- Cable, depreciated somewhat by Netflix exposure, perhaps $6 million more.
Using those figures (again, all of this comes from discussions with multiple players who have worked on specialized films that have grossed in this range, but these could vary widely) show that at $50 million gross TWC would end up netting around $18 million after marketing is deducted when all initial platform revenues came in.
The VOD breakdown: VOD earnings are harder to calculate and project, but here's a stab after discussing details with multiple industry sources:
- The first week's reported total earnings on VOD and iTunes was $2 million, ranking #1 on the latter. Industry estimates on the distributor return -- RADiUS would not confirm any specific deals -- ranges from 60 to 80%, much more than theatrical.
- Theatrical gross is up to $3.5 million, with $5 million or higher possible. That would mean film rental of between $2-2.5 million. Marketing of about $5 million is a fraction of what TWC's would have been (increasing VOD sales), but likely could equal the film's theater gross.
- Radius cites 85 million potential customers (multiple people can view the same purchase). 1-2% of these potential buyers actually purchasing the film -- a high number for a first-run or shortly thereafter VOD title -- would mean somewhere between 850,000 and 1.7 million buyers.
- Cable VOD and iTunes costs vary -- different cable markets have different price points (it's $6.99 on Time-Warner LA right now -- this often decreases in later weeks). ITunes started at $14.99 to buy the film. Let's estimate that between the two, the average price ultimately will be $9.
- A 2% customer purchase level would mean, at a $9 average price, $15.3 million in revenue. RADiUS' share estimated at 65% would be about $10 million. Based on the first weekend of $2 million in purchases, this could be a high, but again, the holds for VOD are much better than for theaters.
- Blu-Ray/DVD and cable would still bring in revenue, but with the lower theatrical gross and the early VOD, at a lower level than with a pure theatrical release. Figure an additional $5 million return to RADiUS.
By this model, RADiUS gets an after-marketing initial return of $13 million including theatrical gross and subtracting marketing. Again, this is calculating at the high end of possible performance from this multi-platform pattern. The theatrical-driven alternative model was calculated at a slightly less optimistic ($50 million) estimate and again looks like it might have shown a profit of $18 million.
In context though, and as a test of an unproven model, this is more than a respectable showing. It's a strong enough result to suggest RADiUS and others will continue to experiment with this.
The caveats --despite this impressive potential performance:
- First, the combination of elements -- strong reviews, cult interest in the director and graphic novel, significant stars, genre appeal -- are tough to replicate, and finding the right film to succeed with this won't be easy.
- Second, the excitement for the film came in large part because it did have an initial theatrical play, way over what most specialized films could ever expect and better than most this year that have played at the top theaters. It was key to keep the public unaware of the near-term VOD availability, as many ticket buyers were lured by the attention the film grabbed by opening in theaters with elevated reviews and decent grosses.
- The fact that "Snowpiercer" as a genre film was an unlikely Oscar contender also made it possible to take a chance on this kind of opening. Would Roadside have pursued this release on "All Is Lost" or CBS on "Inside Llewyn Davis"? They might have made more money if they had--those awards bookings were expensive given the ultimate theatrical return.
- And what is the cost to parent company Weinstein's relationships with theaters? Presumably RADiUS gives them some deniability. Apart from rankling some of their key customers, this decision also means that a company that so far this year has seen its market share drop to 1.5% (way below their normal annual level) was willing to lose a chance to buttress those numbers.
Unquestionably some sort of increased VOD model will come into play. How will top exhibitors react? Back in the late 1970s, when video first became available, they recoiled and tried to wish it away. But they lost the chance to let the studios use theaters as their exclusive outlets for video rentals, at a time when no retail infrastructure had been built. The best bet for specialized theaters under threat is to allow a four-week theatrical window, allowing top theaters in major markets to have initial crack (perhaps at lower film rental) and accelerated opening dates for some films.
The major chains will still refuse to do this, as wide-release films present a more complex scenario, particularly with the international market affected by any domestic changes. Top specialty theaters could end up facing less competition. They might also hold out for longer regional exclusivity that could work to their benefit. But whatever the ultimate solution, the impact of "Snowpiercer" means we are likely to see more, not fewer, attempts to find the right balance between theatrical and VOD.