In business negotiations, we tend to assume that it’s the more financially successful party that has an edge. But if that party has a weak BATNA, or best alternative to a negotiated agreement, it could be the seemingly weaker party that comes out on top. Overall, this example offers four negotiation tactics to use for those negotiators stuck with an unappealing BATNA (best alternative to a negotiated agreement) and for those who aim to maximize their power.
Disney’s Licensing Agreement and Theater Owners BATNA
That story of BATNA in negotiation played out back in the spring of 2015 when Disney laid out new conditions in its “master licensing agreement” for U.S. theater owners that wanted to show its then-forthcoming movie Avengers: Age of Ultron, as first reported in the Wall Street Journal.
In particular, Disney made two controversial demands:
- To maximize profits, the studio wanted discounted matinees to end at 5 p.m. rather than the traditional cutoff time of 6 p.m.
- Disney wanted to use the National Association of Theatre Owners’ average ticket price (currently $8.12, according to the Hollywood Reporter) as the minimum price at which box-office revenue would be split between the studio and the theaters.
Cinema operators that charge less than the studio’s minimum price, such as those in smaller markets, would have had to contribute the difference to the overall pool. Film studios typically make such demands to ensure that theater owners don’t offer steep discounts to “get more people in the door and sell them popcorn and soda,” according to the Journal.
In response to the new licensing agreement, which could be viewed as hardball negotiation tactics, John Fithian, the head of the National Association of Theatre Owners (the industry’s trade group) sent Disney a letter saying he had received “an avalanche of complaints, concerns, and fears” from theater owners about the new changes.
The theater owners were most concerned about Disney’s decision to use the average ticket price as a nationwide standard, according to the Journal. The practice, if implemented, was expected to discourage theaters from offering discounts, ultimately leading to further increases in the national average ticket price—a shift that would hurt theater owners (and moviegoers) in low-income communities even more. In fact, Fithian warned in his letter to Disney that such a change could bring about “a cycle of price increases [that] may constitute illegal vertical price fixing under state and local antitrust laws.”
You might have guessed that Disney would stand firm in the face of the theater owners’ complaints. After all, the studio has launched one blockbuster film after another in recent years, from Frozen to Avengers to its Pixar hits and Star Wars series. For its highest-grossing films, Disney has negotiated with theater owners to receive up to 60% of box-office receipts, well above the industry average of 50%.
But as it turns out, Disney’s impressive hit record didn’t give it a free pass with the theater owners. After receiving Fithian’s letter, Disney appeared to recognize that its BATNA was not as strong as it might have believed. Its best alternatives to a negotiated agreement with the major theater chains were bleak. The theaters may have needed Disney to bring in swarms of moviegoers, but Disney appears to have needed the theater owners even more—to make sure its films were in theaters in the first place.
So Disney did what any negotiator with a relatively weak BATNA does: it backed down. The studio reportedly retreated from its demand to change the end time for matinee pricing, according to the Journal. And it expressed willingness to be flexible with small-market theaters that charge less than the national average.
But don’t cry for Disney. Avengers: Age of Ultron, released on May 1, 2015 and went on to have the second-biggest opening weekend ever in the United States—a win-win outcome for theater owners and the film’s studio alike.
Four Negotiation Tactics for Dealing with an Unappealing BATNA/Boosting Your Power at the Bargaining Table
Recognize the limits of draft agreements.
Organizations often try to avoid negotiation altogether by presenting their “wants” as decided facts in the form of “licensing agreements” and other forms of draft agreements.
Though presenting a contract as a fait accompli can have a powerful psychological influence on a counterpart, it can also inspire rebellion if you push them too far.
Note potential risks.
The warning from the theater owners’ trade group that rising movie ticket prices could ultimately violate antitrust laws might have been a wake-up call for Disney. Though empty threats are never a good idea, it is wise to alert the other party about potential legal repercussions of their proposals.
Find strength in numbers.
The theater owners were wise to allow their trade group to speak for them in one voice. When faced with a powerful counterpart, competitors can often gain power—and even improve their own BATNA—by teaming up.
Disney was smart to back down from its aggressive “wish list.” If it had continued to press the theater owners to accept its demands, they might have responded by refusing to screen the latest Avengers film (as some independent theaters owners in Germany have done)—a move that would have been destructive to all parties involved.
Where else have you seen good examples of using your BATNA in negotiation?
At last, a sensible and accurate portrayal of the usefulness of BATNA.
I really like your article. I’m an undergrad student writing a paper on BATNA with one of my professors. We are focusing on the healthcare/life science industry. Would you be interested in reading the paper?
Also, I thought it was interesting how you talked about the theater owners using their strength of numbers. Do you think your concepts could work with regard to health insurance in America? We already have the Affordable Care Act, but many people think that’s not enough. More specifically, do you think the people can find a solution to our still expensive healthcare, or do you think hard nosed tactics like encouraging our representatives to write legislation tipping the scale in favor of the consumers is the solution? There was a middle ground with Disney and the theater owners, but is there a middle ground between the healthcare industry and the consumers?