Negotiation Update: Not playing at a theater near you?

By PON Staffon / Business Negotiations

Long before the Covid-19 pandemic, people increasingly were staying home to watch movies on streaming services such as Netflix rather than heading out to the local multiplex. Film studios and other content providers were eager to capitalize on the trend by shortening the traditional “three-month theatrical window”— the exclusive period of time that theater companies reserve to show films before they can be released on the small screen.

But, as we wrote in our January 2020 issue, major North American theater chains—including AMC Theatres, Cineplex, and Regal Cinemas—resisted making changes to their business model that might give people more incentives to stay home. Just last year, in negotiations with Netflix, AMC agreed to shorten the theatrical window for Martin Scorsese’s film The Irishman to 60 days; with Netflix insisting on 45 days, the parties declared an impasse.

When the pandemic indefinitely shuttered theaters in North America and beyond this past spring, however, studios rebelled outright against the three-month window. Universal Pictures launched the first shot across the bow by releasing films (including Trolls World Tour and The King of Staten Island) on demand via cable TV and online stores.

In what was widely viewed as an empty threat, AMC CEO Adam Aron said AMC would boycott Universal and any other studio “contemplating a wholesale change to the status quo.” Other studios followed Universal’s lead, selling off smaller films to streaming services rather than waiting for theaters to reopen.

As the pandemic dragged on and its theaters remained closed, AMC, in a state of financial distress, became willing to negotiate new terms with Universal. Ultimately, AMC agreed to shorten the theatrical window for Universal’s Focus Features division, which specializes in small films, to 17 days, in exchange for a percentage of Universal’s earnings from premium on-demand rental revenue. “The movie business will never look the same,” Variety declared after the deal was announced, predicting other studios and theater chains would reach similar agreements.

In negotiation, fear of the unknown can prevent us from making needed adjustments to the status quo. After resisting change for years, AMC gained a first-mover advantage when it became willing to renegotiate industry standards—and carved out terms that its competitors likely will now need to accept. It’s a lesson that negotiators in other industries would be wise to heed.