The opening weekend for Walt Disney‘s (NYSE:DIS) newest superhero action flick Black Widow may have been impressive given the lingering echoes of the pandemic. But its second weekend was suspiciously soft. Domestic box office ticket sales of $25.6 million between last Friday and Sunday were nearly 70% below the previous weekend’s revenue, according to numbers from Box Office Mojo, marking the biggest second-weekend revenue plunge for a Disney-made Marvel flick. 2018’s Ant-Man and the Wasp previously held that dubious honor with a 62% slide the weekend after its silver-screen debut.
What’s the problem? It depends on who you ask. Some argue that the title character’s death in Avengers: Endgame now makes a backstory film a little less marketable. Others suggest a resurgence in COVID-19 cases crimped consumers’ willingness to visit a theater. Both are likely contributing factors. Given the sort of criticism the National Association of Theatre Owners (NATO) has hurled at Disney since this past weekend’s box office data was tallied, though, there’s every reason to believe the film’s availability as an at-home streaming title is the main culprit behind the sharp box office drop.
However, the nature of this complaint is exactly why movie theater investors should be worried about Black Widow‘s box office data — not Disney’s shareholders.
An incomplete argument
Sunday’s official statement from NATO reads a bit like a list of talking points assembled by a high school debate club, opining that if Disney had skipped offering the movie as a streaming title, the domestic theatrical box office take of $80 million could have come in anywhere between $97 million and $130 million. Moreover, the organization’s response points out that pirated copies of the movie were readily available the day after it premiered online for at-home viewing, earnestly lowering last weekend’s potential. Given all of this, theater-owning NATO members concluded: “simultaneous release [of new feature films] is a pandemic-era artifact that should be left to history with the pandemic itself.”
And given the clear slowdown in Black Widow‘s box office ticket sales compared to comparably big films, NATO seems to have a point.
But as the Shakespearian adage goes, methinks he doth protest too much.
Sure, illegal and unlicensed copies of the film — digital as well as physical — are a revenue-reducing problem. It’s not a new problem, though. Bootlegging and illegally operated websites have long been diverting revenue from legitimate venues. It’s likely that Black Widow‘s high profile made it more likely to be nefariously distributed. Still, it’s impossible to say with certainty to what degree this hampered the flick’s full theatrical revenue potential.
The organization’s statement also fails to acknowledge that the nation’s COVID-19 cases are on the rise again just since last week, tamping down the total number of prospective moviegoers this past weekend. A fair critique would have included such a discussion, if only to explain why it wouldn’t have been an obstacle.
Perhaps the wobbliest of NATO’s pushbacks, though, is the suggested math that $60 million worth of streaming sales don’t actually translate into a full $60 million worth of revenue for Disney. The platforms through which Disney+ is accessed collect around 15% of that fee for themselves, dialing back the company’s first full-weekend subscription video-on-demand revenue to a figure of around $50 million.
But the argument misses a major point about the dual-release approach. That is, the company isn’t just monetizing Black Widow by selling it directly to Disney+ subscribers. The offer itself is a means of acquiring new Disney+ subscribers, who pay an average of $4.55 per month for the service, month in and month out, and are primed to purchase future new releases via streaming. While the specifics aren’t available, Disney sparked large numbers of Disney+ signups by selling Mulan via the Disney+ platform.
NATO’s complaint also fails to point out that theaters and studios share box office sales at a proportion similar to digital platforms’ typical revenue-sharing agreements. Further bear in mind that (at least for the first weekend of its availability) Black Widow actually did generate blockbuster-like revenue on the order of $130 million when counting the roughly $50 million worth of streaming sales it banked.
Read between the lines
Media companies and consumers are slowly figuring out that theaters aren’t the only viable distribution option for new movies. The straight-to-streaming model is working for studios, too. Ergo, movie theater chains like AMC Entertainment (NYSE:AMC) and Cinemark Holdings (NYSE:CNK) are decrying it not because they’re concerned about studios’ fiscal results, but because they’re concerned about their own survival.
Indeed, NATO’s unprecedented public criticism of Disney’s content publishing move completely fails to acknowledge streaming’s strategic advantages and marketability, and instead simply lists self-serving reasons Disney should discontinue this dual-release approach. As a result, it ultimately comes across as desperate, which — like a prospective boyfriend or girlfriend — makes movie theaters less attractive investments.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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