Major Theater Chains Threatening Not To Play Summer Blockbusters Over VOD Dispute [UPDATED]

UPDATE: Shortly after this piece was published, the National Association of Theater Owners issued a statement that they most certainly would NOT encourage theaters to boycott any upcoming films, including the Harry Potter finale. Read the full press release after the jump. The original article remains below.

Could major theater chains really refuse to show Harry Potter and the Deathly Hallows Part 2, the film most people believe will be the year's biggest blockbuster? It's possible. The National Association of Theater Owners, which represents national theater chains such as AMC and Regal, is threatening to stop showing films released by Universal, Sony, Warner Bros., and 20th Century Fox because those studios have agreed to a new Premium Video On Demand service. The new service, which goes into practice this month on Direct TV, will feature films 60 days after their theatrical release for the cost of $30. Theater owners don't like this model one bit and see it as the biggest blow yet to their already dwindling business. But would they really not show a sure fire money maker like Deathly Hallows or is it just an empty threat? Read much more after the break.

If films start showing up in the home 60 days after their theatrical release instead of 120 days later, which has sort of become the new standard, theater owners believe it will significantly cut into their grosses. The longer a theater holds a movie on their screen, the bigger percentage of the gross they get to keep and if they agree to 60 days, what's to stop the studios from cutting it back to 30 days or day and date in the future? In the past, new films wouldn't show up on video for 6-8 months but seemingly every year that window has begun to dwindle. That's largely because the DVD market is a buy first platform, unlike VHS of the past, where rental was the thing. Studios believe people are more willing to buy a movie closer to its original theatrical window, so they're working to dwindle that time frame down.

The studios would argue that at today's box office, 50% of a film's gross is usually made in the opening weekend and most films are completely done within a few weeks. So, for most movies, a 60 day window wouldn't be that big of a deal. Very few films are still making considerable money after 60 days.

The flip side of that is theater owners believe a wide adoption of this on demand window will discourage large families from coming out to their theaters. That, too, makes sense. For a family of four, $30 for a movie compared to the upwards of $40 just for tickets, plus concessions, seems like an economic no-brainer. But if you're willing to spend $30 in 60 days, why not wait another 60 and just buy the DVD?

Another one of the main issues is that Paramount and Disney are currently not on board with the premium video on demand service. Paramount itself has come out and cited increased piracy as one of the reasons they haven't gotten on board, and that's certainly a major concern. Plus, there's the issue of favoritism. If both Paramount and Warner Brothers are both releasing movies on the same weekend, theaters could in theory promote the Paramount movie way more, just because they have more invested in it as it won't be going to On Demand.

This debate could go back and forth forever but, as it stands now, the real test will be if the studio's call the bluff of the theater owners or if the theater owners actually do refuse to show films such as Harry Potter and the Deathly Hallows Part 2. It might take a major move like that for the theater owners to show their true power.

The premium video on demand will begin with Sony's Just Go With It exclusively on Direct TV very soon. Will you utilize it? And do you think the theaters will actually stand their ground?

UPDATE: Turns out, the theater will not be boycotting films, at least not under the encouragement of NATO.  They've just released this statement:

Washington, D.C. (April 14, 2011)—The National Association of Theatre Owners does not and could not encourage its members to engage in any boycotts of any movies distributed by any company. Recent press reports to the contrary are completely false.In an article published on April 13 in The Guardian, it was suggested that NATO indicated that cinema operators were prepared not to screen movies, and specifically referenced the coming Harry Potter film. No one from The Guardian contacted NATO before the original article was published. At our request, The Guardian did later change the article to remove the erroneous reference to the Harry Potter film.

Then later on April 13, the blog "Business Insider" entitled "Harry Potter 8 Dropped From Theaters?" suggested that NATO "is threatening to drop some of this summer's biggest blockbusters" and that "screens under NATO are threatening to boycott upcoming studio releases, starting with Warner Bros. sure to be box office-gargantuan Harry Potter and the Deathly Hallows – Part 2." Again, these stories, and others that have followed, are completely false and no one from the organizations responsible for the stories contacted anyone at NATO.

NATO has often articulated our concerns about the possible release of "premium VOD" movies in an early window. Our association issued statements on June 16, 2010 and again on March 31, 2011 regarding those concerns. But as our 2010 statement made clear, "individual theater companies must and will make decisions about release window changes in their own company's interest." NATO cannot and will not make those decisions for them.

Sources:Deadline, NATO, The Guardian, Financial Times, Movie Web, Variety