By Erich Schwartzel And Ben Fritz
Behind the scenes of the new blockbuster "Avengers: Age of
Ultron," a fight has been brewing between Walt Disney Co. and
movie-theater operators.
The head of the trade group representing the theaters told Walt
Disney Studios he had received "an avalanche of complaints,
concerns and fears" from members after the movie studio imposed new
conditions on theaters that wanted to show the "Avengers" sequel,
according to a copy of the letter reviewed by The Wall Street
Journal.
Among the changes: when cinemas can offer matinee discounts or
alternate showings of "Avengers" with other movies on the same
screen; and new payment rules that the National Association of
Theatre Owners said could over the long term raise prices for
everyone.
Following the outcry from theaters, the studio is altering its
approach on some issues, including the matinee cutoff and suggested
payment limitations. The studio had outlined the requirements in
its standard licensing agreement, which says how exhibitors can
show a film but can be modified on a theater-by-theater basis.
These days, Disney is wielding a lot of market power, exhibition
executives said, given the consistent success it has enjoyed with
superhero films from Marvel Studios, animated fare like "Frozen"
and live-action fairy-tale adaptations like "Cinderella." Its
dominant position is likely to grow, too, as it releases a new
"Star Wars" sequel or spinoff annually starting this December.
"Avengers: Age of Ultron" just opened this past weekend to an
estimated $187.7 million in ticket sales in the U.S. and Canada,
the second biggest opening ever, behind only the first
"Avengers."
"They're not going to be vulnerable for a long time," one film
buyer said of Disney.
A Disney spokesman said, "Historically we've had strong and
mutually beneficial relationships with our exhibitor partners and
as issues have arisen from time to time we have worked together to
resolve them and we plan on continuing that same approach going
forward."
Theater executives said they fear that other studios could
follow Disney's lead as they focus on highly anticipated sequels to
major franchises like "Fast and Furious" and "X-Men" whose
popularity gives them increased leverage.
Historically, studios have been able to command the most
favorable terms from theaters on their biggest hit films. Disney is
no exception. It is expected to receive about 60% of the domestic
box-office receipts on "Avengers," said people familiar with the
terms. That is well above the industry average of 50%, but it's
typical for a movie from any studio that grosses more than $500
million in the U.S. and Canada, as the new "Avengers" is sure to
do. When studios hit a hot streak like the one Disney is currently
enjoying, they can boost rates and terms even on films that aren't
mega-blockbusters.
Disney's current rates were set two years ago during another
difficult negotiation between the studio and theater owners during
which some major chains stopped selling advance tickets for "Iron
Man 3."
In his letter to Disney, NATO Chief Executive John Fithian said
his group "rarely comments on licensing agreements," but "the
additions to the proposed agreement and volume of concerns raised
by our members move us to voice our concerns."
Disney's executive vice president of distribution, Dave Hollis,
responded in an email to Mr. Fithian that the studio would handle
any concerns directly with theaters and it wasn't appropriate for
the trade group to involve itself, according to people with
knowledge of the exchange.
Mr. Fithian's biggest concern in the letter was Disney's
proposal to use a national-average ticket price, published by NATO,
as the minimum price on which Disney will split box-office revenue,
even if a given theater charges less.
Such minimums are a standard tool used by studios, which cannot
dictate the prices theaters charge, to ensure they are not subject
to steep discounts. Deep discounting could otherwise be attractive
to theater operators looking to get more people in the door and
sell them popcorn and soda.
Using NATO's average ticket price as a nationwide standard could
affect pricing or undermine trust that the figure is accurate, said
Mr. Fithian's letter. Discouraging theaters from offering discounts
would in turn lead to higher prices and increase the national
average ticket price, setting into motion "a cycle of price
increases [that] may constitute illegal vertical price fixing under
state and federal antitrust laws," the NATO letter said.
In response, Disney is considering using data from non-NATO
sources to set a minimum ticket price on which it would take its
cut of revenue, according to a person familiar with the matter.
NATO members were concerned that Disney's pricing proposal would
hurt low-income communities where tickets cost less than the
national average. "Big markets [like] New York will not be
affected, but smaller markets like Minneapolis where the tickets
prices are lower will be," said Ted Mundorff, the CEO of Landmark
Theatres, which operates 55 cinemas in 23 U.S. markets, including
Minneapolis.
A person familiar with Disney's plans said the studio is willing
to be flexible with theaters that charge less than the national
average because they are in areas with lower prices. The studio has
also pulled back from its requirement in the "Avengers" agreement
that theaters cease matinee pricing at 5 p.m., the person said.
Many theaters offer matinee discounts until 6 p.m.
Disney's disagreement with NATO isn't its only "Avengers"
headache. In Germany, a little more than 150 theaters in rural
towns refused to screen the film after Disney sought an increase of
more than five percentage points in its cut of ticket sales and cut
back contributions on advertising and 3-D glasses, according to the
German news outlet Deutsche Welle and a person with knowledge of
the situation.
Still, "Age of Ultron" has grossed $439 million during 12 days
of international release, including $19.7 million in Germany, where
it is running 25% ahead of the first "Avengers."
With Marvel's "Ant-Man," Pixar's "Inside Out" and "The Good
Dinosaur," and "Star Wars: The Force Awakens" coming later this
year, theater owners are counting on Disney to provide more of
2015's biggest hits, but some are wary that the "Avengers" dispute
is a sign of things to come.
"There's not much we can do when they put out this amazing
product," conceded an exhibition executive. "We'll see what happens
with 'Star Wars,'" he added.
Access Investor Kit for The Walt Disney Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US2546871060
Subscribe to WSJ: http://online.wsj.com?mod=djnwires