Carnegie Mellon University
May 12, 2020

Movie Studios Adjust to Changing COVID Dynamics

CMU experts forecast new paths for industry and streaming options

By Julie Mattera

Julie Mattera
  • Marketing & Communications
  • 412-268-2902
Film studios should capitalize on COVID-19’s disruptions by experimenting with how they distribute theatrical releases, expanding into streaming platforms and improving the way platforms work, according to Carnegie Mellon University experts.

With theaters closed and customers home, studios already have been testing new ways to reach customers. NBCUniversal has led this wave, releasing “Trolls World Tour” as a digital rental instead of abiding by the typical 90-day window that gives theaters an exclusive edge in showing new releases. Jeff Shell, head of NBCUniversal, the studio’s parent division, recently told The Wall Street Journal the success of doing so will lead to future films being released in both streaming and in theater formats at the same time.

Michael D. Smith, J. Erik Jonsson Professor of information technology and marketing at Carnegie Mellon University’s Heinz College of Information Systems and Public Policy and the Tepper School of Business, says studios should move one step further. They should invest in creating their own platforms to get direct access to customers.

“The scarce resource today is the customer. The people who own studios’ customers are Netflix, Amazon and Google. They’ve been incredibly successful in vertically integrating into content creation and are now competing with studios in the content space,” said Smith, who co-authored Streaming, Sharing, Stealing, a 2016 book about how big data, streaming services and tech giants have been disrupting the entertainment industry. “Studios need to reverse that and vertically integrate downstream into platforms. The studios that have done that, such as Disney with Disney+, Warner with HBOMax and now NBCUniversal with Peacock, will have a huge advantage.”

Smith urges studios to experiment, but the disruption won’t come without friction and risks. Universal’s decision to push Trolls straight to streaming has led to a standoff between the studio and theater chains. AMC Theaters, has banned the studio’s future movies as long as Universal streams new releases. Regal Cinemas left the studio with a sound warning that it won’t show films that do not abide by the 90-day window.

However, it’s likely the coronavirus pandemic will accelerate the reduction of theaters’ market share within the entertainment industry as families stuck at home become more acclimated to streaming options and even expect them, Smith said.

Leading up to the COVID-19 shut-in, theaters have tried to keep up the streaming and theater divide — essentially blacklisting streaming services like Amazon or Netflix from releasing their films in theaters. But overall revenues ticket sales have decreased for decades. Theaters, in turn, have kept revenues stable by raising prices.

Smith compared streaming’s anticipated disruption to theaters with Broadway’s decline in popular prominence. Once performances could be broadcasted live, the local stage became much less important overall.

“There still are going to be movies you need to see in the theater, but it will be a fraction of the overall content available,” Smith said.

Beibei Li, associate professor of IT and management at Heinz College, agreed.

“The COVID-19 crisis is definitely accelerating these digital transformations across entire industries. It’s a form of a stress test to many industries that are realizing that they can manage in a different way,” Li said. “A similar example is the increased use of telemedicine in healthcare, which is also seeing much more acceptance.”

Li said studios that do invest in streaming platforms could gain a competitive advantage by making platforms that provide customers with more personalized recommendations as they search for films and TV to watch. While streaming platforms provide customers with thousands of choices, it’s also difficult for customers to sort through the overwhelming amount of information available to them.

She said that streaming services like Netflix, Amazon and Hulu not only could improve their machine learning algorithms, but would likely benefit from it.

“Consumers will definitely notice if a platform offers better recommendations than the others. They may not realize it, but their behavior will reveal how much they like or hate it,” Li said. “In a study, we found that different ranking algorithms can change what people ultimately purchase. When the algorithm maximized a person’s economic surplus, it led to a diverse list of products. They liked the variety of choices, felt happy because they felt that their needs were satisfied, and were more likely to spend more money.”

With many people stuck at home, Li said streaming services should take advantage of the increased data coming their way to improve their algorithms. The result could be a win-win solution for all.