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Disney Lays Down the Law for Theaters on ‘Star Wars: The Last Jedi’

Disney is leveraging the box-office force of its ‘Star Wars’ franchise—which draws large crowds to cinemas and events like ‘Force Friday,’ above—to ensure theaters adhere to their terms for the rollout of ‘The Last Jedi.’

Ignoring the terms carries an unusual penalty. If a theater violates any condition of the distribution agreement, Disney can take an additional 5% cut, bringing the studio’s total haul to 70% of sales on a movie likely to gross more than $500 million at the domestic box office.

The case of “The Last Jedi” highlights a perpetual but growing tension between the business partners that bring movies to the public: studios and theaters. Negotiations between the two parties have grown pitched as Disney has become one of the most powerful studios in Hollywood and theaters have lost leverage as box-office sales fall. Box-office revenue is down 5% so far this year.

‘The Last Jedi,’ starring John Boyega, above, and Mark Hamill, opens on Dec. 15. Disney will receive about 65% of ticket-sales revenue from the film, and is requiring theaters to show the movie in their largest auditorium for at least four weeks.

The decline is accelerating plans at other studios to narrow the theatrical window and make movies available for home viewing sooner. But Disney has said it wants to preserve the current theatrical model, making the studio an even more indispensable supplier for exhibitors over the long term.

That dynamic has exhibitors across the country resigning themselves to a harsh business reality: If you want to play Disney’s blockbuster movies, get used to Disney’s rules.

“They’re in the most powerful position any studio has ever been in, maybe since MGM in the 1930s,” said one film buyer.

A Disney spokesman declined to comment on the negotiations.

The studio’s slate of surefire hits this year has included “Beauty and the Beast” and “Guardians of the Galaxy Vol. 2,” with “Thor: Ragnarok” coming this weekend.

Last year, with just 13 new releases, Disney accounted for 26% of total domestic box office, according to Box Office Mojo. The No. 2 studio, Time Warner Inc.’s Warner Bros., had a 17% market share with 23 movies. Disney is expected to top the market ranking this year, too.

Disney’s string of hits in recent years—fueled by its acquisition of Marvel Entertainment in 2009 and Lucasfilm in 2012—gives it sway over theater owners, many of whom described the studio as exercising unrivaled control over every detail of a film’s release.

Few operators can afford to turn away a Disney windfall. But some independent theaters have decided against screening “Last Jedi” when it is released, saying the company’s disproportionate share of ticket sales and four-week hold make little economic sense—especially in small towns.

“There’s a finite number of moviegoers in my market, and I can service all of them in a couple of weeks,” said Lee Akin, who operates a single-screen theater in Elkader, Iowa (population: 1,213).

If he were to sign up for the movie under Disney’s terms, Mr. Akin said he would be stuck playing “Last Jedi” to near-empty auditoriums toward the end of a monthlong run while still giving Disney 65% of those paltry sales. The studio is applying the 65% split across all weeks of the film’s release, rather than some studios’ practice of beginning a split at a high figure and then lowering it in subsequent weeks.

“When [studios] get much bigger than the other guys, that’s when all these wacky rules come into place,” said Mr. Akin.

Disney’s rules on “Star Wars” begin before tickets are available online, with the studio outlining presale terms to theaters in contracts that are individually watermarked to prevent exhibitors from leaking them.

Most theatrical releases send about 55% of ticket sales back to studios, though the average split is about 60% on major hits. Hollywood makes more money on tickets sold in the U.S. than in overseas markets, where the split averages about 40%. Disney has deals with some exhibitors that give it less than 65% on “Last Jedi.”

Previous “Star Wars” installments gave Disney 64% of ticket sales and included four-week holds, and other releases from the studio usually require a minimum of two weeks of screenings. But Disney’s 5% penalty for failing to meet terms on “Last Jedi” is unusual. The charge will be implemented for various violations, including if a theater pulls even one “Star Wars” screening from its schedule or begins marketing the movie before Disney gives the go ahead, according to theater operators.

Disney’s terms kick in if ‘The Last Jedi’ collects more than $500 million in the U.S. and Canada, which box-office prognosticators say is a near certainty. The film is expected to draw gargantuan crowds. Here, a fan stands at a booth for the film at an entertainment expo in Auckland, New Zealand, in October.

The four-week hold in a theater’s largest auditorium, meanwhile, has frustrated distribution executives at rival studios that also have major releases hitting theaters around Christmastime. Soon after the “Last Jedi” opens on Dec. 15, such movies as Sony Pictures Entertainment Inc.’s “Jumanji: Welcome to the Jungle” and Twentieth Century Fox’s “The Greatest Showman” will begin jockeying for screen times. Twentieth Century Fox’s owner, 21st Century Fox Inc., and Wall Street Journal parent News Corp share common ownership.

Of course, most exhibitors make more money on concession sales than box office, and a theater receiving 35% of ticket sales on a hit that grosses $700 million fares better than one receiving 50% on a $200 million movie.

Disney’s terms on “Last Jedi” kick in if the movie collects more than $500 million in the U.S. and Canada, which box-office prognosticators say is a near certainty. The studio’s first installment of the space opera, “The Force Awakens,” opened in December 2015 to $248 million and became the highest-grossing domestic movie of all time, collecting $937 million in 2015. “The Last Jedi,” which has Mark Hamill returning as Luke Skywalker, is expected to draw gargantuan crowds.

At Disney’s September ‘Force Friday’ event, ‘Star Wars’ fans lined up at Disney stores, like the New York shop above, to buy new products tied to ‘The Last Jedi.’

Exhibition executives have already promised impatient investors the movie would help balance out a summer full of duds. Adam Aron, chief executive of No. 1 exhibitor AMC Entertainment Holdings Inc., called “Last Jedi” a “gift from heaven” earlier this year.

Disney’s terms have annoyed theater owners before. In May 2015, a trade group representing theater owners took the rare step of sending Disney a letter outlining “an avalanche of complaints, concerns and fears” from its members over conditions imposed on theaters that wanted to show the studio’s “Avengers: Age of Ultron.”

On the “Avengers” movie, Disney tried to limit matinee discounts and issued a rule stating theaters must use a national-average ticket price when calculating the box-office split. Disney retreated from both rules following the trade group’s letter.


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