Mulan: Why a hybrid release is the better option for Disney

The move is a fascinating test case as the ongoing COVID-19 situation continues to disrupt traditional distribution windows

Mulan had its Hollywood premiere on March 9th 2020 but its scheduled worldwide release at the end of that month was cancelled as COVID-19 swept the globe and cinemas closed their doors. After repeatedly delaying the film’s theatrical release, Disney has decided that the time has come to see some return on its investment. This need for additional revenue is evidenced by the company’s latest quarterly earnings release, in which it reported an approximate drop in operating income for the quarter of $2.9bn when compared to the same period in 2019.

To watch the film upon its release on September 4th 2020, Disney+ subscribers will have to pay a premium fee of $29.99 on top of their current subscription fee. The film will still receive a theatrical release in territories, including China, where cinemas are starting to re-open.

Considering the target audience demographics for Mulan, the hybrid approach was Disney’s only real option. Bundling the film with existing subscriptions would have meant accepting loss, but adding the title to Disney+ as an extra allows Disney to test this new model and enjoy complete control of distribution.

An unusual strategy for unusual times

Disney CEO Bob Chapek was keen to stress that this is a one-off move because of the unique COVID-19 situation. Despite these assurances, theatrical exhibitors will be wary of what a successful hybrid release like this could mean for future releases.

Success for Disney will be determined by how much profit it had forecasted for Mulan to make. As the film was postponed just a few weeks before its release, Disney will have spent a significant amount on advertising and marketing Mulan. Estimates place this spend somewhere between $50m and $100m which, when added to the film’s $200m production budget, brings Disney’s spend on the project to between $250m and $300m.

To directly recoup this level of spend from the premium rental fee on Disney+, Disney would need between 13.78% and 16.54% of the service’s current 60.5 million subscribers to pay the premium rental fee. That’s 8.3 million to a little over 10 million subscribers, just to cover those initial costs.

Many of Disney+’s current 60.5 million subscribers may well balk at the prospect of paying a hefty additional fee for new content, which changes the terms of the unspoken ‘deal’ that they agreed to upon joining: access to a library of content in exchange for a monthly fee. Netflix would struggle to justify any similar attempt to charge additional fees for what it deemed to be more premium content as it has no significant precedent of making money from its content in other windows. The ongoing COVID-19 situation that leaves many cinemas closed gives Disney a justification to adopt this unusual strategy for one of its theatrical projects. For the average family movie night, it would normally be cheaper than a trip to the cinema; success will depend on how effectively Disney can communicate this type of messaging.

Hybrid strategy is a more viable way to go

The two obvious choices for Disney would have been to offer Mulan as part of the standard Disney+ subscription or to release the film in cinemas that are able to open, but neither would’ve likely generated enough new revenue on their own.

A straight to Disney+ release would be unlikely to draw enough new subscribers to the service and Disney has already sacrificed some theatrical revenue by shifting properties to the streaming service during the global pandemic.

The much delayed $125m adaptation of Artemis Fowl was likely more beneficial in the long-term as a draw for new Disney+ subscribers than it would have been at the box office, and COVID-19 gave Disney the push needed to move the film onto its streaming service.

The hit taken by the early straight to streaming release of Hamilton is probably more significant. Event cinema has found a niche in the marketplace and the filmed version, bought for a reported $75m, was set to offer consumers a chance to see the hit stage show on the big screen in October 2021 at a fraction of the cost of a theatre ticket. At a time when all theatre productions have been suspended, Disney will have hoped that Hamilton’s streaming release will have tapped into this consumer desire and driven new Disney+ signups.

Like Disney’s other live-action remakes, Mulan is predominantly targeted at families, albeit ones with slightly older children given the film’s 12A/PG-13 certificate, who may already make up a significant proportion of current Disney+ subscribers and viewers. As such, Disney would not see any additional revenue from these customers with a normal release on Disney+.

While a straight to Disney+ release would have driven an increase in signups of some size, there is no guarantee that any new subscribers would maintain their subscription beyond the first month; if they hadn’t already subscribed to Disney+, it is risky to assume that new subscribers would keep their subscription after watching Mulan, especially given the marked lack of high profile new content on the service at the moment.

Based on current US pricing, Disney would’ve need to attract more than four new one-month subscriptions for every one $29.99 purchase of Mulan to see the same new revenue.

Mulan needs family audiences more than other titles do

With the recent uptick in COVID-19 cases and deaths in the US in particular, cinemas are not able to fully open up to allow for the traditional worldwide release that Disney had intended for Mulan. Securing a release in China will have been welcome news for Disney but as the company will only see around 25% of the box office gross, the territory could not have been relied upon to make up for a limited box office in the US and other international territories.

Additionally, Disney needed to be able to count of family trips to the cinema for Mulan. However, school summer holidays are coming to an end and as the re-opening of schools is a priority for many governments around the world, children are likely to either be back at school or at home under lockdown restrictions again by September. As such, families would have been more limited to weekend screenings, which will be limited in both number and capacity as cinemas enforce social distancing measures.

By comparison, Christoper Nolan’s Tenet will skew towards a more independent older audience, who will perhaps be more willing and able to visit cinemas under social distancing restrictions, either on their own or with a friend or partner, when the film opens in cinemas from the end of August (and early September in select US sites).

Premium pricing preserves early run value

A straight to streaming release could’ve damaged the perceived premium status of Disney’s theatrical projects, many of which are the most lucrative in the business; since 2015, Disney has released 18 films that have each taken more than $1bn at the global box office, including seven in 2019 alone. Disney+ has made very significant inroads into the streaming market but Disney did not anticipate that the service would become profitable until 2024, so the company is unlikely to turn its back on the theatrical window before then.

For further context, the table below shows estimated profits for some of Disney’s other live action remakes, as reported by Deadline in their annual look at the most profitable movies.

These profit calculations incorporate costs and revenues from non-theatrical release windows (TV, home entertainment etc), which Disney will hope to be able to exploit as normal. However, they do convey the importance of the theatrical box office, as well as the hopes Disney may have had for Mulan beyond breaking even.

Ultimately, a $29.99 price to watch Mulan at home will help to maintain the premium status of Disney’s theatrical properties until theatrical exhibition settle into whatever the post-COVID-19 normal will be. And while the premium fee will likely be too much for many consumers, it gives Disney the chance to test the waters and recoup some of its investment along the way.

Media analyst covering the TV and streaming industries. @matthewevenson on Twitter.

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