Will Disney’s ‘Risky Gamble’ With ‘Mulan’ Pay Off?

With studios scrambling for revenue sources as the pandemic rolls on, Disney has taken the big step of releasing “Mulan” on premium video on-demand, breaking the expectation that tentpole blockbusters must rely on movie theaters and starting an experiment that Hollywood will be watching closely.

“It’s a risky gamble that Disney is taking but says a lot about how confident they are in the state of movie theaters right now,” Boxoffice editor Daniel Loria told TheWrap. “They’re doing something that’s never been tried before, and it is anyone’s guess how audiences will respond.”

So far, the films that have been pulled from theatrical release in favor of PVOD have been family animated films like “Trolls World Tour” and “Scoob!” or smaller-budget comedies like “The Lovebirds” and “King of Staten Island.” Tentpole blockbusters, with their enormous production and marketing costs, have long been expected to remain the domain of movie theaters, as they need the theatrical release model to make a return on investment with $1 billion-plus in box office grosses and hundreds of millions more in post-theatrical ancillary revenue.

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But as studios grapple with the instability of movie theaters during the pandemic, the need for some form of short-term revenue has become greater. This is likely why Disney announced Tuesday that “Mulan” would jump to PVOD — just as the company reported a $4.7 billion quarterly loss and revealed that revenue from reopening some of its theme parks has fallen short of expectations.

Thus, a film expected to be a billion-dollar box office hit will instead be available for Disney+ subscribers for an extra price of $29.99. “Mulan” will be released in theaters later this month in some overseas markets, but only those where Disney+ is not available. That includes China, the homeland of the film’s star, Liu Yifei, and a market long considered critical to the $200 million film’s financial success.

Over the past two weeks, China has steadily opened its movie theaters with approximately 60% of cinemas back online last weekend. While turnout is still small and social distancing protocols will reduce the number of tickets sold, it’s still expected that “Mulan” would be an event release among moviegoers and boost the Chinese box office. But as with the rest of the world, there’s still the constant threat of an outbreak forcing Chinese theaters to close again. Plus, Disney would want to release it as close as possible to the rest of the world to avoid piracy issues.

Another reason for an ASAP release: the rest of Disney’s slate. Theater closures have already forced enormous changes to Disney’s release plans, including pushing all planned “Avatar” sequels and “Star Wars” installments starting in 2021 back a year. Disney still has other 2020 films like “Black Widow” and “Soul” that it may attempt to put out in theaters later this year, but trying to find a new global date for “Mulan” may risk the box office potential of those films.

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“No studio wants to put multiple tentpoles in close distance on the calendar to each other,” Loria explained. He also noted that the film Disney has chosen to put in theaters at the end of August instead of “Mulan” is “The New Mutants,” a Marvel horror film the studio inherited from the 20th Century Fox acquisition that has been repeatedly delayed.

“It’s really noteworthy that Disney chose to use a film they picked up from Fox as a trial balloon for theaters rather than the big tentpole that they’ve spent hundreds of millions on,” Loria said. “If they had confidence in forgoing theatrical, we probably would have seen studios make this move by now long before Disney did it, in front of an investor firing squad. But they waited months before finally making this big move, so Disney probably figured that this is their best way to maximize revenue at a point when there are no really good options.”

But for “Mulan” to work, the nostalgia that Disney has relied on to make remakes of “Beauty and the Beast” and “The Lion King” into huge hits will have to be strong enough to get Disney+ subscribers to pay an extra $30. “Trolls World Tour” has been a big success on PVOD thanks to families looking for a way to keep the kids entertained, and paying $20-30 to see a movie is the same price a family of four would pay for movie tickets in smaller markets — and notably cheaper in major cities.

But the Disney remakes didn’t just win over families. They also drew single millennials and Gen Xers who grew up watching the original films. It’s not quite as clear whether they and other non-family audiences would be as willing to pony up the extra cash.

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“There’s the risk of pricing potential customers out of their interest, especially for those who are trying to cut down on entertainment and other expenses to make ends meet during the pandemic,” Loria said. “For a big tentpole to release as PVOD at an extra-premium price, audiences have to come in with an understanding of what a film is. There would be a lot of people who no doubt would pay $30 to see a Marvel movie, but not many other IP have that guarantee. I don’t know if the Disney remakes would be one of them.”

Studios do not report hard numbers on their PVOD sales the way they do for theatrical box office so it will be difficult to judge the outcome of this experiment. Regardless, “Mulan” has now become the guinea pig to see if PVOD is a viable option for any studio that may be worried that theaters won’t be open or audiences won’t be turning out enough when the time comes for their major fall films to be released.

On Tuesday’s investor call, Disney CEO Bob Chapek insisted that the “Mulan” release plan is not a sign that it is turning away from theaters long-term, but rather just a “one-off” forced by unprecedented circumstances. But could the studio try it on other films, like the upcoming Marvel release “Black Widow,” if the pandemic doesn’t improve?

Michael Pachter, managing director of equity research at Wedbush Securities, said it will depend not only on how “Mulan” performs, but also how “Tenet” does in theaters and whether September reopening plans by major chains like AMC actually come to fruition.

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“Studios that are trying this are just starting to figure out how a PVOD release impacts downstream revenue, and whether or not this will be worthwhile to use as a distribution method in the future,” Pachter said. “Also, what may work well in the current environment may not meet the same high-water marks in a normal environment. I think, generally speaking, most Disney films need the theatrical release to maximize profits, and I don’t see this changing.”

Either way, the “Mulan” move is a major letdown for the global theater industry. While theaters in Europe, Asia and Australia will still plan to screen “Tenet” in three weeks, they had also expected “Mulan” to help get business moving again after the entire summer blockbuster season was wiped away. Not anymore.

“This is the biggest hit for exhibitors to date when it comes to slate changes,” Loria said. “Let’s face it, ‘Trolls World Tour’ didn’t have that big a ceiling in terms of box office potential when it went straight to on-demand. But ‘Mulan’ is different. It is the first example of a film that theaters worldwide were hoping to have, especially in countries where theaters have open for a month and have been dealing with operational costs with little turnout. The term ‘gut punch’ is perfectly appropriate.”

*Related stories from TheWrap:*

After 'Mulan,' Marvel Fans Demand a Disney+ Release for 'Black Widow'

'Mulan' to Skip US Theaters for September Debut on Disney+

AMC Shifts Theater Reopening Schedule After 'Mulan,' 'Tenet' Move