Universal Tosses Cinemas a Lifeline While Testing New Distribution Model

That is far more titles than any other major Hollywood studio—and nearly double Universal’s output during the final 2½ months of 2019. Like many of its competitors, though, Universal has pushed back the release of its biggest titles, including the next installment in its hit “Fast & Furious” franchise, until at least next year.

Universal’s release strategy will allow the studio to test a plan to make movies available for online rental sooner than ever after they open in theaters.

By putting lower-budget films in cinemas now, Universal is able to provide embattled theaters with more content while simultaneously carving out multiple opportunities to experiment with its new distribution model, which allows it to decide on the fly when to move new films online.

“They need us; we need them,” Donna Langley, chairman of Universal’s film division, said in an interview, referring to theaters. “Everyone is looking for solutions for the short term and long term.”

The cinema has suffered a cataclysmic downturn this year. The coronavirus pandemic forced theaters to close in March. After many reopened, business remained hurt by a combination of government-mandated capacity restrictions and consumers’ reluctance to return to theaters.

Movie theaters are doing their best to stay afloat with help from government subsidies, rent forgiveness and loans.

AT&T Inc.’s T -1.65% Warner Bros. unsuccessfully tried to spark a moviegoing rebound in September, when it released the Christopher Nolan spy thriller “Tenet” in North American theaters. In the eight weeks since, the $200 million movie has grossed a disappointing $50.6 million domestically. The movie has fared much better abroad, grossing $283.4 million.

Last week, AMC Entertainment Holdings Inc., AMC 16.45% America’s largest movie-theater company, said it could exhaust its cash reserves by year’s end if it doesn’t raise additional funds or start selling more movie tickets. While early in the pandemic many Hollywood executives projected the domestic market was likely to shed underperforming and undercapitalized theaters, movie studios’ business model continues to rely on racking up box-office revenue with the most valuable titles.

Studios have put some movies online to drive subscription growth to their burgeoning streaming services, as Walt Disney Co. DIS -2.03% has done with “Mulan” and the Pixar movie “Soul.”

But when it comes to smaller-budget films, the threshold for profitability is lower, making it easier for a studio to earn money on a mix of theatrical and online distribution despite historically low movie attendance.

Universal’s slate of films set for release during the final stretch of the year includes a host of small- to mid-budget films boasting recognizable stars. The animated “Croods: A New Age” is to make its debut on Nov. 25, ahead of Thanksgiving. The movie, a follow-up to the 2013 original, cost about $65 million to make and features a voice cast that includes Nicolas Cage, Emma Stone and Ryan Reynolds. The studio also plans to release the Tom Hanks vehicle “News of the World” on Christmas Day.

Universal has four films on the books from its specialty label Focus Features, including “Let Him Go,” starring Kevin Costner and Diane Lane.

Sony Pictures Entertainment and Disney each have four feature films scheduled for the remainder of the year, the second-highest number. The only big-budget film still on the 2020 calendar is Warner Bros.’ “Wonder Woman 1984,” scheduled for Christmas Day.

“The big movies that require a huge global footprint to appropriately monetize…they got moved,” Ms. Langley said. “But movies that require a more modest box-office return, this model is really working for us.”

Universal recently tested the model with its Focus Features film “Kajillionaire,” starring Evan Rachel Wood. After making its debut in more than 500 theaters on Sept. 25—grossing a meager $526,000 so far—the movie became available as a $20 online rental on Friday. The movie was screened in 91 theaters over the weekend.

Universal began experimenting with novel release models in April, as theaters closed because of the pandemic. Instead of waiting for theaters to reopen, the studio made “Trolls World Tour” available as a premium-priced online rental on the same day it was to have hit theaters. Even though the studio had originally planned to release the movie in theaters, it heralded its move as a success.

To date the animated feature has generated about $125 million in online revenue, according to a person familiar with the matter.

Initially, AMC blasted Universal’s “Trolls” strategy, saying it would no longer show Universal films in its theaters. Three months later, AMC reversed itself, agreeing with Universal to trim the window between a movie’s theatrical release and its appearance online to 17 days, from about 75.

“Universal is moving forward releasing films when few other major studios are. That was a specific reason why AMC entered into the agreement,” AMC Chief Executive Adam Aron said Monday.

While Universal could decide to let titles play longer in theaters if they are performing well, the deal allows the studio to better capitalize on the marketing rolled out ahead of the theatrical release.

“Where people are going to the movie theaters…[now] there’s new product available,” Ms. Langley said. “It also benefits the consumer ultimately…. They can see it in the movie theater, if they are living in a place where it’s safe to do it, or they can wait.”

It is unclear whether other theater chains will follow in AMC’s footsteps. The second-biggest theater chain in the U.S., Cineworld Group PLC’s Regal Entertainment Group, recently suspended operations at all of its domestic locations, citing a lack of new movies as a significant factor in its decision.

Regal and Cinemark Holdings Inc., the No. 3 chain in the U.S., didn’t immediately respond to requests for comment.

Ms. Langley said the AMC deal was pivotal in the studio’s decision to move ahead with so many theatrical releases during the coming holiday period.

Universal declined to name what other theaters are likely to join AMC in showing the studio’s coming releases. However, a person familiar with the plans said the studio expects to secure a significant number of distribution deals with other theater chains.

Bob Bagby, CEO of North America’s seventh-largest chain, B&B Theatres, which has been in business for more than 90 years, said that while a final decision hasn’t been made, he is in talks with Universal.

“We’re looking at all solutions,” he said. “We need new product to show.”