Advertising Is Rebounding Just In Time For Theaters To Reopen For No Reason

Political ads will prop up a market with few movies coming to theaters.

Last week a report was released predicting the U.S. advertising market, in free fall since much of the economy shut down in March and April, should wind up relatively stable for 2020, buoyed in large part by heavy spending from various political campaigns. While still down from its 2019 level, the report forecasts that decline only being around two percent.

That’s not too bad but assumes that more local and state economies will continue to reopen from their pandemic-related closures and that another Covid-19 wave – potentially in conjunction with flu season – won’t cause further restrictions. The report doesn’t go into detail, but it’s safe to assume 60+ percent of that will go to the duopoly of Facebook and Google, with Amazon getting a share of that as well while media companies continue to fall by the wayside.

Among the businesses reopening as states and cities loosen their guidelines for operation are, of course, movie theaters, who have been counting on such easing along with a slate of high-profile releases from Hollywood to bring people back. For months theater owners and other interested parties have been counting down the days until Tenet, Mulan and other titles finally came out.

But Mulan was shifted to Disney+, where it reportedly was viewed by 29 percent of U.S. subscribers to that service during its first weekend. Given the “Premier Access” fee of $30 attached to the movie, that comes out to roughly $260 million. And Tenet’s domestic performance has been very weak, though it’s done pretty well overseas. And it needs to be noted that many of these numbers are estimates given studios are under no obligation to share VOD revenue and WB is holding back official box office reporting.

Since then, Wonder Woman 1984 has moved from October to December and there’s rumors Black Widow may also be delayed while Soul could follow Hamilton! and other recent movies to go straight to Disney+. Theatrical releases are, in the last few months of the year, a risky bet to make, one that studios aren’t willing to make on expensive productions that require the economics of theaters to turn a profit.

Given that’s the majority of what studios are producing these days, that means theaters are now in the position of being open for business but unsure of what movies are going to be available to put on screens for the next several months. It seems like every media outlet has now run a variation on the “The Tenet Experiment Failed and The Fate of Fall is Unknown” story in the last week.

There have also been additional comments from others like the CEO of IMAX, who dismisses the PVOD “experiment” Hollywood has engaged in as “failed.”

While the economics of all this are still largely up in the air and open for interpretation, the repeated delays for some movies like WW84 and others that studios seem insistent on bringing to theaters at some point are causing massive audience confusion. That’s in large part because the advertising and marketing keeps shifting and changing, in some cases multiple times. In the case of WW84, branded products from promotional partner companies have hit store shelves with dates that quickly turned out to be inaccurate. Ads have been placed – including some on DC comics – with revised released dates that also were incorrect even before people retrieved them from their pull list boxes.

So audiences don’t have any idea when the movies they might be interested in are coming out because release dates keep changing. Such changes used to be relatively uncommon and only happened for major titles, often months in advance. Now they’re happening with almost every title save for those always intended for streaming and sometimes are announced just weeks before a target date.

Setting an accurate release date and sticking with it requires studios to select one of two options. They can either:

  1. Set a streaming/PVOD release, deciding that getting some revenue from subscriptions/downloads is better than holding the film back and earning nothing, even if that revenue is less than what it was anticipating from a theatrical release
  2. Maintaining a theatrical release date and counting on a combination of 1) health realities being such that theaters and other businesses are still fully open, 2) audience willingness to venture out to mass gatherings, and 3) the movie being attractive enough to a critical mass of people.

Neither, of course, is ideal and is definitely not a sure thing. While Covid-19 cases in the U.S. are falling (despite inaction and misinformation from the Federal government), there’s no guarantee that trend will continue as the weather in much of the country turns colder. Cases have begun rising in many states, which may lead governors and health officials to impose additional restrictions. That could lead to a chain reaction where such orders lead to theaters having to close or further restrict attendance levels, which in turn leads studios to rethink theatrical release dates for major movies, which means fewer options for the theaters that still open.

On top of the coronavirus, the western part of the U.S. is basically one massive wildfire, disrupting life there and causing many to evacuate or make substantive changes to how or when they venture outside due to unhealthy air quality. On the other side of the country, the Gulf Coast and eastern seaboard keeps getting hammered by a string of hurricanes that similarly upend normal life and cause property damage or loss.

The question also remains how many people are even able to head out to theaters right now or for the foreseeable future. On top of massive sustained unemployment numbers, “essential” workers who may be dealing with reduced hours or the need to change their schedule to accommodate remote learning for their kids anticipate earning have also had the “hazard pay” employers offered for a while cut completely. Even those who can work full-time from home likely don’t have the freedom they once did if they have young kids who need help with online classes and other issues. Gig workers and freelancers are largely uncertain of their future. Overall income has fallen after brief upward movement.

So who, then, is able to go to the movies either because of time or financial reasons?

If people don’t know when a movie is going to come out, how they’ll be able to afford tickets or how safe it will be to go to theaters, it’s unclear what exactly the core value proposition of a traditional movie marketing campaign is, exactly.

Those who question studios’ commitment to theatrical release models would do well to consider those points. Streaming’s lower price point makes the per-view cost almost zero, and even pricey PVOD titles eliminate the health and time points from the decision matrix. That makes running a marketing campaign a lot easier because, quite simply, there are fewer variables to balance and fewer potential potholes to avoid in running that campaign.

More Streaming Services Entering the Market

The entertainment media has been awash in the last couple weeks with one announcement after another of another company making or adjusting their plans for a streaming subscription service. CBS Films will be absorbed by CBS Entertainment Group and tasked with finding or developing original features for CBS All Access. NBCUniversal has revamped its executive team around an anticipated “low key” streaming launch in 2020. Amazon’s IMDb has launched Freedive, an ad-supported service offering free TV shows and movies. Sinclair, tired of restricting its disinformation campaigns to broadcast, will debut STIRR, including all its libertarian propaganda.

All that comes just as Netflix announced a price hike for all subscribers, a move seen by analysts as a sign of confidence its membership will gladly continue to pay the increased fee in exchange for access to its growing catalog of original content.

All of these companies are competing for a piece of a pie that’s seen as growing, which is why there are a whole slate of serviced primed to launch in 2019. The Digital Entertainment Group just reported that spending on home entertainment had risen to a record $23.3 billion in 2018, growth driven almost exclusively by streaming platforms. Video on demand and digital purchases also rose, while physical disc sales were the only category that fell.

So if the consumer spending is gravitating to streaming that’s where media companies want to be. It’s a movement driven not only because of demand but because by offering their own platforms they can capture more of the audience data generated by usage instead of sharing it with Netflix or other aggregators. That’s particularly important when you consider AT&T and other companies are using such platforms as expansions of their advertising targeting capabilities, which is why it was big news that Nielsen will begin including OTT and mobile viewing in its measurement reporting, offering a more complete picture of audience size to advertisers.

The belief seems to be that people will keep on adding new subscriptions, driven by the perceived value of the content available. So NBCUniversal’s will undoubtedly be what finally grabs “The Office” from Netflix just as WarnerMedia’s will eventually have an exclusive on “Friends.”

Price is going to be the biggest factor in just how successful these ventures are. While a recent report revealed 56 percent of respondents prefer streaming platforms as a way to watch their favorite shows and movies an earlier study from last year claimed the spending ceiling most people identified $20 as the most they’re willing to pay for such subscriptions. If Netflix, the dominant player in the market, eats up $13 of that there isn’t much left over for others. That may be one reason why the idea of streaming bundles as an alternative to cable is being floated as it would replace five smaller recurring charges with just one.

The fight being mounted against Netflix isn’t coming cheap, though. AT&T acquiring Time Warner, Disney acquiring Fox…those moves and others like them are meant to counter the streaming giant, which is seen as a clear and present danger to the business model of studios, networks and other entrenched players. They’re being financed with massive amounts of debt, though, and the financial servicing of that debt is a major drain on cash flow and other resources. So, as Variety points out, not only are these companies taking on shattering organizational changes to play in the streaming market, but they have to walk the line between charging enough to keep paying down debt while not honking off subscribers.

The margin for success, then, is thin.

Just ask those in the retail industry, which is facing a debt crisis of its own. After all it was private equity, not shopper apathy, that did in Toys ‘r’ Us. Sears couldn’t invest in its stores and operations because it was busy financing its debt. And Gymboree, bought by a private equity firm nine years ago, just filed for bankruptcy a second time.

While the entertainment media industry may want to believe it’s immune from whatever economic downturn may be coming, the leveraged debt being taken on by corporate America is increasingly worrisome to investors, who smell a recession coming. If and when it does, consumers will be cutting back on discretionary spending, a category that includes entertainment.

Eventually the camel’s back will be broken and there will be a significant shakeout in the streaming platform market. Whether that comes as the result of consumer preferences – they signal they’d rather watch the fifth season of “One Day At a Time” on Netflix over rewatching “The Good Place” on NBCUniversal’s service – or because corporate debt becomes unmanageable and a service is shut down matters only to those who track such things for a living. For the audience it just means they will have to adjust which subscriptions they are managing.