national association of theater owners

That’s a Lot That’s Happened In the Last Few Days

The theatrical exhibition world is upside down.

It was just a few days ago that the biggest announcements coming out of Hollywood were a handful of release date changes, with major titles being pushed back by several weeks if not several months.

Since last Friday, though, we have already gone through approximately 762 news cycles, each bringing with it a handful of changes and updates, all of which were more groundbreaking and largely unprecedented than what came before.

Studios have not only punted even more major releases – including Black Widow, which had previously been the sole holdout to Disney’s other changes – but have halted production on projects like The Matrix 4, the Avatar sequels, the third Jurassic World movie and countless others.

The combination of big titles being pulled from the release schedule and guidelines from the CDC as well as many state, county and city agencies to avoid gatherings, practice social distancing, isolate at home if possible and more lead theater owners to make a sequence of decisions. First it was to limit seating at shows. Then it was to shut down some locations in select cities, usually following mayors or governors ordering such measures. Finally, AMC, Regal, Cinemark and most all others have closed all their U.S. theaters.

Also contributing to that incredibly difficult and highly unusual decision is that not only was the Covid-19 coronavirus not showing any signs of slowing down in the U.S. but last weekend’s box-office was the worst such period in 20 years. That’s good news for public health as it eliminates at least one place where people can ignore the recommendations being offered, but it means those theaters aren’t making any money, with the workers there – often among those making somewhere around minimum wage – likely suffering the brunt of the consequences given the lack of social safety net programs.

One movie that hasn’t been rescheduled is Universal’s Trolls: World Tour, which the studio announced will be available via VOD rental platforms for a 48-hour period the same weekend it was meant to hit theaters. Other recent titles like The Hunt and The Invisible Man will also come to digital home video early, following a trend begun by Disney when it released Frozen 2 to Disney+ streaming three months ahead of its planned debut. The Rise of Skywalker is also out on digital now, a few weeks ahead of time, and Warner Bros. says Birds of Prey and other recent titles will follow suit.

That’s good news for people who are exercising common sense and staying home if they’re able to, especially if they have kids home for extended periods because of school closures. For theater owners it may not be quite as sunny a picture.

Commentary over the last few days has included how Disney’s moves could lead to an even further collapsed theatrical release window and how Universal shifting Trolls from theaters to on-demand hints at the kind of business model studios likely prefer, especially given the higher profit margins and reduced costs.

How the theaters themselves will emerge from this is the big question mark hanging over the situation at the moment. Studios do indeed have the flexibility to alter a movie’s release pattern and platforms because they control the product and can choose a different supply chain when one unexpectedly closes.

Theaters are less nimble and rely on the studios to use them as the distribution venue of choice. Box office receipts are already down six percent in 2020 from last year, and now are faced with the combination of no revenue whatsoever for anywhere from six weeks or so to three months or more and massive debt loads that make their financial situation precarious and subject to sharp downward turns given the slightest marketplace hiccup.

Just today, the National Association of Theater Owners finally put out a statement in response to all the developments of the last week, making it clear they see any deviations from the minimum 90 day theatrical release window as an aberration to be at best overlooked and they they are certain people will return to theaters once they reopen.

https://twitter.com/sarafischer/status/1239969760294526976

The question remaining, though, is this: What will they be reopening with? Studios are pushing their entire calendars out, so if things level out and real life commences in June it’s unclear what movies will even be available at that point. And what kind of marketing campaigns will they be supported with? So many movies have already been significant advertising and publicity pushes in support of release dates that are no longer happening or feasible, and new dates will have to keep in mind both overcoming audience hesitancy to come back out into the world and allow for enough time to make the public aware of the new date.

Both those issues are troublesome on their own. Put together they are even more problematic.

NATO: Fewer People Went to Theaters in 2019

We’ve already seen that box office revenue was down in 2019 by a noteworthy 3.9 percent. That news in and of itself was bad enough given how up and down the last few years have been, with the fate of the industry riding largely on how much it can pull from a handful of blockbuster franchise releases.

Last week another wave of bad news hit when the National Association of Theater Owners revealed attendance – the actual number of tickets sold – fell 4.6 percent in 2019 from 2018 levels. The only reason, then, that the revenue drop wasn’t as big was that the average price of a ticket (including premium formats) was up to $9.37 at the end of the year.

While movie-going is still an enormously popular activity, the trend continues that it seems to be increasingly one available primarily to the well-off.

As Erik Hayden at THR points out, that average movie ticket price is higher than the monthly subscription rates for Netflix, Hulu, Disney+ and other streaming services. And right now 39 percent of respondents to a recent survey are paying for three or more such services (including music) at a time.

For the consumer, then, it comes down to value. $9.37 can buy one movie ticket, but it comes with the obligation to make the necessary arrangements to leave the house. And how often are people going to the theater themselves, and what other activities are they adding on to that trip? Even a solo trip will likely end up costing significantly more than that.

Compare that to the $7-10 a streaming subscription cost, which comes with far fewer additional burdens. While each service has its own library of material, the options available on any one of them are substantive enough to keep most people occupied for hours if not days. And the perceived risk involved is much lower, as blowing $9 on a single movie that winds up being a dud is a huge disappointment while the couple hours you invest in a movie on Netflix is fine since you can check your email as you finish it with few regrets.

What Does the Audience Want to See?

At some point the theatrical exhibition chains are going to have to figure out how to live in a world that includes both their business and that of the streaming producers, who continue to bank on the idea that original features and series are the key to success. The stocks of AMC Theaters, IMAX and others took a hit at the end of last year because of big-budget bombs like Cats and even the perceived disappointing results of Star Wars: The Rise of Skywalker.

But those are the movies they booked, influenced in part by the studios who put on persuasive presentations at CinemaCon and assurances that people will come see known properties. Meanwhile, they keep shunning anything that comes from Netflix, even if it’s from high-profile filmmakers and comes with massive buzz attached. Netflix may have far fewer titles than it did a few years ago, but it has proven a serious player in the awards game and that’s come with the subsequent industry attention.

So, then, how interested in the future of movies are the theater chains? And what do they see their role being? Their core business model, after all, means they are at the whims of studios that make questionable decisions for a number of reasons without substantive input on those decisions.

If people are willing to pay $25-30/month combined for a two or three streaming subscriptions but continue to signal they are balking at the $9+ for a movie ticket, there’s no clear path for theaters to adjust their business models other than to keep jacking prices up, getting more out of a shrinking pool.

That seems unsustainable in the long term, but perhaps those in charge are just hoping to get through the next quarter unscathed and then leave it for the next person to figure out. The choices being made now, though, will have serious repercussions for everyone, especially the audience.

What To Make of 2018’s Movie Industry Landscape

The headlines began with a couple weeks still left before the end of last year, hyping that movie ticket sales had already reached $11 billion. The final tally wound up being just shy of $12 billion, a record-setting number that was 6.7 percent over 2017’s final haul. Disney was responsible for a quarter of that all by itself, thanks largely to the massive success of Black Panther, which was never overshadowed even though it came out all the way back in February. A late burst from Spider-Man: Into the Spider-Verse, Aquaman and a few other releases helped push it over the top.

The news is even better globally, with worldwide box-office up to $41.7, with the U.S. domestic market leading the growth for the first time in a long while.

What remains to be seen is how things fared in terms of actual tickets sold. It’s estimated to be around 1.2 billion, which would be about five percent higher than the dismal showing of 2017, when attendance was at a 25 year low. That’s still well off the high of several years ago, a trend attributable to several factors including the high ticket price, the speed at which new movies come to home video and more.

Diminishing theatrical audience numbers have been masked by the focus on total sales, which has steadily increased thanks to rising ticket prices due in part to prestige formats like Dolby, IMAX, 3D and so on. Attendance figures were also helped by the popularity of MoviePass, which has done everything it can in the last six months to erase consumer goodwill.

There are, of course, lots of lessons being offered given those dollar amounts. Various op-eds are pointing to the resurgence of movie theaters, thanks in part to Hollywood studios releasing popular films throughout the year instead of grouping them all in three months of summer. And those releases have been more diverse than in recent years, though while more black directors enjoyed more success the number of female directors continued to be flat.

A recent study found little cannibalization by streaming of the moviegoing experience. Instead it seems that the two sit side by side, each fulfilling a different need in the audience and serving them unique material to enjoy. Given the study was commissioned by the National Association of Theater Owners, it’s not surprising the angle taken is that theaters are doing just fine. Some harsh realities are brewing not far below the surface, though, that could make 2019 an interesting year for the entertainment industry.

Streaming revenue has already topped that of theatrical exhibition, something driven by the proposition of higher value for the money. Netflix in particular tends to be the boogeyman haunting the dreams of theater owners and big media companies, who are either ready to launch their own streaming services to compete against it or sign deals to produce films for it.

Netflix has 55 original films a year planned, including upcoming releases from some of Hollywood’s leading filmmakers. And because they eschew all but a cursory theatrical release for most of those movies and are refusing to play by anything approaching traditional rules, they are threatening the validity of those rules.

It may be true that studios are once more in a position to grasp the Oscar statuette once reserved for the smaller independent players that trafficked in the kinds of films that garnered nomination. Left unsaid, though, is that they’re back in that position because those awards-friendly films have been produced by Netflix and others and are being shunned from prestige consideration. So the mass appeal blockbuster remakes, adaptations and sequels from the major studios are left as the only films available for nominating committees to choose from.

Netflix is simply making the kinds of movies the studios no longer are interested in, shown in stark relief this past summer when it put out a number of romantic comedies to address unmet consumer demand. When you look at the winners and losers at the box office last year, the “losers” category is filled with niche films that would play much better as streaming releases, where the barrier to entry for the audience is so much lower than taking a chance on an unknown quantity at the expensive theater. Even comedies, which once dominated the box office, are now a bad bet for studios and theaters.

It also remains to be seen how susceptible theatrical exhibition is to whatever form the looming recession will take. Also coming down the road is the potential lifting of what’s commonly known as the Paramount consent decree. That could prove devastating to smaller theaters who don’t have the safety of scale bigger players like AMC Theaters and other large chains do. If the number of movie houses with fewer screens, the ones that often operate in less affluent neighborhoods, begin folding it will create fewer people who have any theatrical experience available to them, choosing instead some mix of legal and illegal streaming or downloading.

There are lots of unknowns and predictions are likely useless, despite what others making them may believe. What seems certain, though, is that 2019 will be a rough one. Netflix will continue to find ways to dominate the cultural conversation, stealing attention from theatrical releases that, in the coming year, seem somewhat lackluster. Further problems will develop from a mix of economic slowdowns and increased competition from all quarters as the same media companies that feed movies into theaters begin to divert some of that stream to their owned streaming services.

It’s also likely there will be a major shakeout in the streaming market. The consumer base simply can’t support all of these, and we’ve seen recently that when a service can’t achieve massive scale the corporate owners will shut it down.

Basically, 2019 is going to be a little rough.