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Will We Return to the Movie Theaters Like Before?

2020 has been a rough year.

COVID-19 has made it especially hard on theater owners who have seen projected revenues evaporate as theater after theater closed their doors and fired or furloughed staff.

As the year drew to a close, and major movies announced that they would postpone or cancel their theater releases, all eyes turned to “Wonder Woman 84”, the sequel (to the hit 2017 movie) that was already a full year late to the big screen. Would the studio brave it like Chris Nolan’s “Tenet”, or would the last hope of the theater owners for 2020 be pushed back yet again? 

On November 18th, something unprecedented was announced – WW84 would be released worldwide in theaters on Christmas day, and it would simultaneously be available on HBO Max at no extra cost for the first month of its release.

I would hate to have been one of those movie theater owners at the time Jason Kilar’s statement was released.

What does all this mean? Movie studios are now able to get their content straight to consumers while avoiding the near 50% cut that goes to the theater operators. With WW84 being the latest of many huge dominos to fall, questions remain: will things return to normal with the movie theaters once this pandemic is over? Or is this the new normal, for better or worse?

True cinephiles long for the full movie theater experience and it’s not impossible for those days to return once the impact of vaccines kick in and humanity develops enough immunity against the virus. Unfortunately though, it will not be a quick fix. 

All indicators point to this taking from 6 months to a year to become our reality. Even if every logistical and distribution plan goes into effect and miraculously suffers no major hiccups, we are probably looking at four months at best.

This means the studios would still have to find ways to exist for many months without a strong dependence on movie theaters. This is especially true in the US where the number of infections is skyrocketing and a likely more cautious president will be inaugurated.

Even then, I’m inclined to believe any ‘normal’ we return to may be short-lived.

The biggest movie industry players like Disney and Warner Bros could revert to a theater-first mentality with their largest tentpoles like Marvel, DC and Star Wars for a spell. However, lower-budget blockbusters (those similar in cost to the first Deadpool movie) will probably be pointed in the direction of streaming first. 

Eventually, all movies will premiere on streaming platforms even if the biggest ones still feature in some fancy theme park theaters. Of course, this could be further accelerated if the WW84 release model proves successful.

Any theater with small profit margins is at risk. They may need to sell even more overpriced popcorn lest they go out of business.

With the streaming model, 50-million-dollar movies won’t struggle as much to make the, let’s say, 100 million dollars that could make them profitable in the eyes of investors.  This is possible because not all streamings need to be subscription-based. Some may be subscription-supported, ad-supported, blatant pay-per-view, or a combination of a few models. If a family of four pays $20 to rent the film for a weekend. You’ll need ‘only’ 5 million families in order to make $100 million.

Compare this with the movie theater model. Let’s use the same 50-million-dollar movie while assuming production and marketing costs magically remain the same (by somehow not needing physical prints and the tremendous marketing budget a successful movie theater release requires). 

Said movie may cost $28 per family. 

It could cost them $42 if they don’t catch a matinee viewing. 

It could cost them double if they decide to watch the movie twice (but let’s assume they see the movie only once during the weekend).
If they buy popcorn and drinks they may spend an additional $40 with good rationing (this won’t even reach the movie studios…but I digress).
Let’s settle on an average of $35 per family…if they forgo the popcorn.
The same 5 million families would, then, bring in $175 million. Roughly half of this has to go to the movie theaters (which would still not yet be profitable!).

I strongly envisage a scenario with streaming where families are spending less on movies and the studios are keeping more of the profits. It’s going to be hard to beat that kind of win-win.

Another reason why movies could be more successful outside of theaters is the streaming model having better targeting and more accurate models of individual consumer tastes (an advantage that I considered when predicting the Netflix ascendancy years ago). Better targeting is the basis of a stronger partnership with advertisers who would happily finance (even if indirectly) the movie industry.

The streaming model also has the advantage of an improved user experience: just watch in the comfort and ease of your own home, and do so without worrying about traffic or weather delays. You don’t have to sneak snacks into the movie theater…or you don’t have to stuff yourself before leaving home and risk falling asleep or needing a major bathroom break mid-movie. You can stuff yourself at home, fall asleep, go to the bathroom and never miss a single frame. You could even watch while going to the bathroom!

The 90-day exclusivity window would be a thing of the past since studios wouldn’t have to wait that long for as many people as possible to watch a movie.

Via streaming, the same number of people as can pack 200,000 movie screening rooms over 90 days can watch a movie in one day (theoretically speaking) or over a weekend…all without movie theaters having to worry about making space for the next already-booked movie.

No seating limitations. No venue limitations. No screen limitations.

The movie could (in theory) keep its virtual screening slot in perpetuity regardless of how many blockbusters are released after it….regardless of how poorly it does within those 90 days.

These are all advantages that I don’t think the studios have been allowed to really tap into. Otherwise, they wouldn’t have let Netflix have such a huge head-start.

The coronavirus has now forced their hand and may have opened their eyes to the fact that there could be a better alternative to the wasteful movie theater model. 

The chains using this business model have actively resisted an inevitable obsolescence which has gradually grown under the surface of misleading profits until the impact of the virus on our lifestyles sped-up the progression toward leaving the model. This trend is unlikely to go back in the opposite direction without a hugely expensive intentional pushback by the theater chains.

Disney, for example, has been releasing fewer and fewer movies at the box office while accounting for more and more of the total box office share.

In 2019 they released only 10 movies at the box office. Those movies brought in nearly 34 percent of the total domestic box office revenue for that year. One studio!

If we include the movies released the previous year which were still making money in the theaters in 2019, Disney, Universal, and Sony’s 74 movies accounted for nearly 56 percent of the total revenue brought in by the over 900 movies released.

Compare this to 2010 when nearly 74 movies from those three studios accounted for only 31 percent of what the entire industry’s roughly 650 movies generated.

I believe this points to an undeniable shrinking of the middle class of movies. Leaving only the biggest blockbusters still desperately needing the old model. Blockbusters that are getting fewer and fewer every year (if you’re Disney) with less dependable returns (if you’re not Disney).

So it seems to me to be a no-brainer that studios are now striking deals with the movie theaters to shorten the theatrical release windows. Some of these deals are for multiple years, which is more than enough time for studios to get used to rejigging their financing towards leaner more efficient budgets that streaming enables.

Studios no longer need to cast wide nets when it comes to their stars. They don’t need to look for the biggest stars to ensure that their movies fill enough seats within a limited time window.

They would be able to spend an affordable budget on any concept knowing through microtargeting which celebrities come with a baked-in followership already committed to seeing the movie.

In the many months to come, studios will be forced to make movies that are engineered to succeed via streaming platforms. My bet is that they will perfect this business model before it’s time to go back fully to the movie theaters. Assuming such a time actually comes.

Don’t get me wrong, we will always have movie theaters… the same way we’ll always have television and radio, but, like television and radio, they’ll be platforms secondary to streaming or powered by streaming. We will also always have indie/art-house movie theaters funded by passion for the arts, or educational institutions.

So looking at the cineplexes, you may ask: how does all that valuable real estate continue to generate revenue? My suggestion is that theaters should reposition themselves as lifestyle and event venues. Leave some of the big screens up, but turn on the lights and redesign the interiors with fewer seats. Maybe replace them with pool tables, cocktail bars, and game centers. Shift focus to catering to parties of like-minded people who pre-plan their viewing in advance, creating another kind of community experience for fandoms or pre-made cliques (or artificially engineered ones) who book your halls as one viewing party. Reimagine those spaces or die a slow death until only the largest theme park complexes are left… waiting to show ‘theme-park’ movies.

Even in its heyday, worldwide movie theater revenues hardly ever topped $45 billion yearly. Yes, worldwide.

Meanwhile, Netflix alone brought in $20 billion in 2019.

YouTube had revenues of  $15 billion before counting from any paying subscribers!

It’s a no-brainer.

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OlaWale Ajao View All

Artist who loves spreadsheets.

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