Movie show house owners are pissed off with streaming, however their survival is dependent upon the studios

A Regal Cinemas movie theater stands on 42nd Street at night in New York, the United States, on Tuesday, October 6, 2020.

Amir Hamja | Bloomberg | Getty Images

A lot has changed in the entertainment industry in 2020. With the rise in coronavirus cases, audience discomfort, shortened cinema windows, and a greater focus on streaming has increased than ever before.

One thing has remained the same, however: the symbiotic relationship between studios and cinemas.

“Studios and exhibitions have always had a nice but controversial relationship,” said a cinema operator with locations in the southern United States on condition of anonymity. “The exhibition is basically a blank screen and empty seat business, and we can’t do what we do without the studios.”

Despite massive disruptions in the industry, cinema owners and distributors are doing everything they can to keep things professional at a time of high stress and emotion.

Cinema owners who spoke to CNBC said they understood why studios had to postpone large films and put some of those films on streaming services or on-demand platforms.

“Whether we agree with their solutions is a completely different story,” said the cinema operator.

Disrupt the status quo

Theater owners have been resistant to change for decades, especially when it comes to how long movies should be played in cinemas before they are allowed to use premium video-on-demand, home video or streaming services.

Up until that year, blockbuster films had to be shown in theaters for at least 90 days before they could be released anywhere else. This window usually comprised around 74 days of exclusive theatrical performances, two weeks of availability for digital publication and then the sale of home videos.

These windows were created by studios decades ago to “get multiple bites out of the same apple,” said another cinema operator.

In the months leading up to the pandemic, some studios were already in talks with theaters to modify these windows slightly. The result would have kept larger franchise films and blockbusters in theaters longer and allowed smaller budget films to get to direct-to-consumer channels faster.

However, when the pandemic had to close for nearly six months, desperation forced cinema operators to agree to new and significantly shorter release strategies in order to get out of the pandemic. After all, the big and small cinema chains have raised bankruptcy concerns over the past nine months.

Not to mention the number of locations in cinemas has decreased in recent months. As of last weekend, only around 35% of theaters in North America were open. Many of these closings are due to local restrictions, but some larger chains have chosen to close locations because they lose too much money opening with such limited quantities of product.

Gal Gadot plays Wonder Woman in “Wonder Woman 1984”.

Warner bros.

“Most studios experimented with alternative distribution when they were unable to distribute movies in normal windows,” said Michael Pachter, an analyst at Wedbush. “Universal tried Premium After a 17 day window, Disney tried Premium exclusive at a very high price, and Warner tried day and date streaming and theater. “

“The streaming window has always been the last resort,” he said.

As usual

While larger chains like AMC and Cinemark have been able to do deals with studios like Universal to reduce on-demand profits once movies have switched to streaming, smaller theater chains have less bargaining power.

“I’d say our relationships are pretty much the same as before,” said a Midwestern cinema owner, who asked for anonymity. “I deal with distribution presidents. In so many cases, those decisions are theirs. HBO Max’s decision was way above the distribution manager. Arguing with sales teams is no good, they fear their jobs too.”

“I’m mad at AT&T, I’m mad at Comcast,” he said. “I’m not exactly mad at the Warner Bros. distribution.”

For these smaller racetracks, decisions like AT & T’s to have the full list of 2021 Warner Bros. movies in theaters and streaming on the same day are costly. Having these titles available at home reduces the incentive for customers to go to the theater.

However, there are worse alternatives.

“We’re not happy with the day and date,” said the Midwest operator. “But I’d rather have a product day and date than no product at all.”

While many cinema operators are frustrated by the sudden surge in titles on streaming platforms, it should be noted that studios have made similar decisions about direct-to-consumer content in different forms for decades. Before streaming, there were films from major studios that went straight to VHS or DVD and skipped the cinemas entirely.

“The idea of ​​studios creating critical content for direct-to-home is not a unique concept,” said a global operator with a large national presence, who spoke on condition of anonymity. “What technology has done now is to let more of it. Content is king. Content was king before the virus and content becomes king after the virus. Content is where it starts and ends. That hasn’t changed.”

The way forward

As vaccination rates go up and cases go down, there will likely be more changes to the theatrical release model, but one thing is clear: cinema is not dead.

“What we learned during the pandemic is that it’s not easy to replace all of the lost cinema window revenue,” said Eric Handler, media and entertainment analyst at MKM Partners. “That offers a lot of downstream revenue opportunities. There will be changes to the model, but I still think the theater stays something.”

Earlier this month, Disney CEO Bob Chapek admitted that his company had raised approximately $ 13 billion at the global box office in 2019, calling that achievement “nothing to sneeze about”. In fact, Disney had seven films that year with a total volume of more than $ 1 billion.

While Disney will be releasing the Raya and the Last Dragon animated feature simultaneously through Disney + and in theaters as premium video on demand in March, there are no plans to make this a permanent box office strategy. Disney executives said they will remain flexible about future releases, but made sure that titles like “Black Widow” and “Jungle Cruise” hit theaters as planned.

In 2019, the global box office was at its highest level ever at $ 42 billion. Already in markets like Japan, China and Australia, where coronavirus cases have dropped significantly, analysts and operators are seeing the box offices recover and thrive.

“At the end of the day, I think the theater will be back,” said Handler.

Representatives from Disney, AT&T and Comcast, which owns NBCUniversal, did not immediately respond to CNBC’s request for comment.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC.

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