An assessment of the true economic impact of CV19 to cinema makes for fairly bleak reading. But for David Hancock, head of global cinema at OMDIA, there really is a light at the end of the tunnel – even if it may feel quite some way off at the moment.
ONE YEAR AGO AT CineEurope, our sector was looking forward to its first $42bn year, OMDIA was forecasting continued screen growth to beyond 200,000 this year, and “Avengers: Endgame” from Marvel was on its way to being the highest grossing film of all time (not adjusted for inflation), raking in epic $2.8bn in cinemas worldwide.
On 27 January this year, China shut down all the cinema screens in the country and the film world changed. This was the moment the business woke up to the threat posed from CV19. Even then, there was hope this would not spread elsewhere, therefore closing cinemas. Within six weeks, 97% of the world’s screens had shut down, taking with them all new releases and laying off thousands of employees around the globe. The sector lost over $4bn in the first quarter of 2020, mainly from early closure of China.
Additionally, all three revenue streams shut (admissions, concessions and screen advertising), affecting a wider ecosystem: screen advertisers, food and beverage suppliers, seating companies, projector and technology manufacturers, online and physical distribution companies and more.
Same challenge, different approaches
The closures happened over a period of a month, as the virus spread around the world, and governments suddenly understood why other countries had reacted the way they did. Not all countries took the same lockdown route, with Sweden, Taiwan, and South Korea keeping businesses open, including cinemas. In the USA, Utah and South Dakota never officially closed down cinemas even if sites did shut down as part of a wider company response by the major circuits. Even so, cinema was critically hit and distributors rushed to rework film slates, with knock-on effects two years down the line.
April, May and June saw no releases at all in the USA and the numbers in March and July are (or will be) down (see graph on the next spread). Most major films have been given new theatrical release dates with a very few suitable titles skipping a cinema release and moving onto PVOD. The release of “Trolls” on digital platforms was an anomaly in the way films have been put on hold, and it is hard to draw lessons for wider long-term release strategies for all films from that example. There was more movement of titles from cinema to digital among smaller indie titles as a way to keep some cash coming in. Such films already experiment with release strategies more than major movies do.
There have been short-term changes in the cinema system. For example, the French government exceptionally agreed to waive the theatrical window (which is legally set and adhered to strictly) for all films in cinemas around the time of cinema closures, allowing them to go straight to VOD. France is a strong supporter of the theatrical window and this system will go back to normal when this crisis is over. There have been initiatives to help cinemas too, such as online film viewing giving a slice of revenue to cinemas.
Opening again, in a limited fashion…
In many countries, governments stepped in to underpin economies, including supporting cinemas during a period of complete shutdown. Other countries worked support through the welfare system. However, four months after China imposed those cinema closures, there are now much more positive signs for the re-opening of cinemas, although capacity ceilings, social distancing and staggered seating in auditoriums will limit admissions. This can be countered by putting on extra screens for the biggest films, as well as aiming to shift people’s visiting habits to outside peak times.
Audience surveys, although limited in number, suggest that there is considerable pent-up demand for cinema going but that it will take time for people to feel safe going into entertainment venues of all types, including cinemas. This indicates that for a few weeks, library titles may be the main content, hopefully with generous terms for exhibitors to get them back on their feet. However, the key issue now is one of reassurance. At its core, cinema is a social medium that brings people out of their homes for a communal experience. This is the point that critics of cinema always miss, but in this unprecedented circumstance, cinema’s strength has become its weakness. Being social is perceived as a threat today, with physical distancing being labelled social distancing. Hence, the public needs to be convinced that being in a social space is a safe activity. Cinemas and authorities are busy defining a raft of measures that all entertainment activities need to implement to keep their guests safe. These include temperature checks on arrival, masks for staff and guests, one-way walking orientation, handwashing, regular disinfecting of auditoriums, maximum capacities, online booking only, empty seats, and fewer F&B options. These are all sensible measures to take.
Delivering a sense of confidence
The issue is not just about sensible precautions, it is about overcoming a natural sense of unease at being in a social space. This will need more subtle ways to achieve this. One of the ways to do this is to take a leaf out of air travel’s book (pre-pandemic), and to use a concept known as security theatre. This is often used in a pejorative way, to denote measures taken to provide a sense of security without doing much to achieve it. An example often cited is the 100ml liquid rule for air travel. While the measures being advocated for cinema are not ‘theatre’ and are not just for show, the psychology behind them could be useful in providing this reassurance for people. Cinemas can be vocal in talking about their measures, reassure the public by showing their prospective customers what they are doing to keep them safe. If it is possible to have positive security theatre, then that is what cinemas need right now.
Understanding the scale of the loss
Our data on 15 key countries shows an estimated $4bn loss of box office in the first quarter of the year, (these countries account for over 70% of global BO). The hardest hit country is China, which was 88% down on the first quarter 2019. Box office is likely to be down by over half globally this year (it is around 70% down as of early June), and will also be significantly affected in 2021 as social distancing continues until we find a vaccine. The second quarter of the year will be severely impacted, as even cinemas that are open are earning much-reduced revenues due to capacity measures, social distancing and lack of film content. As at early June, OMDIA was tracking 76 countries/provinces/states that had set a date for cinema re-opening and 54 of those had already opened. The key market of California opened from 12 June, the UK in early July, France in late June but the cinema world awaits word on China. The prospects for the maintenance of any sort of summer season relies on some key markets opening in time for those releases. Currently, the first big release is currently Disney’s “Mulan” on 24 July, now that Christopher Nolan’s
“Tenet” has moved from 17 to 31 July. Quite a lot is riding on the launch of these films, allowing us to assess the impact of CV19 on people’s attitudes to cinemagoing in a post-Covid world.
Predicting the future: some scenarios
We have been working on scenarios for forecasting how cinema may recover. These range from more positive (using the term loosely) to more negative outcomes. In summary, the business stands to lose between $20-31bn in 2020, from what was expected to be another year well above $40bn in box office.
We forecast a figure of 58% down this year as our best estimate. So, over 2020 and 2021, the business could lose $30-35bn in gross box office. However, no-one can predict with total accuracy how cinema in every country will come out of this.
I would argue that in all this, one of the main positives for cinema in this bleak situation is that very few major movies pulled their theatrical release in favour of going straight to a digital platform. Despite the row over “Trolls”, we probably learn more from the fact that all major distributors have stuck to a theatrical release first strategy for nearly all films, postponing and reworking slates rather than rushing to other windows. An element of experimentation for small or mid-range films on other platforms already exists, but the bedrock of major movies is cinema, and the sector has provided a stable underpinning for distributors during a time of massive change in how people consume their movie entertainment. This strongly underlines the role of cinema as the key value creator for major movies and is the light at the end of the tunnel for the cinema sector. People need cinema, movies need cinema, and society needs cinema.
David Hancock is the head of global film and cinema at OMDIA (formerly IHS Markit) and is president of the EDCF.