David Hancock Chief Analyst, Media and Entertainment, OMDIA
The last 18 months have been brutal for the cinema exhibition sector, which relies on both open cinemas and forthcoming film product. The situation has now improved since March 2020, but ongoing waves of COVID-19 around the world are ensuring that the theatrical situation is still unclear.
With parts of Asia and South America still closed (at the time of writing), Europe is also undergoing some closures, and the Delta and now Omicron variants are proving
unhelpful to the reopening of economies. This means the date when all cinemas will be open and functioning normally is still unknown and is
being pushed back month by month. At present, conditions can change significantly between one big release and the next, making it difficult for rights holders to judge the relative success of a movie.
Despite the uncertainty surrounding current market conditions, things are now much better since the beginning of the pandemic in March 2020. From cinemas being closed, then allowed to open but having no movies to screen, and those movies instead being watched on digital
in-home platforms, attractive films are now available in cinemas that can open – although there are strings attached. Box office figures in some countries are on the necessary upward recovery trajectory, but this is not yet back to the levels seen before COVID-19 forced cinemas
to close. Studio experimentation with release windows is slowing down, although some are fixed contractually, and the theatrical window seems set to continue, albeit in a shorter format.
How Long is a Piece of String
One grey area is how long these attached strings will last. Warner Bros. has stated that the HBO Max theatrical day-and date releasing of certain films is for 2021 only. Disney has also released some content down this route (this has, however, finished for the time being, for at least the rest of 2021) but other studios are not exploring day-and-date. While studios are not homogenous, they have all experimented to some extent with theatrical, streaming, PVOD (Premium Video on
Demand) and new licensing deals in order to find the revenue maximisation sweet spot for individual film cases. However, the idea of all studios following different routes to market, on a case-by-case, territory-by-territory, and exhibitor-byexhibitor basis seems too complex to succeed in the longterm. If you add to that the increased risk of piracy from an initial digital release and loss of theatrical income, the most likely outcome of all this experimentation is a shorter (perhaps more flexible) theatrical window, offset with exhibitor
participation in digital revenues where appropriate (PVOD).
Closures and Reopenings
There have been surprisingly few cinema closures due to the coronavirus. In the US, 2020 saw 6% of screens close overall, although some were acquired by other circuits and then reopened. It is likely that furloughing, debt-financing, loans and other support systems have been keeping largely inactive cinemas alive and the medium-term may see closures if cinema-going does not recover as quickly as hoped. If new theatrical window release models do affect takings, then cinemas that are not attractive to customers will shut. High quality premium experiences and cinemas with a strong local and loyal following should stay in business. However, the global screen total is unlikely to begin dropping annually for now as Chinese screen growth is still high enough to counteract any closures, even with Chinese growth slowing down in 2020.
Another unknown factor is how people are reacting to cinemas reopening. It is certainly true that we are not yet back to pre-pandemic box office levels (outside of some weeks in China and Japan). But questions remain – how much of this is due to factors such as social distancing and consumer uncertainty? Or day-and-date releasing? And
the big question: will we reach the same (pre-pandemic) levels again?
Broadly speaking, surveys show a desire to go back to cinemas for a majority, with a small minority suggesting they will never return, and a significant number being hesitant to go back. But the hesitation is diminishing month by month, and the global release of Bond’s “No Time To Die” has proved something of a watershed for getting an older
demographic back into cinemas. However, even a 10% drop-off in visits, long-term, would be dramatic for cinemas.
An area lacking in some much-needed clarity at present is the impact of streaming and other digital release strategies (such as PVOD). The Universal (Studios) deal for a twopronged, shorter window with a PVOD release is an interesting test case. After 31 days, a movie in the Top 100 (which accounts for over 90% of all box office generated in
the United States) will have taken 90% of its overall box office, and over 95% after 45 days. For shorter gaps, the impact is potentially more significant, especially when the release is day-and-date. The exhibitor receives a cut of the PVOD revenue to make up some of the shortfall. However, bigger movies (those in the top 10) take their money more quickly than films down the rankings. To illustrate this, in
2019, the top 10 US movies earned 69.2% of their total box office gross revenues in the first two weeks of release. This compares to 63.1% for the films ranked between 41 and 50 and 40.9% for the films between 91 and 100.
Only Warner Bros. and Disney have been looking at simultaneous theatrical and day-and-date releases, the former for the remainder of this year only. Disney has not publicly stated when (or, indeed, if) this will end. However, having previously used some high profile movies to launch the Disney+ streaming service, there will be less need to do
so again in the future. Some exhibitors around the world fired off a warning shot in response to Warner Bros.’ plan for day-and-date releasing by boycotting the recent Scarlett Johansson film, “Black Widow”, due to its release as a Premier Access title on Disney+.
And it’s fair to say that the closer the streaming release date to the theatrical one, the greater the impact on theatrical will be. It is worth pointing out though, that Disney’s Premier Access is priced at USD$30, both maintaining a high value and maybe deterring some people from watching at home, thereby driving them to the cinema. We do not yet know whether viewers watching a newly released movie at home (either day-and-date or after a shortened theatrical window) are new viewers who would not have watched it at the cinema anyway – or whether they are, in fact, “lost” cinemagoers.
OMDIA’s consumer data shows that a majority would still prefer to watch major new film releases in a cinema. High frequency cinemagoers tend to over-index on using streaming services (PVOD, TVOD and SVOD), as well as being avid gamers and consumers of all content. This has always been the case, and in the same way that VHS and DVD didn’t harm cinema, I don’t see streaming services as
inherently detrimental to cinema-going either.
But the unknowns do stack up and if you only look at those to determine the future, the outlook could be somewhat bleak. However, looking back to the global growth of cinema before the pandemic, and the shift to a greater overall experience in the cinema auditorium itself in developed markets, the fundamentals of going to the movies are still strong.
Creating the Necessary Buzz
One thing the pandemic has taught me is that the impact of a movie being released on an in-home digital platform is negligible, and one thing the movie business relies on to maintain its position is global impact. Lower buzz and hype around movies at pre-launch and launch will lower their inherent value in the longer term, and that needs to be
avoided for the sake of the whole chain.
The recent move from Netflix to consider more theatrical releases for greater cultural impact suggests the streaming giant has also noted this lesson. It is a grown-up move from the relative newcomer, and one that places cinema at the heart of a cultural debate, rather than marginalising it to favour a glamourous and impact-free future of movies in the home. Netflix is implicitly accepting that a streaming-only company cannot have the same cultural impact (and influence) of one that includes a theatrical element – and this strengthens the chances that, in future, the “event” element of theatrical will be incorporated, an element that is one of theatrical’s core strengths.
What is changing though is the traditional conversation about a movie’s success. Netflix and Amazon et al have very different reasons for making movies than just financial success. For Amazon, movies are also a way to sell more products to Prime members, as well as marketing collateral. And, of course, a corporate ego exercise when award season comes along.
The question is: where is the line between the traditional movie that studios have produced so well for so long, and the need for content for content’s sake, either for library hours or subscriber bait? A secondary question is: where do their creative partners fit into the mix? Successful TV/film by algorithm is not what many directors have in mind when they begin a project.
Given the change we’re seeing in what drives a movie project, judging whether a movie is a success is going to become a much harder exercise than the simplistic and sometimes hysterical “opening weekend” benchmark. That is not necessarily a bad thing but working it out won’t be easy.
Established Worth, Continued Investment
Every so often, cinema must justify its existence as media and consumption patterns change – and COVID-19 has made that need even more acute. The sector was in the process of doing just this before it was so abruptly interrupted. Studios and other content owners then took the opportunity to experiment with release strategies in a way that up until then had not been possible, even if they had wanted to.
However, cinema should not need to prove its worth to studios; that should be clearly known. It is more a question of how we blend this known value (cinema) with lesser known business models (streaming in various guises) that are more relevant for the age we’re in. Cinema has a central place in the media economy of the future as an out-of home
leisure experience, but as the dominant launch pad for major movies. But this is dependent on continued investment into experience, service, design, environment and technology. The “windows” genie bottle may have been opened, but the genie has not yet escaped.
The Move to Premium
The cinema sector was making bold strides towards premium technologies and services before the COVID-19 pandemic hit. The removal of standard seats to premium seating was one of the simpler manifestations of this, but the experiential side of the market is also growing rapidly. This includes IMAX and Dolby Cinema but also exhibitor PLF formats and 4D, as well as the rising market segments of boutique and dine-in cinema.
These segments have significantly higher ticket prices, and it is highly important to blockbuster movies. There is a de facto premium cinema window developing which means a movie makes an increasing amount of its overall gross in the first few weeks of release (on average, the highest grossing movies earn just over 70% of their overall gross in the first two weeks). And so, due to the high preponderance of premium tickets in this period, this results in higher revenues in those weeks. But it also minimises the impact of shortening windows – as studios were exploring, at least for first-run exhibitors.
This shift to premium is already having a significant impact on tentpole revenues, with the Top 10 movies averaging a box office of $284 million in the first half of the last decade, compared to $386 million in the second half of the decade. This increase in premium cinema inevitably makes the whole cinema-going experience distinctly different from watching it at home, something that is particularly relevant going forward.