As pollyannaish as it sounds, especially as the domestic 2020 box office crumbles to a historic all-time low of $2.27 billion due to the coronavirus pandemic, the global theatrical business is poised for a comeback in 2021.
However, it might take a few months.
How in God’s name can such a ridiculous projection be forecasted? Entertainment conglomerates, like AT&T, are drunk from launching their own streaming services, with visions of $500-plus share prices dancing in their heads.
Also, aren’t more movie theaters expected to close down? As bankruptcy rumors continue to swirl around AMC and Cineworld, the expectation is that the over-screened U.S.-Canada marketplace (now at 41,172) will scale back significantly by at least a minimum of 5,000 screens, per sources.
The notion that the global box office is due for a rally — especially at a grim time when we’re seeing 60% of all U.S.-Canadian movie theaters closed, along with several key markets like Los Angeles, New York City, London, etc. — stems from most major motion picture studios’ continued belief in the theatrical window. Despite its expected shrinkage, theatrical windows remain a potent financial formula that yields plenty of fruits in its downstream revenues. Nothing beats the big screen, and the studios have long-term plans to commit to it.
This was quite apparent when Disney CEO Bob Chapek declared earlier this month that the studio’s future streaming series and features stood greatly on the shoulders of established theatrical IP. “We had a $13 billion box office last year, and that’s not something to sneeze at, said Chapek during Disney Investor Day, “We built those franchises through the theatrical window.”
A crunched window was bound to happen with or without Covid-19, and the pandemic just accelerated the process. The trick for all these studios will be figuring out the appropriate number of days to maximize revenue at theaters before transitioning product to other home entertainment ancillaries.
“It’s about balance and following the consumer as they make that transition,” said Chapek. “We need to be flexible to read all the cues, whether it’s Covid or changing consumer behavior so we can nimbly make decisions.” Observed MKM Partners’ managing director of Media & Entertainment Equity Research Eric Handler, who believes the majors largely won’t abandon theatrical window monies: “Disney does a great job maximizing revenue throughout all the windows.”
Said Universal vice chairman and chief distribution officer Peter Levinsohn: “We are very bullish on the prospects of the domestic box office once the cinemas are back up and running at full capacity; some level of exhibition consolidation is likely, but we believe ticket sales will be redistributed amongst the remaining theaters and have little impact on box office going forward.”
While Universal was hammered by the National Association of Theatre Owners and No. 1 exhibitor AMC for its sudden theatrical-Premium VOD day-and-date release of DreamWorks Animation’s Trolls World Tour at the start of the pandemic — an experiment that minted a reported $100 million-plus to NBCUniversal — cooler heads prevailed. The studio negotiated a cognizant shortened theatrical window plan, which could very well become the industry standard moving forward: 17 days in theaters for all titles opening under $50M in theaters before transitioning to PVOD, with a 31-day exhibition window for those movies opening north of $50M.
That’s not a hard-and-fast rule as to when Uni will pull movies from theaters, rather a parameter as to when the studio can milk two windows at once. While the studio has been upbeat about this plan, which has been in place since the late fall on Focus and Uni titles, we have yet to hear about its revenue highlights and whether it will continue in a post-pandemic marketplace; a key deal point being that the studio has cut in big exhibitors like AMC, Cinemark and Cineplex Odeon on PVOD revenue. Five weekends after its release, Universal’s The Croods: A New Age has grossed $30.3M domestic, $100M worldewide with the DWA sequel recently hitting PVOD.
Despite Warner Bros’ trumpeting this past weekend that Wonder Woman 1984 opened to $16.7M domestic, a record for the pandemic, with $85M WW to date in its audacious day-and-date theatrical HBO Max release model, don’t believe for a second that a new window was just born. More on this later.
It’s going to be a long four to six months until hopefully Covid-19 cases are quelled again due to the vaccine, and movie theaters and markets can fully reopen with high-capacity auditorium caps. As we learned from Tenet at the end of August, it’s not about one movie bringing back business back but rather a cluster. A box office rebound is also contingent on the majors committing to $100M global P&A campaigns for their event pics. The hope is that MGM’s long-awaited 007 movie No Time to Die and Sony’s Peter Rabbit 2: The Runaway will be the first big booms we see over Easter weekend April 2-4 — that is if those two movies aren’t rescheduled (and we’ll know that by February). Otherwise, many are looking to Disney’s May 7 release of Marvel’s Black Widow as the movie to bring business back. Until then, expect more studio movies, with the exception of Warner-HBO Max titles, to shift out of the next four-month corridor (see schedule to the right).
“Artists will still want to make films that have a cultural impact; movies that are in a movie theater and have a global wide release are what make such impact. Audiences will still want to go,” said Sony Pictures Entertainment Motion Picture Group chairman Tom Rothman. “The next three or four months will be grim — we’re still in the tunnel, but there is a light at the end of the tunnel.”
How 2021 Will Deal With The Whole Notion Of “The Customer Gets To Decide”
AT&T’s WarnerMedia has defended its theatrical-HBO Max 2021 release strategy as one where “the customer gets to decide.” It’s a bold jingle on par with a MAGA slogan from Donald Trump’s campaign. Some in town perceived WarnerMedia’s move as a means for the studio transforming into another Netflix, and leaving theatrical behind. Handler, for one, doesn’t think that Warners can do without its global box office revenues, which last year grossed $4.4 billion.
One industry source in a note to his colleagues this morning called the release of WW1984 “a miscalculation” given the $1 billion global box office that the studio was leaving on the table by hastily taking it out too soon. WarnerMedia never reported any hard-number viewership on WW1984, or the exact amount of subscribers the film brought in over the weekend. The Patty Jenkins sequel grossed $85M globally in its first two weekends, this compared to the original’s two-weekend running total in 2017 of $438.3M (it finaled at $822.3M WW).
“As far as Warner’s day-and-date theatrical streaming model goes, I don’t think it’s sustainable. Maybe they go the whole year with it. The talent agencies aren’t happy, and now the client back-end is damaged. WarnerMedia is clearly willing to sacrifice box office revenue to drive incremental subscriptions to HBO Max. As a result, this is going to mean significant losses for the Warner Bros business as they’re ramping up the SVOD service. It will hurt cash flow and AT&T has a mountain of debt to service, while trying to keep shareholders happy,” Handler observes.
Since the announcement of the theatrical-HBO Max 2021 slate strategy on December 3, AT&T’s share price is down 2% to $28.55 (as of midday Monday). Earlier this month, the debt-laden telecom fielded bids for its DirecTV at $15 billion, a price 78% lower than what the company paid for it in 2015. Industry sources have pointed out that it will be near impossible for WarnerMedia to recapture any lost theatrical revenue on its 2021 slate via the addition of HBO Max subs. First, the streamer is in a pickle in that not all of its 38 million HBO and HBO Max subs combined have fully activated the streaming service. Next, HBO Max itself doesn’t make any extra money unless it comes from new subscribers.
Even though WW1984‘s domestic opening repped a record debut for the pandemic, don’t interpret that as “the consumer decided where they wanted to see the movie, and chose theatrical over streaming.” We are in a broken exhibition infrastructure, not a normal marketplace, and when the Joe Shmoe moviegoer catches up with the fact they can see a Warner Bros movie for free at home, a cannibalization of its box office could very well take effect. The industry outlook on the day-and-date theatrical-HBO Max plan is that exhibition will box out this model once the marketplace becomes vibrant again and rival studios commit to more windowed fare.
“Like in every industry, the notion of ‘give the consumer what they want’ has to find some equilibrium with what a business needs to do to remain successful,” Adams Fogelson chairman of STXfilms Motion Picture Group, told Deadline. “Studios need to make good content that is also profitable. Consumers need to pay a fair price — as defined by both sides — to see that content where and when they want. And exhibitors need to run a successful business too. Now, everyone has theories about what price on what platform in what window will do to the overall ecosystem. But to date they’re just theories. So the studios have picked various ways to deal with the short-term challenges, but I’m sure we’ll see an evolution or a hybrid of the different distribution models once we have the benefit of some actual learning,”
STXfilms has responded to the pitfalls of the pandemic by monetizing its movies via various means, including the sale of My Spy to Amazon (which has a sequel in the works), a PVOD and ultimate $20M-$30M HBO release of the Gerard Butler action pic Greenland coupled with a near $48M overseas gross, and the PVOD drop of the Invisible Narratives pandemic thriller Songbird.
“When we moved to the 17-day window (depending on the size of the film), our goal was to find the right balance between maintaining a minimum period of theatrical exclusivity, especially for the bigger films, and creating a strong consumer proposition that provides optionality for moviegoers,” said Levinsohn. “We never saw PVOD as a replacement for theatrical, rather an augmentation to the theatrical release. As the transactional home entertainment business has gotten smaller, the economics of releasing films theatrically has become more challenging. Too many films are being siphoned out of the ecosystem, so our goal has been to implement a strategy that augments the P&L by making films available to consumers in the home when awareness is at its peak. We still believe that a theatrical release first is the right way to go; if the market changes, we’re a very aggressive company and will react accordingly.”
“Customer satisfaction is an absolute — the consumer deciding your business parameters is something entirely different,” said Rothman. “Do what’s best for the asset.”
Like many studios, Sony has responded to the pandemic by eventizing its movies on the shelf, either through sales to a streamer like Apple (Greyhound) or Hulu (Happiest Season), or maintaining a widowed theatrical release, i.e., its recent holiday global release of Monster Hunter. The studio remains a big believer in a windowed theatrical release and has demonstrated that by delaying the release dates of its bigger IP titles like Morbius, Venom 2 and Ghostbusters: Afterlife to deeper dates in the release calendar.
“Before the pandemic, Bad Boys for Life was doing fantastic business at the box office. In 2019, the industry had a $42 billion global box office year. That’s an indicator of consumer behavior, and that success wasn’t because there wasn’t anything to watch at home,” Rothman said. “The movie business has been competing with the home since the advent of television in the 1950s. Questions were always asked: ‘Why would anyone go to the movies if there’s a VHS at home?’, ‘Why would anyone go to the movies because there are 300 cable channels at home?’, ‘Why would anyone go to the movies if there’s streaming content in the home?’ The answer: Because it’s fun, and because it’s different. It’s the same reason why anyone chooses to go to a Broadway show, a live sporting event or a concert.”
Despite the industry’s current love affair with streaming, and its short-term knee-jerks experimenting with distribution models during the pandemic, a sage wisdom prevails about the long-terms prospects of the theatrical business, and that audiences will return.
“We at Universal are optimistic about the future. Our leadership talks about the roaring ’20s,” Levinsohn said. “We’ve all been stuck inside and people are desperate to get out of the house.”
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