Is This How Theaters Die? Not With a Bang, But a Whimper?

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October is a time for scary movies to play large in packed theaters. But this is 2020. The theaters aren't packed, and the scariest thing in the auditorium may be the person two seats away from you with a cough or a runny nose.

There have been many think pieces published regarding the viability of cinemas in 2020 and
beyond. This is not one of those.

It's now clear: the theatrical experience as we know it won't survive their coronavirus infection. I'm here to eulogize movie theaters, and to give you the facts as to why everyone knows it's over.

A series of press releases over the past week have flown under-the-radar. None of these trended on social media, perhaps a sign that the American audience is already over the big screen movie experience. But tie these stories together and it's clear that movie theaters are the dinosaurs, and coronavirus is the asteroid.

How did we get here, and what does the future hold?

The facts are these:

TROUBLE ON THE HORIZON
The first glimpse of the giant rock came in March with President Trump's guidelines against large gatherings, leading cities and states to mandate the closure of cinemas. Even where it wasn't the law, audiences became cautious. The Hunt and The Invisible Man weren't enough to draw them into theaters. America had its lowest attendance since the aftermath of the 9/11 terror attacks. Movie studios delayed releases.

Theaters realized they could not maintain profitability with greatly reduced seating capacity. Most movie theaters in the United States, including all big chains, cut their losses. They locked their doors and laid off their employees.

But for how long?

THE FIRST IMPACT
Despite cutting costs deeply, theaters still had to pay rent, taxes, and in the case of AMC, make payments on sizable loans. Staying closed wasn't an option. To stay in business theaters had to reopen.

It started with independent theaters and small chains, opening slowly and playing old films. Star Wars: The Empire Strikes Back once again became the No. 1 movie in America, grossing $500,000.

But theaters thought perhaps they could survive and grow again.

REALIZATION OF THE DEVASTATION
Christopher Nolan positioned himself as the Jesus Christ of movies. He wanted to personally save cinemas with the release of Tenet. Warner Bros., the studio that paid an estimated $200 million for Nolan to make the film, wanted to play it safe and wait for a proven strategy to profitability. The studio successfully convinced Nolan to push the release back several times, but Labor Day weekend Tenet was the first big-budget movie released in six months.

Were the theaters half-full, or were the theaters half-empty?

Optimists said Tenet's $20 million opening was decent, especially for an original concept film. But the numbers show this was Nolan's weakest opening since 2006's The Prestige (which only cost $40 million to make). After Nolan's fanbase was solidified with his Dark Knight trilogy, his lowest opening weekend was still $47.5 million for Interstellar.

Nolan may have been overconfident. Many say Tenet was the wrong movie at the wrong time. Reviews were mixed (it has the lowest Rotten Tomatoes score of any Nolan film). Tenet was called confusing, boring, and joyless.

The theaters and studios were quick to blame New York and California for Tenet's lackluster performance. Nolan played better to the big-city audiences, many argued, and Los Angeles and New York City cinemas remained closed due to local orders and high Coronavirus spread.

That shifting of the blame does not hold up to scrutiny. While Los Angeles and New York are
important, more than 80 percent of America's movie screens were open to show Tenet. More, Warner Bros. chose (under pressure from Nolan) to release Tenet all the while knowing his core audience were in areas where theaters were still closed.

Perhaps a four-quadrant movie for an established franchise would have fared better. Wonder Woman 1984, Fast and Furious 9, or Marvel's Black Widow had a base of built-in fans that may have been more willing to risk their health to see the next installment in a major franchise.

Nolan was not cinema's savior--he may have been its destroyer.

CHANGE IN THE ECOSYSTEM
Movie theaters and movie studios have long shared a symbiotic relationship, splitting the income of all movies released. Studios needed theaters to bring in big money, and theaters needed studios to create films which draw in the masses.

But after Tenet the snake began to eat its own tail. Tenet's lackluster opening forced studios to push back more would-be blockbusters. This caused Regal Cinemas to once again close all their 536 theaters in the United States. With theaters closed, more movies were delayed. As more movies were delayed, theaters again had to cut back operations or close completely.

In 2020, studios need theaters far less than they used to. Each generation seems to value the
communal moviegoing experience less and less. Generation X was weaned on home video. Millennials grew up watching movies at home or on laptops and iPads. Generation Z prefers content on demand and on-the-go. Being told where they have to go and when they have to be there is a dated concept. Young audiences not only don't mind watching movies at home or on portable devices, they prefer it!

This decline in attendance is accelerated by rising ticket prices and disruptive moviegoers ruining the theatrical experience. Many theaters don't fix the latter problem as cell phone rules and patron talking goes unenforced.

When theaters closed, though, studios started to test the waters of taking big-budget movies
directly to streaming services. Universal struck the first blow: The Invisible Man, The Hunt, and
Emma were all new theatrical releases when theaters closed in March. A week after the theater shutdown Universal put those movies out for streaming. It was a necessary gambit for the studio to try and salvage any marketing buzz created for those titles. Disney followed suit, releasing Star Wars: The Rise of Skywalker and Frozen 2 on VOD earlier than planned.

Universal then doubled-down, choosing to release Trolls World Tour to streaming and skip theaters entirely. This caused theater chains, including AMC and Regal, to throw a tantrum and say they will no longer show Universal's movies. It was an impotent threat. As stated, theaters need blockbuster movies in order to survive and no chain would skip surefire moneymakers like Fast and Furious 9 and Jurassic World: Fallen Kingdom.

Universal's power play ultimately worked for them. The Trolls sequel made more than $100 million in three weeks streaming. That number may seem small compared to theatrical grosses of $200 million and $300 million, but those box office numbers are split heavily with theaters. Universal's profit was higher for the digitally released Trolls 2 than the theatrically released original Trolls.

WORLDWIDE HAVOC ENSUES
Anyone who follows theatrical box-office numbers is probably now thinking "but what about
international grosses? Tenet made $322 million, and less than $50 million was from the United States." Yes, in the 21st century, with the advent of day-and-date digital distribution, studios
have come to rely more heavily on international box office in order to realize a profit for their shareholders.

Two problems with that:

First, you cannot compare international gross and domestic gross as an apples-to-apples
comparison. Domestically the studio may get 50-60 percent of a movie's gross, but internationally that number drops as low as 20 percent. In simple math, for every $1
a movie makes domestically it needs $3 internationally to make equal profit.

Second, COVID-19 is not an American problem, it is a worldwide pandemic. In late summer it
seemed to be receding in many countries, including China, the United Kingdom, Spain, France, and Australia. That trend is reversing now and those countries are seeing new waves, again keeping people out of communal indoor spaces like movie theaters.

For proof, look no further than James Bond. Metro-Goldwyn-Mayer Studios insisted Bond's
international appeal far exceeded that of the United States. In the game of "chicken" studios are playing with release dates, MGM held off on pushing back No Time to Die. Bullishly, it even moved up the release date from November 25 to November 20, hoping to capitalize on the lack of competition as every other major release had been pushed to December 25 or later.

The game continued, and MGM swerved first. No Time to Die is now slated for April, 2021.

CAUSE AND EFFECT
With no No Time to Die on the schedule, UK based Cineworld Group, owners of Regal Cinemas in the U.S., is again closing theaters. That removes over 7,000 movie screens from operation in the US alone, and 40,000 employees found themselves again furloughed.

Less theaters open gives less incentive for studios to release new movies. No new movies give
theaters less incentive to stay open.

THEATRICAL ICE AGE
As stated earlier, theaters need studios... but studios don't need theaters. What studios need is profit to appease shareholders. The investors, on the whole, don't care how the profit is generated so long as their investments grow.

For studios to survive they need income, so they turned to the obvious choice: streaming. This was not a hard choice for studios--this was an inevitable change accelerated by the
closure of theaters. Since Netflix's success streaming many studios have followed suit:

-       Disney invested heavily in Hulu, then bought 20th Century Fox specifically for its streaming capabilities. They launched their
own Disney+ with great fanfare in 2019.

-       Comcast, Universal Studios' parent corporation, launched their own Peacock streaming service.

-       AT&T, owner of Warner Bros., is bringing their content direct to consumers through HBO Max, HBO Now, Crunchyroll, and DC Universe (which is becoming part of HBO Max soon).

-       Paramount Pictures is owned by Viacom CBS, allowing new and exclusive Paramount content to be delivered via the CBS All Access service.

Studios saw the winds shift and built a foundation for direct-to-consumer delivery where they
get to keep nearly 100 percent of the grosses. They knew home viewing would eventually overtake theatrical. COVID-19 didn't create the situation, it simply expedited it.

Even studios
without streaming services, including United Artists, Blumhouse, Warner Bros.
and others, leveraged existing relationships with Apple, Amazon, Netflix, and
others for movie distribution. Some films were sold (at a profit) to
subscription services like Netflix and Amazon Prime; others were released at a
premium price through iTunes, etc.

EXTINCTION
Now, it's over. Regal has closed.

AMC theaters (already in a bad financial situation pre-COVID) may run out of money by year's end. They have already cut back on theater operating hours. Without closing completely they may not survive. The screenshot above shows one AMC theater seating chart for the October 13 showing of Hocus Pocus. Not a single ticket has sold.

The weekend of October 9, 2020 the top grossing film was the new release The War with Grandpa, a movie originally scheduled for release in 2018. It made $3.6 million. The last time the No. 1 movie at the box office made under $3.6 million was in 1988 when Gorillas in the Mist was number one with $3.5 million... in its 14th week of release.

As mentioned above, even theaters with no employees still have bills to pay. Without new
movies, default is inevitable.

A LIFELINE IGNORED
On March 18 The National Association of Theater Owners asked Congress for a bailout. No action was taken.

On September 30, The National Association of Theater Owners again requested aid, joined by the Director's Guild of America, and the Motion Picture Association sent a letter asking congress to bail out the endangered theaters. Still no action has been taken, and likely will not before the November elections.

SURVIVAL OF THE FITTEST
Now, in mid-October, studios are giving up on theaters. COVID is again surging both domestically and internationally. Studios are adapting to survive. Disney chose to skip theaters entirely with the release of Mulan, first available on Disney+ for a premium price, then also available through iTunes, Amazon, and other purchase-streaming services.

While AMC theaters may not make it to New Year's Day, 2021, Disney's CEO Bob Chapek went on CNBC's Closing Bell to announce a reorganization of their company "in order to further accelerate its direct-to-consumer strategy.... We are tilting the scale pretty dramatically
[toward streaming]." Chapek stated Kareem Daniel, former president of consumer products, is now in charge of the entire entertainment distribution group and is "in charge of making sure streaming becomes profitable." Expect this to be followed by a slew of Disney+ movie releases, following in Mulan's profitable footsteps.

Chapek could not have picked a more apt program to announce this. Ask not for whom the closing bell tolls, AMC... it tolls for thee.

The very next day Variety reported Paramount is in talks to sell its holiday tentpole film, Eddie Murphy's Coming 2 America, to Amazon. If the deal goes through that movie would drop on Amazon Prime December 18.

THE MOSQUITO IN THE AMBER
There is no end in sight to the coronavirus epidemic. Politicians offer empty promises of "miracle cures" and vaccines without any scientific proof to effectiveness. As of October 13, the day this article was published, it was confirmed that a Nevada man has caught COVID-19 for the second time, suggesting infection does not grant immunity to the disease.

As this continues, look for more and more movies to have their release dates changed and moved from theaters to streaming.

Advertisements and politicians talk about "getting back to normal" and "unprecedented times." But the fact is a (closing) bell cannot be unrung.

The theatrical experience is dead as the primary method of studios presenting films. It happened with a whimper, not a bang.

Are you okay with it? Let us know in the comments!