TheWrap Rewind 2015: A record box office, the studios’ tentpole strategies and a crack in VOD stalemate led to rebound
For U.S. movie theaters, 2015 has been a very good year.
“Reports of our death have been greatly exaggerated,” Patrick Corcoran, chief communications officer for the National Association of Theater Owners, told TheWrap.
Blockbusters “Furious 7,” “Jurassic World,” “Minions” and “Avengers: Age of Ultron” drove a booming domestic box office, with “Star Wars: the Force Awakens” rocketing the year-end total to an unprecedented $11 billion, Rentrak said Tuesday. Admissions should be up as well, bucking a decade-long trend of diminishing ticket sales (particularly last year’s, the worst in 20 years).
And digitally savvy young people came back in force. The under-25 crowd was the biggest audience group for every top 10 film this year except “The Martian” and “Spectre.”
But 2015 would have been a great year had there not been a wave of unsettling behind-the-scenes developments: a Justice Department probe of the industry; lawsuits by smaller exhibition companies against big chains; ongoing disputes with studios about how soon movies are available on demand and for online streaming; the first theatrical releases by digitally savvy upstarts Netflix and Amazon; and security issues raised by armed attacks at theaters in Nashville and Lafayette, La.
“But other than that, it’s been a heckuva year,” Corcoran said, and he wasn’t being facetious.
“There is an optimism that we haven’t seen for years in the exhibition sector,” he explained. “It’s based on the growing sense among theater owners that the sky isn’t falling, there are practical solutions to these problems and the knowledge that the Hollywood studios are fully invested in finding them, and that they are going to not only survive but thrive in the near future.”
Wall Street has bought into the concept and the stock prices of the major chains have steadied after several years of upheaval. The shares of Regal, Cinemark, AMC, the nation’s three largest chains, along with IMAX and Carmike, have all earned “buy” ratings from B. Riley and other analysts.
“The aggregate rental split has moved up because more of the box office is coming from tentpoles,” said Ben Mogil, an analyst with Stifel Nicolaus & Co. Digital projection has allowed theater managers to more easily add screens and shift movies.
Concessions have also been a boon. Mogil estimates that Regal’s sales of items like popcorn, soda and candy will total $915.6 million this year, up 12 percent from 2013, and make up 29 percent of revenue.
“There are always going to be short-term concerns, whether it’s over 2016 measuring up to this year, or the studios raising the rental prices on films,” B. Riley analyst Eric Wold told TheWrap. “But overall the outlook for, and the attitude within, the sector are more upbeat than they have been in years.”
Just two years ago, iconic filmmakers Steven Spielberg and George Lucas predicted that Hollywood’s current method of delivering movies to consumers in theaters would collapse under the weight of a string of pricey bombs, and shift to digitally driven home viewing.
But those filmmakers helped contribute to a record 2015. Spielberg produced “Jurassic World,” the record-breaking sequel to his 1993 hit that became the year’s top-grossing film for Universal. And Lucas, selling his $4 billion sale of Lucasfilm to Disney, watched his beloved “Star Wars” franchise relaunch in spectacular fashion.
Not only has Hollywood produced movies this year that the public has wanted to see, but studios have lined up follow-up films in tentpole franchises over the next five years that has fueled confidence that future hits will be forthcoming.
Disney has Marvel, Pixar Animation and “Star Wars” movies rolling out for the next five years, while Warner Bros. will launch films based on DC Comics heroes Batman, Superman and Wonder Woman. Fox will kick off three years of “Avatar” sequels in 2017. Sony, Universal, MGM and Paramount are all working on five-year strategies for films targeting both domestic and foreign markets.
“If the major studios are showing that level of faith in what you’re doing, it certainly raises your confidence level,” Corcoran said.
In addition, some silver linings have emerged on several of the issues clouding the big picture for theaters, like the legal cloud over “clearances” and shrinking VOD windows.
The Justice Department’s probe of the practice of “clearances” — in which the studios and large chains keep the biggest movies from their smaller rivals in the same markets — has already decreased the frequency of the practice by AMC, Regal and Cinemark, several observers have said. (Together, these three exhibition giants control about 42 percent of the nation’s roughly 40,000 screens.)
And The Force has been a factor in the shift, as Disney forged deals with exhibitors large and small to get the screens it needed for a record debut in the crowded month of December.
“The revenue from one month of ‘Stars Wars’ is probably going to be equal to that from a year of everything else,” Thomas Boeder, an attorney for Alabama-based Cobb Theaters, told TheWrap. Cobb is a 20-theater conglomerate that is suing the big three exhibitors in Georgia over the clearance issue — the giant chains also face separate suits in Ohio, California, and Texas. “That’s likely to calm the concerns of many of the independents.”
There were also fleeting signs of detente between studios and some theater companies on the window between theatrical releases and at-home viewing. Paramount faced a boycott by several large chains in October when it teamed with AMC and Cinemark to experiment with an earlier-than-usual VOD release of two horror films, “Paranormal Activity: The Ghost Dimension” and “Scouts Guide to the Apocalypse.”
Both tanked at the box office. And while VOD revenue numbers aren’t in yet, Regal CEO Amy Miles has already discounted their validity. “If the video-on-demand numbers are up, is that because people wanted to see it at home, or because they couldn’t find a theater to see it in?” she asked after the studio posted upbeat third quarter earnings.
But Paramount’s President of Worldwide Marketing and Distribution Megan Colligan backed the experiment, noting that some VOD revenues were shared with theater chains that agreed to play the films.
“We knew we were very likely to take a hit on the grosses,” she told TheWrap. “But we thought it was worth it to get some hard data and be transparent about it so that our exhibitors, our competitors and customers can take a look at it and render some informed decisions.”
Expect to see more shrinking of the window between theatrical releases and at-home viewing.
“The particular formula used in this case may not have worked,” said NATO’s Corcoran, “but it showed a willingness on the part of a studio to include the theaters in the VOD returns that we haven’t seen before, and that was significant. It showed there could be a way to work through the toughest issues provided everyone was willing to sit down in a room and commit to getting it done.”
It’s that kind of thinking — along with $11 billion in grosses — that made 2015 a very good year for the movie theaters.