“Theaters and moviegoing won’t disappear. But they could look very different,” media and cinema studies professor Derek Long says
America’s theater chains are eager to turn the lights back on after months of no ticket stubs, no concessions and no revenue. But the world of theatrical exhibition they’re rushing back to has been significantly transformed.
The global pandemic has forced studios to reexamine theatrical release windows, as well as release films first in overseas markets, where theaters have begun to reopen at a significantly reduced capacity.
But first thing’s first: Movie theaters need to get back to bringing in some revenue.
AMC Theatres and Cinemark, both of which recently reported earnings for the second quarter, illustrate the dire circumstances: Cinemark announced it’d lost $170 million during the quarter, and AMC lost $561 million in what the company’s CEO, Adam Aron, called, “the most challenging quarter in the 100-year history of AMC.”
They’ve cut costs and bandaged their businesses in efforts to survive the brunt of the pandemic. However, there’s a huge question mark about what happens if releases and reopening continue to be delayed.
“COVID-19 has exacerbated longstanding issues that have been shaping the economics of movie exhibition for some time,” Derek Long, a media and cinema studies professor at the University of Illinois at Urbana-Champaign said. “None of this necessarily means that theaters will close for good, but the changes we’ve been seeing for many years are only going to accelerate in the face of virus-related uncertainty.”
Standard and Poor’s global credit rating agency said recently that both AMC and Cinemark have enough liquidity to fund their reopening — and even to remain closed for another few months –depending on further delays in reopenings and how quickly attendance gets back to acceptable levels.
“While there remains a fair level of uncertainty as to how quickly the global exhibition industry can rebound as theaters reopen, we are optimistic that early demand in reopened countries, the potential move by studios towards a staggered release strategy, and the ability of exhibitors to operate profitably at reduced capacity limitations points to an environment of improving trends and outlooks toward the space in the coming months,” B. Riley FBR analyst Eric Wold wrote in an analyst note.
Because of health and safety concerns surrounding the coronavirus, theaters have committed to limiting the number of moviegoers. Aron and Cinemark CEO Mark Zoradi have both said their cinemas can operate profitably at 50% capacity; however, there’s no certainty audiences will flock back to theaters.
Bankruptcy also may still be on the horizon for AMC, Wold mentioned in his note. Like so many things, it likely depends on how long the pandemic persists and when business is able to ramp back up to levels at least close to normal.
“I think we’ve survived the corona crisis,” Aron said during a conference call with Wall Street analysts last week. “Now, we just have to get back to running the company really well.”
The attention now turns to figuring out what the industry might look like on the other side of a year that has changed so much for cinema operators.
As if the pandemic wasn’t enough, the controversial theatrical window debate last month resulted in Universal Studios and AMC inking a deal that gives the studio the ability to make films available for streaming after just 17 days in theaters, as opposed to the previous 90-day window.
Theater operators have been staving off the pressure to change for years, but the spotlight of the pandemic proved to be the final straw.
“U.S. theater owners already have a long list of issues to fret over as they seek to reopen facilities in the weeks ahead while waiting for additional local and state government clearances amid constantly changing Hollywood studio release dates. Now, exhibitors must also deal with a new historic theatrical window agreement that they didn’t see coming,” analysts at Moffett Nathanson wrote in a note to clients.
Not to be understated, the analysts called it a “groundbreaking moment for the film industry.”
“Fast-forward to when PVOD is fully rolled out, the threat to the exhibition industry will be cannibalized movie attendance — although it’s too early to know by how much without more details on pricing and which studios will participate,” Moffett Nathanson analysts continued. “Maybe the biggest positive in the short term adding pressure to exhibitors to get a PVOD deal done sooner would be to help stem the number of films pushed out of 4Q 2020, giving theaters a reason to remain open.”
Conventional wisdom suggests another exhibitor will sign a similar deal with Universal, though Mooky Greidinger, CEO of Regal Entertainment parent company Cineworld, said, “We clearly see this as a wrong move at the wrong time… we do not see any business sense in this model.”
Aron, on the other hand, has said that he expects the deal with Universal to become an industry standard. AMC even offered similar deals to all the major studios.
“Even before COVID-19, distributors were pushing to shrink the time between a movie’s theatrical run and its release on home video formats; the virus has made that impulse even stronger,” Long said. “Playing films in movie theaters is still a major part of distributors’ income, so it’s not as simple as just switching all releases to digital rentals or streaming, which can’t yet bring in anything close to the amount that a theatrical release can. But if the virus continues to keep most moviegoers away from theaters into 2021, we could see permanent shifts in the way that we watch new films.”
AMC and Cinemark are pushing forward to have the majority of their domestic theaters reopened by Labor Day weekend. They’ve already begun opening select locations in the U.S. and more overseas.
Rich Gelfond, CEO of Imax, said during the company’s second-quarter earnings, “we are seeing early signs of progress.” Imax pulls roughly 70% of its overall revenue from outside of the U.S.
“Tenet,” Christopher Nolan’s time jumping spy flick, was touted as the film that would bring audiences back to the theater. Tickets for the film went on sale in the U.K. this week. Universal’s Best Picture nominee “1917” was released in China over the weekend, earning an opening total of $5.16 million as the number of reopened theaters in the country reached more than 8,000.
Disney, however, opted to experiment with its big attraction, “Mulan,” moving it to its Disney+ streaming service in the U.S. The film will still get a theatrical release overseas and at a later date in the U.S.
“Regardless of what eventually happens with the virus, exhibitors will be forced to find new ways of making the theatrical experience appealing,” Long said. “Theaters and moviegoing won’t disappear. But they could look very different.”