Why NATO Chief John Fithian Is Excited About the New Wave of Streaming

Head of the movie theater trade group talks Paramount Decrees, box office and why he thinks streaming won’t disrupt the theater industry

On a rainy November morning in Hollywood, John Fithian is asked about a moment when he called out the Hollywood press for their “glass is half empty” analysis on the movie theater industry.

It was back in April in Las Vegas, when the president & CEO of the National Association of Theatre Owners had just come off the stage from an opening speech at CinemaCon where he boasted of the record $11.82 billion grossed at North American movie theaters in 2018, a huge rebound after a 2017 box office that saw the worst summer period in 11 years.

But now all he was being asked about by reporters was the big red elephant in the room: Netflix. The streaming giant’s incursion into the theatrical market and its plans to release Oscar contending films on streaming after a month in theaters had drawn the ire of theater owners from the indies all the way up to titans like AMC and Vue Cinemas. By the time the press conference had neared its end, Fithian felt that he needed to point something out.

“Last year, there were so many questions at this conference about the box office struggling,” he said. “This year, after the biggest annual box office ever…we’re now 17 minutes in, and all the questions have been about Netflix.”

Almost eight months later, it’s the rainy first day of an extended Thanksgiving weekend that will bring the same sort of “is the glass half full or empty” news from the box office. Disney’s “Frozen II” will set a new record for the holiday with $125 million grossed over 5 days. But the overall holiday total of $262 million, while consistent with some recent Thanksgivings, will be down 20% from last year’s record $315.5 million haul.

It’s Fithian’s job to tell Hollywood and beyond that the glass is half full. In fact, when asked about his remarks to the CinemaCon press, he notes that he sees more water in the glass than Wall Street does.

“The short term cyclicality can be distracting,” Fithian told TheWrap. “Inevitably, when you have a run of a couple months where films are not performing as well as they were a year before there’s going to be pieces about how streaming is destroying the theatrical business.”

Fithian and NATO have worked overtime to try to get everyone in the industry to look at what they see as a positive big picture, noting that domestic grosses are now securely humming above $11 billion while the global industry has expanded to more than $40 billion in grosses thanks to China and other rapidly developing markets.

Still, he notes that there’s plenty of challenges for theater owners, especially the little guys, when it comes to consolidation, the continued struggle over the theatrical window, and fears over whether Trump’s Justice Department could throw a wrench in the gears by getting rid of the Paramount Decrees.

John Fithian discussed all these issues with TheWrap, as well as why he’s looking forward to the growth of Disney+ and HBO Max, why the 2020 box office could still be great for theaters even if overall numbers drop, and even has a few nice things to say about Netflix. The interview below has been edited for clarity.

What trends are going on in the exhibition industry that you think aren’t getting the attention they deserve?

I certainly think the the last four or five years have shown the consistent strength of the box office, even if there were short-term ups and downs. We’re now clicking above $40 billion globally and $11 billion domestically. In the most recent period, “Frozen II” just had a massive opening. “Joker” became the biggest R-rated opening of all time and the period from Thanksgiving through New Year’s is going to be a big period.

Thing is, the good news bounce of those giant hits isn’t going to outweigh the bad news from those first two bad months of the year. [NATO] is working very hard at messaging to try to remind everyone about the long term sustainability because that’s proof to us that Netflix and streamers aren’t disrupting the theatrical business.

In fact, we have found through our data that streaming and the theatrical business can complement each other because people who stream more movies have a greater interest in seeing movies in theaters. Yet so much of the media and Wall Street take is that streaming’s success is at theatrical’s expense.

Let’s drill down a bit more into that. Last year, the box office saw four documentaries gross over $10 million for the first time ever while Netflix  and other streamers are investing more in picking up docs like the competing Fyre Fest films. Is that an example of this symbiotic relationship you are talking about?

It is. I can’t remember theatrical documentaries doing as well in the previous five or six years. Then Netflix comes in and makes documentaries popular again. Their subscribers see these docs like “Making a Murderer” and think, “Hey, I thought documentaries were these stodgy things but now I want to see more of them. Then the docs in 2018 blew the numbers out and even this year we’ve had some great documentaries from NEON and some strong musical docs as well. The idea that movie lovers rediscover genres on streaming and then seek them out in theaters is the biggest example of the two mediums supporting each other.

And going from indie to blockbuster, Disney+ is showing that they are trying to connect their theatrical releases to their streaming content, especially with Marvel Studios. As this new wave of streamers launches over the next year, is that Disney strategy something you think could be adopted by other streamers?

We are on the verge of having multiple companies do both streaming and theatrical with Disney+, Warner Bros. with HBO Max and Universal with Peacock. It’s not just Netflix and Amazon anymore, and we are very excited that these other streamers are launching for two reasons. One, they’re going to need a lot more content. And two, they are coming from companies that believe — to varying degrees but certainly more than Netflix — that for some of their better movies it is much better to first give it a long theatrical run.

We definitely think that HBO Max and other new streamers will try to adopt a synergistic strategy by picking the right types of movies for a theatrical run to help build the brand and make a profit in cinemas, or content for streaming services reinforces interest in similar titles like with the documentaries. This isn’t strictly a new concept. It’s just an old idea that we saw with things like straight-to-video and TV movies being adapted to a new medium.

In 2018, the box office boom extended to almost every Hollywood studio, but this year, Disney’s been the only one that has kept that success going on the same level. For a theater owner, does it become concerning when a single studio ends up being responsible for more and more of the overall revenue?

Well, first, thank God for Disney. They have a huge collection of characters and series that really resonate with people and bring millions of people in to our theaters, and that’s essential to the survivability of theaters.

And at the same time, of course, we all want diverse content; in terms of where the film comes from, budget size, genres and different demographics. In that regard, your comparison of 2018 to 2019 is useful: 2019 was just an amazing alignment of titles from one distributor, but 2020 looks like it will go back to that array of diverse films from lots of different studios. Disney will still have a big year, but it won’t be as dominating almost week in and week out.

In fact, we’re seeing more films on the 2020 slate than this year because of that effect. So many times this year we saw other studios shy away from Disney films that everyone knew were going to dominate the market. Some people look at that slate and say, “Oh, you don’t have a surefire $600 million domestic hit like ‘Avengers'”, but we have a lot of new content that has a chance to break out, and that’s what we need to keep moviegoers coming in.

So given that this slate will be different, what would you say would be a reasonable expectation for how the box office will perform in 2020?

The uniqueness of the movie industry is that while we can have some sense, no one really knows how a movie is going to do until the numbers start coming in on Thursday night. If you told anyone that Warner Bros. was going to take a film like “Crazy Rich Asians” or “It” and make as much money as it did and last as long as they did, they’d think you’re crazy.

The 2020 slate has a lot of those kinds of films. With a “Frozen II” or a “Star Wars” you know they’re going to be big, and that made it clear 2019 was going to be a solid year. But what’s nice about the 2020 films in terms of movie theater profitability is that, sure, the big 2019 blockbusters have been great and they bring loads of people in and they buy popcorn and Coke, but we also pay the most for them. When a film makes $400, $500, $600 million, the studios end up taking a larger part of the gate.

With 2020, there’s a chance for more films to make the same or close to the same amount of revenue as a smaller number of films did this year. Generally, if you have two movies that gross $500 million or five films that gross $200 million each, you’re still getting to $1 billion. For movie theaters, the second situation is much more profitable because they get a larger share of each ticket sold.

AMC’s A-List ticket subscription program will likely hit 1 million subscribers during the holiday season. While it’s still in its early stages, do you think subscription programs can become a major part of the U.S. theatrical market the way it has in Europe?

It will depend on pricing and usage to keep it profitable, but it definitely looks like something that will become a more popular option for customers. AMC and Regal have started their programs and other chains are looking at their own, and going back to the 2020 question, it can really help with a diverse slate because it removes the feeling of risking money on a film a customer might not know about and encourage audiences to try something new.

It’s the same way that Netflix– oh, stop the presses, NATO head is going to say something nice about Netflix — the same way they have created a space for movies that may not have been made elsewhere. They do that because their customers aren’t paying for every single movie and feel more inclined to try something new. The viewing habits of subscription streaming, we believe, could carry over to habits of movie ticket subscribers.

Now let’s talk a bit about what independent theaters are facing. There’s been a lot of reporting by Vulture and other outlets about Disney’s decision to remove most repertory screens of 20th Century Fox films. Have indie theater owners spoken to you about this issue?

Yes, and while I can’t discuss too many details, I have discussed it with Disney, as well. I…don’t want to sound as if repertory screenings are not important. They certainly are to theaters, especially in small towns, as well as the consumer. But I have been a bit surprised at how much press this has gotten relative to the percentage of profitability repertory screens bring to theaters.

We are working on it with Disney, though. I think we will get a place where there’s a chance to play repertory Fox titles in theaters again as long as it isn’t interfering with the first-run product, which I think is what Disney is trying to protect. Maybe we can use off-times or seasonally slower periods, but I’m confident that a deal can be reached.

What other big issues hav indie theater owners spoken with you about the most? Theatrical window? Film rental rates?

Definitely the theatrical window. We do a strategic survey every three-to-four years of all our members and the window comes up with everyone. Big companies, small companies, but especially the independent theaters because two screen cinemas in a small town need an exclusive theatrical run to have a chance to play some of these movies because otherwise they’ll be on streaming by the time they have a chance to play it.

It sounds like that’s a part of the theatrical window issue that’s easy to forget. So often it feels like AMC and Regal vs. Netflix but this affects the smaller outlets too.

Yes. It’s not about the larger chains having exclusive deals to screen these films. It’s just that they have big multiplexes and the smaller owners don’t. The cost of operations is also a really big issue that independent owners are thinking about. Operational costs, utility costs, everything is going up, especially if you’re a small operator in a smaller state, not to mention how much it costs just to rent a film for screening. Sometimes studios are mindful of the difference between a big chain and a family-owned theater and some are not.

Is the recent news that the Justice Department will seek to repeal the Paramount Decrees also something you’ve discussed with these owners?

This is a difficult topic to distill into a minute or two, but, yes, I just got off of a conference call with a bunch of owners yesterday about the Paramount Decrees, and they do have concerns. The concept of antitrust laws obviously is different for a smaller company compared to a larger one because of leveraging power.

Granted, the nature of the marketplace has greatly changed since the 1940s, and it’s highly unlikely that studios will discriminate between one theater chain they own and another they don’t. That’s why the Decrees were implemented in the first place and that’s just not how the industry works anymore. But block booking is still a big concern, and we filed comments to the DOJ during the public comment period about that. Movies should be distributed title by title, and we stand by that. For now all we can do is wait for what they say in court.

Let’s close out with this: Have you seen “Cinema Paradiso”?

Yes.

So you know about the film’s ending in which the Cinema Paradiso is demolished because home video made the movie theater financially unsustainable. It’s been 30 years since that film came out and theaters are still around while Blockbuster has come and gone. Does that endurance of moviegoing give you pause as NATO heads into the 2020s?

That’s a funny and symbolically important way to end the conversation. I’ve been representing theater owners for 20 years, and the number of times a technology has come around that was expected to kill cinemas has been countless. The reality is that when movie theaters were the only way to see a film, there was a big impact on the marketplace. Television did have an impact on theatrical admissions, but since then box office revenue has been up decade by decade even with more movie viewing mediums being created.

We’re very optimistic about the future of the business and think we’ll always be a popular option for when people want to enjoy a night out. It’s always a fun business to represent.

Jeremy Fuster

Jeremy Fuster

Box Office Reporter • jeremy.fuster@thewrap.com



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