COVID-19 Theater Reopening Delays Cloud Distribution Model for Feature Films

Theater closings because of the pandemic created a “real problem” for the movie industry’s formula for blockbuster releases and “how we consume video” overall, said Brett Sappington, Interpret vice president, on a Brightcove webinar Thursday. Citing studios’ long-term schedules, Sappington said “they plan years in advance for the exact weekend whenever they’re going to release something" to ensure the schedule doesn’t hit another studio’s blockbuster release. March-July since lockdowns “really screwed up calendars for not just now, but on into the future.”

Streaming successes while theaters have been dark prompted “good discussions on premium video,” going forward, said Brightcove analyst Jim O’Neill. Streaming was up 40% in Q2, 23% higher than Q1, said O’Neill, noting Netflix added 26 million subscribers in two quarters. Disney had more than a 70% subscriber spike after Hamilton’s release on July 3, and Universal’s Trolls World Tour took in $100 million from streaming revenue in Q1: Both had been planned for theatrical release, he noted.

But studios are delaying some big-budget releases as theater reopenings stretch out. Dozens of theatrical titles expected for summer were moved to autumn or 2021, while Disney delayed Mulan for the third time, now to Aug. 21, from its original March 27 debut, O’Neill noted.

O’Neill cited AT&T CEO John Stankey’s comments on a Thursday earnings call (see 2007230052), saying it's inevitable that some Warner Bros. movies that were slated for theatrical release this year would move to streaming platforms. Tenet, which cost $200 million and has been pulled from the release schedule, won't go to streaming first.

On whether movie theaters could eventually be replaced by digital distribution, Sappington referenced current uncertainties. Despite his own love for the cinema experience, being in a theater with “bunches of other people … feels unsafe to me,” he said. Though Sappington is certain it will be safe again to return to theaters, unknowns remain: “Will theaters make it that long, what will the theater experience be like, and what do movie producers do between now and then?”

O’Neill said building in proper 6-foot social distancing in a theater would shrink capacity to under 30%, not an acceptable percentage for an opening weekend or the first six weeks of a release. He referenced a recent poll saying only 40% of consumers are willing to go to a live event or performance before a coronavirus vaccine is available, and only 27% said they actually would.

It’s likely smaller budget films could go straight to streaming, said the analysts. That’s a return on investment decision, said Sappington: “The smaller the revenue they have to clear, the more possible it may be for streaming to offset that, or maybe even exceed that.” But with “everything being shoved into the future, you now have fewer weekends that they can be released on,” so studios have to assess whether to put, say, an art-house film up against a Wonder Woman 1984 (slated for Oct. 2): “Am I going to lose it there or try to get something now?”

Studios with streaming services have an advantage because they make money either way. Hamilton was due for theatrical release next year, but its streaming release July 3 was a chance for Disney to boost Disney+ “at a time when they needed content to be able to keep people,” Sappington said. Due to the lockdown, “people were vacuuming through so much content, so they really needed something.”

On how the 90-day theatrical release to video window might change due to COVID-19, Sappington said the windowing approach, “based on scarcity,” has been around so long “because it works.” A title releases first to a few people “willing to pay a lot,” then more broadly to those willing to pay a little less. The theater run is a good barometer for how long a movie’s tail is, and how much profit a studio will make, he said.

Discussions of releasing blockbusters in Europe, which could be on an earlier theater opening schedule than the U.S., have drawbacks. Piracy is a concern, said Sappington. Also, he said, “What if it goes to Europe and bombs because it doesn’t connect to the European audience, but it would have totally connected in the U.S?” That could create a negative association with U.S. audiences, he said. Just revealing the end of a movie release in Europe could dampen enthusiasm for U.S. viewers, O’Neill said. Ultimately, said Sappington, “executives have to make a gut decision” with every title on when and where to release films during the pandemic.

Some recent data showed younger consumers would pay $20-$50 to watch a first-run movie at home, “but how big is that group,” Sappington asked. He noted the risk if a transactional video model doesn’t produce the right returns: “You’ve just lost hundreds of millions of dollars on a big blockbuster that you could have put through the theater.” It would also anger the theater chains, an essential part of the traditional movie release chain, he said.

Theaters were experimenting with new ideas to change the movie-going experience before the pandemic, including offering food and ticket subscriptions, Sappington noted. AMC launched its own transactional video service. Both analysts believe it could be at least a year before movie-going returns to something approaching normal. That would create a smaller pipeline to distribute content; Sappington questioned whether studios might buy movie theaters “to guarantee distribution.”