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COVID-19 Proves the Importance of the Streaming-Cinema Working Relationship

Earlier this month Regal Cinemas announced it will officially shut all its doors in the United States for the second time during the global pandemic. Regal is the second-biggest theatre chain in the US. Other chains such as AMC and Cinemark remain open, playing old films and small budget films because blockbusters are delayed. However, it is predicted that AMC will run out of money by the end of 2020. The Regal Cinema announcement is just another devastating hit for the film industry. While retail stores, restaurants, and other business industries have been allowed the opportunity to reopen, the film industry is still in the beginning stages of recovery. Filming has recently been allowed to resume in most domestic filming hotspots like Los Angeles and Atlanta. International filming is restarting (depending on the country’s regulations). Still, production can shut down at any time due to cast and crew COVID cases or government regulations. Furthermore, the six-month-plus complete shutdown has shifted production timelines. The pandemic will end and production will return to its normal operating conditions. However, COVID-19 confirms the importance of streaming platforms and at the same time proves movie theatres are still relevant.

The Importance of Quality Content on Streaming Platforms

Nearly every single filmed entertainment production has been affected by COVID-19. Name a film in any stage in the production timeline and that film is delayed (production or release wise), canceled, or released on a digital platform. If a film was supposed to be released in theatres in 2020 studios have two options: delay the release or release it as scheduled as a PVOD (premium video on demand) or on a streaming platform for free. If you delay the film too much, people will lose interest. Such may be the case for Wonder Woman 1984. The film was originally slated for the 2019 holiday season but moved to June 2020. Then the pandemic moved it to August, then October, and is now moved to December 25, 2020. This date is not final either.

A delayed movie affects not just the film itself but all upcoming films. Delays cause the previously slated movies to be pushed back thus shifting the entire studio release calendar for the foreseeable future. Streamed films might lose money but it may be worth it in the long run. Let’s say a studio has two films. Film A has been continuously delayed because of COVID-19, whereas film B is still set to release in late 2021 and remains largely unaffected by the pandemic. There is a huge sunk cost for film A but film B is still fresh and untouched. Therefore it could be worth taking a loss and releasing film A so that film B doesn’t have to also be delayed. In other words, a studio could choose to release the film on a streaming platform if the next slated film has a bigger revenue potential.

This is the case with Pixar’s Soul and Disney Animated Studios’ Raya and the Last Dragon. At the beginning of the pandemic, Soul and Raya and the Last Dragon switched release dates because the Disney Princess franchise is more profitable to the company. A later release date means that more people might be able to see Raya and the Last Dragon. Since Raya and the Last Dragon is part of the princess franchise, it’s important that as many people as possible see it to ensure long-term profitability. Now it is clear that even by November theatres aren’t going to open in most areas of the domestic market. The Walt Disney Company has accepted the sunken costs of Pixar’s Soul. The studio announced it was releasing Soul on Disney+ to keep their company afloat. With Disneyland continuing to remain closed and blockbuster movies unable to premiere in theatres, Disney+ accounts for most of Disney’s revenue. Adding Soul to Disney+ will both retain subscribers and acquire new ones. With Soul out of the way, Raya and the Last Dragon can get the audience and marketing it needs to become a successful addition to the Disney Princess franchise. As of writing this article it seems that the Walt Disney Company is focusing its efforts in marketing Raya and the Last Dragon with techniques used for pre-pandemic animated films. Studio’s dependence on streaming platforms during the pandemic proves that streaming platforms are even more relevant than before the pandemic hit.

Streaming platforms are also important for closing gaps in the market. Although protocols vary, some areas in the US still have their theatres open.  Consequently, studios transitioned to an “in select theatres and digital on demand” business model. In other words, studios will release the movie in theatres in open markets. These markets are international and domestic areas with lower COVID-19 risk and decreased regulations. In the remaining closed markets the film is available for a price (like the 2020 Mulan remake on Disney+) or for free (like Netflix’s Enola Holmes).

It is important to note that much of the popular streaming content released is previously filmed content, like The Trial of the Chicago 7, The Mandalorian, and The Crown. Content that has been filmed during COVID-19 like Social Distance, Love in the Time of Corona, and Connecting… all have mostly negative reviews. The general consensus is one of distaste, speculatively a result of the productions being rushed and not having enough distance or retrospection from the current pandemic to lend the stories their needed depth.

The films add to the COVID-19 fatigue we are experiencing thanks to the overabundance of news we get about the topic already. Based on the failure of these three shows we can conclude that the quality streaming content increases film viewership. Quality refers not to content but to production value.

Why Movie Theatres Need to Survive the Pandemic and Beyond

People will argue that studios releasing movies on streaming platforms in 2020 is a sign that movie theatres are on their way out. However, at the end of the day, Hollywood is still a business that needs to make money, and movie theatres play a key role in that. Forbes writer Scott Mendelson analyzed PVOD and box office numbers with movies released before and after digital platforms like streaming and on demand were introduced in the market. In summary, his analysis found that t movie theatres are here to stay. Some highlights of his findings include:

  • Between 1995 and 2019, the differential between the worst year (2017, with 1.225 billion) and the best year (2002, with 1.575 billion sold) is around 22 percent. The drop between 2009 (1.418 billion) and 2019 (1.235 billion) is 14 percent.
  •  Inflation-adjusted total domestic earnings have steadied, over the last 15 years, between $11.165 billion in 2017 and $12.9 billion in 2009. That is a 14 percent split.

There are important considerations that the analysis did not address. For example, the numbers don’t account for the overseas expansion. In 2019 international markets accounted for 70 percent of total box office revenue.  In 2019 the top three films at the box office worldwide made double their domestic gross in foreign markets. All of the top-ten grossing films made more money in the foreign box office than they did in the domestic market. In many international markets, PVOD isn’t a competitive option for film consumption.

Despite US consumers having more entertainment and accessibility options for high-quality in-home productions, they have spent relatively the same amount of money in theatres as they did before streaming and PVOD. The only change is domestic moviegoers are spending more money to see fewer movies because costs have risen. The movies they chose to see in theatres are often tentpole franchise movies like superhero movies.

In other words, moviegoers are spending the same amount of money at the theatres but only on a select number of blockbusters. Although the types of movies people are going to see is a content problem for studios, it is not a problem for movie theatres. Mendelson writes, “Say what you will about theaters not acknowledging the future or Hollywood being too franchise-dependent, but theaters earned $42.5 billion in global grosses last year. You may have a great home theater set-up and may prefer to wait until VOD or streaming, but $42.5 billion worth of folks chose to see movies in theaters last year.”

PVOD or streaming exclusive numbers don’t match box office numbers. PVOD has existed since the early 1990s and its business format remains the same since the late 2000s. Therefore, if PVOD numbers yielded comparable revenue to theatre box office numbers then studios would have ditched theatres 15 years ago. After all, cutting out theatres means studios can cut out the middleman and increase profit. However, recent examples like Mulan’s and Tenet’s poor box office receptions show that studios need theatres to make the billion-dollar movies like Avengers or Star Wars.

This creates a dangerous “the chicken or the egg” situation. As previously mentioned, audiences go to theatres for blockbuster movies. But studios aren’t releasing blockbusters because the two biggest U.S. markets, New York City and Los Angeles, aren’t open yet. However, movie theatres need blockbusters for consumers to come to the theatre; from there, they make money off of concessions and ticket sales.

Theatres also need to survive the pandemic and beyond because streaming platforms aren’t always a viable option. In the US, as with other countries, a strong and reliable internet is a privilege. Streaming platforms work when a household has good internet; but according to the FCC, 30 percent of rural Americans don’t have broadband access. Telecom companies are responsible for setting up internet access for communities and often will skip rural areas because the set-up and overhead costs are too high. Overall 21 million Americans don’t have high speed internet (an independent study found that it could be as high as 163 million Americans). The 142-million-person discrepancy is because telecom companies self-report to the FCC. If the telecom companies report to the FCC that one household has internet, then the FCC assumes the whole census block has internet. If telecom companies are required by law to ensure that every American has access to telecom services then it’s in the companies’ best interest to report low numbers. Theatres bypass the requirement for high speed internet. With movie theatres, studios can reach all Americans, thus increasing profit.

Theatres and Studios Need to Work Together

In conclusion, Hollywood studios have made it clear that blockbusters won’t return until cinemas in New York City and Los Angeles, the top two influential movie markets in the US, can reopen at more than the currently allotted 25 percent capacity. Even if blockbusters return, studios need to win over consumers who aren’t sure about the safety of sitting indoors with strangers for extended time periods. The vast majority of people who aren’t hardcore moviegoers might believe the risk isn’t worth it on a individual and community level. For example, you might not catch COVID-19 at your Wonder Woman 1984 show time, but the person two rows in front of you might. Now that moviegoer can spread the virus around your community. Theatres will likely return to pre-pandemic levels when a vaccine is safely released, broadly distributed, and widely injected–but this might not be for several years. However, movie theatres will return in some form or another. The entire entertainment industry relies on big theatre releases to function. Before COVID-19 hit, movie theatres were already struggling to gain control over studio influence. Studios like The Walt Disney Company require an average of 65% of ticket sales and will dictate how many weeks the theatre must play their movies. Movie theatres raise ticket prices to make up for the large sums of money studios take from the profits. High ticket prices in turn means consumers only go to movie theatres when blockbuster films are released. However, COVD-19 shows that studios need movie theatres as much as movie theatres need studio blockbuster films. Therefore, when theatres open, theatres and studios need to work together to ensure long term survivability.

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Emily Berg

Seattle U '21

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