Movie theatres are dead! That's the umpteenth time in recent memory the industry's death knell has been sounded, this time because of the coronavirus crisis, which has forced the closure of cinemas around the world.
The chief analyst at US-based research firm RiskHedge, Stephen McBride, has declared covid-19 will wipe out a number of industries, not just for the duration of the crisis, but also for good.
"Filmmaker Universal detonated a nuclear bomb in Hollywood" when its children's film, Trolls 2, became the first mainstream movie to be released online, skipping movie theatres, McBride said.
"Families can stream it at home for 20 bucks. Disney followed suit, releasing its latest hit, Onward, digitally. This is far more disruptive than most folks realise," he said.
"Movie theatres have always held an exclusive window for film releases. They demand 90-day exclusive rights before the movie can be shown elsewhere. In short, this is how they make money."
McBride said while filmmakers had often toyed with releasing films online, theatres had always blocked that.
He cited the case of Universal trying to release the film Tower Heist online in 2011 when it was still in theatres – the filmmaker had wanted to release it online three weeks after it went into cinemas.
That provoked Cinemark, America's second-largest theatre chain, to say it wouldn't book the movie if Universal went ahead, so Universal backed down.
"With movie theatres shut down across the country, it has forced filmmakers to pull the ripcord and release movies online. And this isn't a one-off. Universal said it would no longer give theatres an exclusive period after the lockdown ends," McBride said.
By country, he meant the US. "My friends, this is the end for most movie theatres."
The evidence coming out of China doesn't bode well.
The BBC reports that after explosive growth to the point at which February 2019 Chinese audiences spent US$1.63 billion on tickets, a record for a single month anywhere in the world, Chinese theatres tried to reopen in mid-March after that country passed the worst of its crisis, only to find distributors refused to release new films and audiences stayed home.
Nearly 500 theatres in China tried to reopen and then shut down again as it became plain that cinema-goers weren't comfortable with visiting them when it was safer to watch movies at home.
Just over a century ago, when the Spanish Flu was sweeping the world, taking the lives of at least 50 million people, there were experts predicting the demise of movie theatres as many across the world closed for the duration.
But the industry went on to flourish through the Great Depression of the 1930s and thrived through World War II.
Then came the advent of television, and again the pundits were hailing the demise of cinemas, as they did after VHS cassette tapes became ubiquitous and when they were supplanted by DVDs and when streaming took over.
Vista Group International
Naturally, Vista Group International is taking a keen interest in the industry's outlook, given it is the world's largest supplier of technology used to run cinemas, market and distribute movies, claiming 51 percent of cinemas with 20 or more screens outside of China.
Vista founder Murray Holdaway told BusinessDesk McBride was taking "a typically American view" of the industry.
"When I started in this industry in the early 1990s, box office was split about 70/30 North America" including Canada versus the international industry.
"Today, that has completely reversed and is now 70/30 in favour of international."
McBride had claimed that, in 2019, "Americans went to the movies less than any time since the 1920s," citing Box Office Mojo as his source.
"Losing their exclusive window is a death sentence. Millions of folks will choose to watch movies at home instead. Five years from now, theatres will be like record stores."
He pointed to "the world's largest theatre company, AMC, entered bankruptcy talks … AMC and its competitors have all plunged 75 per cent-plus in the past few years."
However, after McBride said that, AMC, which has about 1000 cinemas in the US and Europe, raised US$500 million from selling bonds to help it stay afloat through the crisis.
Fisher Funds equities manager Sam Dickie said taking a "clean" look, excluding the covid-19 effect, at the share prices of listed movie theatre operators shows that, of total returns in the five years ended June 2019, AMC's share price fared the worst, dropping 50 per cent, followed by Cineplex shares, down 30 per cent.
However, Cineworld Group's shares rose 119 per cent, Event Hospitality's were up 77 per cent and Cinemark Holdings' rose 20 per cent.
Dickie, whose funds include a 12.2 per cent stake in Vista – before its recent placement and rights issue of $65 million – noted AMC had said it now had enough cash to last through to November, assuming a partial reopening of cinemas.
"Digital streaming is eating physical rental and sales of videos, not box office," he said.
Box office variation
Holdaway provided BusinessDesk with data from a box office tracking site, the Numbers, which showed US cinema attendance "bobbed around" 1.2 billion to 1.5 billion tickets sold in the past 25 years and was 1.24 billion in calendar 2019, down from 1.31 billion in 2018 but up from 1.23 billion in 2017.
"The variation is usually down to the quality of movies and big tent pole releases," he said.
Indeed, the New York Times reported in its review of movie ticket sales in 2019 that "moviegoers rejected an astounding amount of what Hollywood served up."
In particular, "critically reviled" Cats bombed, with ticket buyers giving it a C-plus grade, while X-men sequel Dark Phoenix and Ugly Dolls, "an animated clunker," were also misfires and Clint Eastwood's Richard Jewell gave that director his worst opening weekend in four decades.
But beyond fact-checking McBride, Holdaway said he showed "a lack of understanding of the structure of the industry".
Universal had been in a tough position with Trolls 2. "They had spent most of their marketing budget for the film – which was huge – and they couldn't afford to shelve the movie and re-market it at a later date. So they had to get it out on any platform they can."
In contrast, Paramount and other studios have chosen to defer movie releases and even Universal has deferred James Bond – No Time to Die because it hadn't done much advertising by the time the crisis hit.
"To suggest theatres have lost their 'window' and it is a death sentence is drawing a very long bow based on one release and a few other smaller releases and in a time when no cinemas can open," Holdaway said.
Window of opportunity
As for that window, Holdaway provided data from a major studio showing that 18 per cent to 20 per cent of a movie's gross box office came in week one in cinemas and 35 per cent to 40 per cent from the first 90 days in movie theatres.
From then on weekly takings were less than 1 per cent and tapered lower over the following three years.
"I don't know of a studio who is saying it can reproduce those earnings by going direct to home video," Holdaway said.
"Whatever happens, films makers, producers, film funders etc need to have confidence in the financial outcome of the movie – else no one will make them and the whole industry will collapse through lack of content."
But the last word goes to Andrew Bascand, managing director of Harbour Asset Management, which owns nearly 9.8 per cent of Vista (before the recent capital raising).
"To me, saying movies are forever dead is a similar statement to say we won't travel again," he said.
"Watching a movie on your device, or even a TV screen, doesn't have the same excitement as a date night out at the movies."