If a proposed Time Warner-AT&T merger raised the question about a new, accelerated PVOD window that would butt up against theatrical, then a pending Disney-Fox merger has certainly cast a lot of questions around the future of the theatrical business as it steamrolls into the streaming arena with its own OTT services plus a greater share in Hulu.
But if anyone is looking for any concrete evidence in regards to whether moviegoing is alive or not, consider the fact that for the third year in a row, the U.S./Canada box office is set to gross $11 billion annually, a high water mark that had never been reached prior to Disney’s reboot of the Star Wars franchise. Before 2018 rings in, 31 releases will cross the $100M threshold (not counting carryovers like La La Land and Hidden Figures), a number that is steady with last year (30 titles), and up from 2015 (29 titles) and 2007 (28 titles). The last two weeks of the year generate at least $1 billion alone at the box office.
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As old fashioned as moviegoing sounds with its idea of theaters versus the immediacy of iPads and mobile, it really doesn’t look like it’s dead yet, nor would it be prudent for studios to chuck away a viable and trusted revenue stream. Exhibition continued to hold the line in 2017, and will continue to do so in 2018. Actions speak more than words, and the major studios haven’t abandoned the theatrical biz yet as they continue to stake out key calendar dates for their biggest brands well into 2021 and beyond.
Theatrical continues to be the premium window which tees off the profile of all subsequent ancillary windows. The argument can be made that 2017’s low budget wonders Universal’s Get Out ($175.4M domestic) and Sony/TriStar’s Baby Driver ($107.8M) had more cultural and commercial impact with a theatrical release than any original Netflix movie with big stars. Theatrical releases carry a completely different type of buzz and resonance, and that heightened out-of-home, big screen experience is part of the equation.
Throughout this year, the business media has been chomping at the bit to write moviegoing’s obituary: It was the worst summer in 11 years at close to $3.8 billion, Disney acquiring Fox and strong arming exhibition, and, oh, admissions at 1.23 billion are at a 22-year low. Here’s what we can expect from the box office and exhibition in 2018, as well as lessons learned from 2017:
Summer B.O. Will Rise In A Big Way That’s because we have both an edgier take on older franchises with Solo: A Star Wars Story and Jurassic World: Fallen Kingdom, as well as younger franchises like Deadpool 2 and Ant-Man and the Wasp in the mix too. There aren’t any dusty franchises weighing down the summer such as the up-teenth Transformers or Pirates of the Caribbean. Disney is also capitalizing on the long-awaited nostalgia with Pixar’s The Incredibles 2 much in the same way they did with Finding Dory. Even Warner Bros.’ Oceans 8 feels cool in its female reversal in way that Ghostbusters couldn’t pull off given fans’ lofty esteem for that comedy brand.
But wait, what about August? There really isn’t a four quad film in the spirit of Suicide Squad or Guardians of the Galaxy during the first weekend. Disney’s Marc Forster Christopher Robin movie begs the question of being one, plus Paramount’s Mission: Impossible 6 is there at the end of July to pull us through August.
Christmas year-end Will Be Down Simply put, there isn’t a Star Wars movie on the schedule making an average $20M daily and $500M-plus in ticket sales before the end of 2018. What exists are a cluster of regular event titles unlikely to make up the difference of one Star Wars: Warner Bros’ Aquaman, Paramount’s Bumblebee, Disney’s Mary Poppins Returns and Fox’ enigmatic untitled Lightstorm release (note, Avatar 2 isn’t scheduled to open until Dec. 18, 2020). If we’re going to beat or match this year’s $11 billion take at the box office, it might boil down to summer to get us there.
The Real Story on Admissions Based off an average $8.91 movie ticket price from the National Association of Theaters, media headlines are going nuts exclaiming that 2017 logged the lowest amount of admissions in 22 years. The media gets to this hasty generalization by dividing the annual B.O. of $11 billion by NATO’s average $8.91 ticket price (through three quarters) of regional market, senior citizen, weekend movie ticket prices to come up with the number of 1.23 billion admissions. The fact of the matter is that we don’t know exactly what the number of admissions are because there isn’t a universal means of tabulating them at theaters. What we do know is that the top three theater chains AMC, Regal and Cinemark combined clicked 454.5 million people in attendance from Jan.-Sept. of this year, which is ahead of the same period last year of 449.7M, and that’s before we even add in the foot traffic from Star Wars: The Last Jedi and Thor: Ragnarock. However, the tell tale sign here is that movie ticket prices have gone up, and currently they’re at an OK level especially when the run of event titles are at a high quality level. But as soon as there is a bad run of movies, then suddenly moviegoing gets pricey.
More Consolidation by Exhibition This means auditorium consolidation under the roof of multiplexes, and a convergence among chains themselves as they aim to offer a better experience than home when it comes to watching movies. It’s also about keeping up with the studios and maintaining leverage as they consolidate. Movies chains will continue to cut back on seating in multiplex auditoriums that go empty during the midweek in exchange for upscale luxury recliners and high-end concessions. Under this plan, they’re able to hike ticket prices and boast maximum capacity attendance figures to distributors. By the end of this year, 40% of Cinemark’s domestic circuit will be made up of recliner screens (approaching 2,000 screens) and they’ll continue to spend $60M on new builds, and $80M on renovations well into next year and beyond.
This year saw a number of mergers in exhibitions: UK’s Cineworld snapping up Regal for $3.6 billion, Netherlands-based Kinepolis acquired Canada’s Landmark Cinemas, and Mexico’s Cinemax absorbing Southeastern chain Cobb Theatres.
Says one studio executive “The fact that there’s a number of foreign players coming into the domestic exhibition market means that they disapprove the theory that moviegoing is going down. These guys wouldn’t drop their money in the U.S. if there wasn’t an opportunity.”
AMC has expanded aggressively with its takeover of Carmike, and has committed to luxury recliner screen renovations with a less-than-stellar summer working against them for a running net loss of $210.8M through 3Q, this after a $111.7M profit in 2016. The chain is currently taking initiatives to reduce cost.
Compare this to Regal Cinemas who since 2012 increased their net income by 20% with $170.4M (through nine months in 2017 they’re at $116.5M). Regal was slower to upgrade on luxury recliner screens than the competition with an eye on a 45% conversion of its chain by 2019.
“Regal was trying to look attractive by being profitable and not putting money back in the theater. They got it done,” added our studio source on their acquisition. Again, the attrition of lesser properties, and the upgrade of others are in the mix for exhibition going forward as they aim to maximize their side of the box office equation.
Post Theatrical Market Has More To Worry About Than Theatrical: Arguably the home ancillary entertainment side of the equation looks to be a mess when compared to the theatrical revenue stream. Studios assert that they’re not making as much money in home entertainment as they did decades ago when video/DVD covered any theatrical shortfall. By the end of this year, eMarketer estimates that cable cord cutters will rise to 22M, and ultimately 40M by 2021. Many attribute the Disney-Fox merger to boil down to TV: ESPN and Disney Channel subscribers were already dipping with Disney’s TV revenue for the first nine months of 2017 flat at $18 billion with operating income -11% to $6 billion. Disney’s newfound foothold in Hulu coupled with the its new sports and regular streaming 2019 OTT isn’t just about monetizing the home window, but gaining a hand over tough MVPDs. Said Disney boss Bob Iger in a conference call about Disney’s digital plans on the day of the Fox acquisition, “Should the multichannel ecosystem get to the point where it’s not as viable as we need it to be, we’d be well-positioned to, in effect, flip a switch and distribute those programs direct to the consumer through the platforms we’ve created.”
One film financer believes that much like TV in the 1960s and VHS in 1980s, streaming ultimately won’t kill the theatrical business. “I look at OTT as an extension of this historical record. As opposed to restricting the industry, it will serve as a new distribution channel that will add value to studio content and increase revenue…This segment will not only rely on its self-produced product but will serve as another distribution channel and licenser for studio motion pictures. The more channels of distribution, and the more competition within these channels, the greater the studio revenue as it exploits its high quality commercial content to an expanding pool of global customers.”
Moviegoing Isn’t Broken: As many heralded the end of moviegoing with the lowest summer in 11 years, they failed to recognize the fact that the theatrical business is a product-driven market. Outside of summer, we went into May with a running domestic B.O. of $3.8 billion, 4% over 2016 with a number of multi-million dollar releases including Beauty and the Beasts, Logan, and Fate of the Furious. And once we got past summer, the post Labor Day period through Christmas grossed $3 billion, close to 9% ahead of last year. To think that moviegoing habits collapsed in between doesn’t make sense. Moviegoers reward quality movies, and largely those were released in the non-summer seasons.
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