In a new assessment of the film business, veteran Wall Street media analyst Michael Nathanson of MoffettNathanson describes it as stable for now but beset by threats on multiple fronts.
The release of Nathanson’s report, titled “Film Studios: Having Their Cake And Eating It Too?” comes on the final day of Cinema-Con in Las Vegas, where stakeholders have gathered to assert the viability of movies in a rapidly evolving landscape.
Last year marked another solid box office showing for Hollywood’s six major studios, with growth coming despite a collective $20 billion investment in hundreds of streaming programs across Netflix, Amazon and Hulu. For now, as Nathanson notes, “the industry continues to operate as it has over the past few decades, with mutually agreed upon exclusive theatrical windows.”
But for how much longer? “It is hard to ignore the potential clouds on the horizon,” Nathanson writes. “In the coming year, we will see if the launch of new streaming services and a change in ownership of two of the six major studios will upend the heretofore symbiotic windowing strategies of the model.”
Disney+, WarnerMedia’s to-be-named service and Apple TV+ will all be in the market by the end of the year, with NBCUniversal set for a major launch in 2020. Also, just in the past few weeks, the $71 billion Disney-Fox deal closed and AT&T finally escaped the legal thicket that had snagged its $81 billion Time Warner takeover.
One sign of change is the continuing bifurcation of the marketplace. Since 2010, Nathanson pointed out, movies generating over $100 million in domestic box office have dramatically increased share from under 50% to 63% last year. Movies generating between $50 million and $100 million, meanwhile, fell from nearly 30% of the box office in 2010 to just 14% last year.
As a percentage of parent companies’ total revenue, movies remain important. After adjusting for TV production studio revenue, which is included in the studio segment for some companies, Nathanson found that WarnerMedia’s film share of aggregate revenues is still the highest of all majors at 25%. Viacom drops to 21% while NBCUniversal stays at 20%. Disney pro forma with Fox drops down to 18% given the strong contribution of Fox’s TV studio.
The record box office is also coming via fewer releases. The six major studios between 2007 and 2018 saw their output decline 25%. Disney last year tied for the fewest releases of any studio with just 10.
The beleaguered home entertainment sector has been cited by some as a reason to be encouraged, but Nathanson isn’t so sure. “Total reported global home entertainment has grown by 6% over the last five years,” he writes, “but this has been buoyed by SVOD streaming revenues, which we would argue are more akin to licensing deals than home entertainment spending.” Furthermore, he adds, television, not film, remains the core thrust for major SVOD services like Netflix and Amazon.