Why Would Studios Suggest Abandoning Theaters? Some Logic Behind the Strategy

No one is rooting for the demise of the theatrical experience — but is it the same thing, when its survival is no longer a primary concern?
Photo by: STRF/STAR MAX/IPx 2020 10/4/20 AMC and Cinemark are under pressure after rival movie theater Cineworld announced the closure of its more than 500 U.S. Regal theaters as studios continue to delay major releases such as the new James Bond movie, "No Time To Die".
Cineworld/Regal Theaters

On October 12, Disney announced that the theatrical experience — something that film fans have compared to church and other holy rites — was actually an agnostic one. A new Media and Entertainment Division now oversees distribution of all Disney content, and makes cold-blooded determinations as to where audiences will find it. If it finds more people (and money) on streaming platforms, then that’s where it goes. Case in point: The universally adored “Soul,” a Pixar film that could also be a Best Picture contender, will debut on Disney+ December 25.

For a century, theaters were the most efficient way for studios to initially exhibit and market films: It brought the titles maximum attention, and set them up for future revenue streams. Theatrical exhibition also demands enormous marketing expense, and locks studios into 75-90 days of exclusivity when customers would prefer home access sooner. Other issues: Studios must share half of their revenue with theaters, it requires a dedicated distribution staff, and leaves studios reliant on a business beyond their control.

Even with these drawbacks, over the years the introduction of each ancillary model — television, video, cable, DVDs, streaming, and VOD — theaters’ centrality went largely unchallenged. That changed with the onset of COVID-19, a force majeure that forced everyone to reckon with a long-simmering suspicion: Maybe theaters weren’t the best and only way.

Exhibitors — and some distributors — vehemently disagree. It’s the only way to see movies the way they were meant to be seen; it’s the only way to have the shared theatrical experience. When the pandemic made all of that impossible, many studios pushed their films to dates six, eight, 12 months away; at that point, the hope goes, the time for big-screen movies in an auditorium packed with fellow film lovers will return. (And, that theaters will be around for it: Worldwide leader AMC revealed it may run out of cash by early 2021. They’d likely declare bankruptcy before doing so.)

Others see it differently. Paramount Pictures sold off a half-dozen titles to streamers like Netflix and Amazon, taking hard cash over an ambiguous future. Universal began to experiment with PVOD, which also provided a much quicker and more direct payoff. And now Disney has a whole new division dedicated to the idea that the theatrical release is only one platform among many — and a “legacy” platform at that.

Cinemacon, the annual convention in which studios present their slates to exhibitors, likes to invoke nostalgia by reminding attendees of their shared history within the art of cinema. This is the way it’s always been, the story goes, and the way it always should be. The pandemic reminded everyone of another maxim: Business isn’t sentimental. If the studios’ shifts seem radical, it’s only because 2020 increased their velocity. Studios are part of conglomerates, which aren’t reactive by nature, and this evolution began long ago.

Theatrical audiences have been shrinking for decades; so has the concept of what constitutes a viable theatrical release. Production, distribution, and exhibition costs demand global, wide-audience hits, which come from franchises, comic-book characters, horror films, sequels, and animation. Dramas and comedies were eight of the top 10 films of 1980; 40 years later, those genres are risky.

It makes no sense now for studios to make 10 $20 million films, each with its own marketing costs, rather than one $200 million effort. Meanwhile, studios watch Netflix and other streamers create businesses that don’t target the masses as a unit; they (or really, their algorithms) view the audience as a global, near-infinite set of niches that don’t demand the latest in FX or the biggest screen.

"Wonder Woman 1984"
“Wonder Woman 1984”Warner Bros.

No one roots for the demise of theaters — but is it the same thing, when their survival is not a primary concern? When theaters reopen and desperately need big films like “Wonder Woman 1984,” “Black Widow,” and “No Time to Die,” studios will dictate their non-theatrical windows while dedicating their energies to how they can be more like Netflix. The theatrical experience is great, of course, but everyone wants to be a content provider that is nimble, massive, global, highly attuned to what its audience wants, and is vertically integrated down to a revenue stream in which customers treat their subscription with the same auto-pay respect as a utility bill. All with a minimum of theatrical play and a fraction of the traditional marketing expense.

With the Disney reorganization, even the biggest generator of box-office revenue announced its disinterest in preserving the status quo. Its competitors will have to figure out how they will follow suit. A new, streaming-first business model is in play. No one can quite define what it looks like (although Disney+ and Netflix already make PVOD seem a little retro). As paradigm shifts have a way of showing us, those who wait until it all makes sense risk being left behind.

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