*Spoiler warning for Blue Story and Avengers Endgame*
Setting the scene
The global battle against COVID-19 has not done the creative industry any favours; chief among affected industries, in terms of revenue, is undoubtedly the movie industry. From cinema operators taking on hundreds of millions in debt to stay afloat, to suppliers stockpiling blockbusters, the whole situation is unideal. The unfortunate news for the avid moviegoer is that killing the culture may be the most likely scenario to save the industry as a whole.
Remember Leah’s untimely death in Blue Story? Or when Captain America wielded Mjolnir then went toe-to-toe with the mad titan in Endgame? Having watched both these moments in cinema, the emotional reaction displayed from the audience is something I will struggle to forget. Going to the silver screen to react as a community has been a long-standing tradition for many, but attempts to counter the pandemic are getting closer to curbing such traditions.
More Netflix isn’t chill
Cinema closures have seen the smaller screen replace the silver, as streaming services start providing premier viewings. Disney’s Mulan, which debuted in September 2020, is a prime example. The blockbuster debuted on their streaming service and audiences were charged $30 in addition to the $6.99 monthly cost. Analysts estimate the film brought in $90-$100 million in digital sales and $67 million from the Chinese box office (only box office the film was shown at), with Disney only keeping a fraction of the latter. The film cost $200 million, not to mention the marketing costs. If premier streaming of blockbusters will result in smaller profit margins, then expect suppliers to use smaller budgets and take less risks. It is evident that suppliers are not making as much money from films as previously possible, but companies like Disney have the synergies to ride this wave. The disproportionate effect will be felt by mid to low-level suppliers, who are capable of creating a hit but might not be compensated for it.
Take for example ‘Little Miss Sunshine.’ This independent film earned four Oscar nominations, two wins, grossed $100.5 million worldwide, all from an $8 million creation cost. In the current climate, it would take a lot for an independent film to make it onto a streaming service. In the event that it does, it is even more unlikely for them to be fairly compensated for their success. Typically, streaming platforms offer a lump sum for buy out rights, rather than a percentage of the film’s accrued success. Due to the lack of bargaining power independent films have against streaming platforms, it is difficult to imagine a scenario where they are not ripped off.
Movie supplier’s lack of bargaining power is worsened by the asymmetry of information provided by streaming platforms. If streaming services hold onto the success (or lack thereof) that movies accrue on their platform, how will creative teams know what is hitting and what is missing? Defenders of this asymmetry may reference websites such as Rotten Tomatoes and IMDB as they are still able to sufficiently serve potential viewers; lack of financial information regarding the film does not affect the quality.
Despite this, you cannot blame a movie supplier for wanting objective information regarding its success rather than relying on the speculative. For movie suppliers without synergies, (in this case, no streaming platform in their company structure) how will they know whether to make a sequel? If they do, on what terms should they bring this to the streaming service? These issues have been unfairly exacerbated for suppliers by streaming services and requires correction.
Beginning of the end for cinemas?
Streaming services expanding into the market does not mean cinemas are dead and gone. Most blockbuster suppliers have delayed their movie slate by several months to a year in the hopeful return of box office sales. When this does eventually happen, the problems for cinema operators will be far from gone. Dismal Q3 earnings were published by operators in 2020. AMC’s debt pile of $5.5 billion is roughly eight times its equity value, and Cineworld’s net debt reached $8.2 billion, putting them closer to breaching its covenants.
AMC recently secured $917 million in new financing allowing them to stave off bankruptcy reports well into 2021. The harsh reality is that increasing debts coupled with a smaller screening capacity due to social distancing will make balancing this debt an uphill battle. Commentators suggest this may be where private equity houses step in as this is their forte, but at what cost?
To balance significant amounts of debt, cost-cutting and streamlining measures are inevitable. Cinemas have already resorted to permanent closure of certain venues, and it would be unsurprising if this continued. Social distancing will deter audiences from visiting the cinema since the atmosphere is no longer what it once was, and many will prefer the economical choice that streaming services provide.
Watching a blockbuster movie will be a much less personable experience going forward. This is a trend moviegoers will resent, but will have to adapt to. The shift in the balance of power from cinema operators to streaming services will be an interesting power struggle for years to come. Although cinemas will put up a good fight, the future is looking increasingly digital.
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