CJ Analysis: Cinema Is Back! But With Some Major Changes.

By | June 11, 2021 2:57 am PDT

It’s been a very long time since anyone in the cinema business has been in a rush to look at box office figures. The habitual daily check came to a bit of a grinding halt last year and for a long while things were very depressing indeed. Despite some key success stories for local product Hollywood had by and large abandoned the exhibition sector by postponing and shifting releases to streaming, which dented it severely. Not even independent films could come to the rescue when a second lockdown swept through Europe.

All of that came to a very abrupt end this May when several European territories reopened their cinemas and huge blockbusters found themselves back on screen in International markets. “Cinema is Back!’ Read the headlines. You could barely get a ticket for the opening weekend of “Peter Rabbit 2” in the United Kingdom if you tried. “Fast & Furious 9” sailed past $45m on its opening weekend in China and provided IMAX with a record breaking opening weekend in the United Arab Emirates. The more you looked, the more good news you found.

But it’s not quite back to normal, nor is it likely to be. A number of significant changes have taken place during the past 14 months: some welcome, some less so. Below we take a look at some of the key differences and assess their impact on the business going forward.

Release Windows
We turn to the no-longer-elephant-in-the-room first and foremost, as it is the most significant change to the industry’s operating model since the onset of digital.

Way back in March 2020 Universal Pictures dropped the bombshell that “Trolls World Tour” was going to bypass theatrical entirely and head straight to premium video-on-demand (PVOD). Prior to this, many blockbusters had shifted to later in the year and so this caught exhibition by surprise (a not so private spat between Universal and AMCs CEO’s Jeff Shell and Adam Aron ensued). But what it did do, however, is send a very clear message from the studios to exhibition: “we have alternative routes to market”. The pandemic had handed studios a trump card, and Universal subsequently played it to their advantage. Shell and Aron buried the hatchet and agreed on a new deal: a reduced window of as little as 17 days. Universal had cleverly removed the threat of a zero day window, and convinced cinemas that 17 days was therefore a good deal. (Note this deal was later revised wherein if a film opens to more than USD $50 million, the window is ‘extended’ to 30 days).

Disney has taken a more flexible approach to its windows operating a three pronged model: bypassing theatrical entirely in most markets (“Hamilton,” “Mulan” and “Soul”); day and date (“Cruella,” “Black Widow”); and a 45 day window (“Free Guy,” “Shang-Chi” and the “Legend of the Ten Rings”). This also is a clever little tactic – in Disney’s model, the theatrical window still exists. Yet nothing is entirely off the table – and the “compromise” here, or the middle ground, is day and date.

Paramount Pictures and Sony Pictures have changed their theatrical policy the least, with more traditional, (albeit potentially reduced) windows still in existence. Paramount has highlighted that some titles (“Top Gun: Maverick” being one) will utilise a 45-day model before heading to Paramount+, but others will adhere to 75 days. Sony, without their own in-house streaming platform, appear to be adhering to the longer timeframe before their titles air on Netflix in the Pay 1 window, and Disney+ in Pay 2 after their theatrical run, although you’d likely expect some negotiation on the length of the theatrical window going forward for specific titles.

Warner Bros. was the first major Hollywood studio to move to a complete day and date model in December 2020, although the company was very clear at the time (and have reiterated since) that this is for one year only, and for the domestic market, in response to the pandemic.

HBO Max Slate – Only for 2021, and only in the United States. (Source: WarnerMedia)

WarnerMedia has consistently demonstrated their commitment to theatrical releases over and above all others this past year and it is also fair to say that the announcement ruffled a few feathers amongst their talent: either a more traditional exclusive theatrical window does indeed beckon in 2022 or a future at a more “talent friendly” studio such as Paramount may become rather appealing to filmmakers. Recently WarnerMedia CEO Jason Kilar went on record to reconfirm their first run theatrical debut for big movies in 2022, so it looks like the former.

With studios having made their positions on windows very clear, the question turned to whether exhibitors still want to play their content. So far, the answer appears to be yes. All of the major chains worldwide including AMC/Odeon, Hoyts, Cineworld/Regal, Vue, Cinepolis, Event Cinemas and Vox have embraced the day and date release of “Cruella.” It is fair to assume that conversations may have taken place behind the scenes regarding commercial terms, however details of such conversations would not be made public.

AMC was the first major circuit to publicly announce they would be playing films on reduced windows from Universal, and Cinemark inked a deal in May 2021 with all major studios. Whether the deals being struck are on an individual film basis or an overarching slate deal, long-awaited, practical conversations are now taking place between both parties, after many years of little deviation from a now-outdated practice.

The Content
With a lack of blockbusters on the horizon, the summer and autumn of 2020 handed a unique opportunity for smaller and independent titles to have their chance to shine. Notable successes were posted by titles such as “Father There is Only One: 2” (Spain), “Another Round” (Denmark), “Unhinged” and “After We Collided” (UK and United States), “Train to Busan” (Korea). Local language productions reigned supreme at the box office in Europe and Asia, and smaller independent distributors supported cinemas through the time of crisis.

While exhibitors learned they could make a decent go of it with local productions, cinemas in most territories ultimately needed the support of the studios whose larger titles draw in audiences, especially those unwilling to take the chance on a smaller title and with health concerns still very much in the forefront of minds.

Fast forward to May 2021, and with a strong vaccination programme in the US and key European markets such as the UK, the release calendar looks markedly different and so do the box office results; both blockbusters and audiences have returned.

Not counting China’s “The Eight Hundred” at USD $472 million, “Godzilla vs. Kong” has posted the strongest box office result of the pandemic era bringing in USD $430 million globally, with key territories left to open. This beats last summer’s “Tenet” (USD $362 million to date). “Fast & Furious 9” has scored record breaking IMAX results and has amassed USD $250 million to date in Asia (mainly driven by China) and the Middle East only. With the domestic market and Europe yet to release, could “F9” be the first USD $1 billion post-pandemic release?

“A Quiet Place Part II” made a lot of noise at the box office upon its release. (Source: Paramount)

“A Quiet Place Part II” smashed domestic pandemic era records with a domestic opening weekend of USD $57 million. In-line with pre-pandemic expectations but released during the height of social distancing capacity restrictions, the sequel stands a very good chance of equalling the global box office of the original (USD $335 million), particularly due to the late addition of the picture to China’s schedules (the territory added USD $35 million to the original’s total) and the volume of territories yet to release. The UK pulled in an impressive USD $5 million for the movie on its opening weekend (plus previews) and China’s USD $28 million in the same timeframe means it currently sits on over USD $125 million only days into its run.

In the UK, family audiences have embraced “Peter Rabbit 2” wholeheartedly, with the pic accumulating USD $15 million in its first two weeks of release. Whilst there is still a long way to go to reach the final tally of the original (USD $54 million in the UK & Ireland), signs are encouraging as social distancing has resulted in many sold out shows with many families having to book for the future.

The interesting case study will be the final tally for Disney’s simultaneous theatrical and Disney+ release of “Cruella.” Released into markets that are clearly demonstrating an appetite for the big screen, the impact of Disney+ might be, for the first time, clearly visible. A lackluster opening week in the UK considering the holiday (USD $4.5 million) may be partially explained by families booking ahead to secure a spot for “Peter Rabbit 2” rather than taking a chance on a different title, although the domestic figures are little better. This is far from a disaster for the title however. Deadline estimates the picture as having taken a combined USD $40 million in revenue over the opening weekend in both theatrical and Disney+ revenue (686,000 households viewed film, 39% fewer than “Mulan” but that didn’t have a simultaneous theatrical release). And as they rightly point out, Disney does not need to share a cut of Disney+ revenue with exhibitors.

The Survivors
Given the severity of the impact COVID has had on the cinema sector, it is remarkable that there haven’t been more high profile casualties, especially considering several major multiplex operators headed into the pandemic carrying unprecedented levels of debt.

Credit should therefore be given to management and staff; whether re-negotiating financial covenants at a senior level or learning new ways of operating the business in a COVID-safe environment, everyone had a part to play to safeguard their businesses’ future. Landlords have had to be flexible, local governments have had to provide financial support schemes, banks have had to lend and audiences have had to vote with their feet to keep their local cinemas alive. Despite the magnitude of the situation, confidence in the sector and belief in its rapid recovery has remained strong – a situation now thankfully playing out at the box office.

That’s not to say that every cinema survived. CMX Cinemas in the US was an early casualty in March 2020. Arclight Cinemas and Pacific Theatres closed their doors in April 2021, including iconic venues such as the Cinerama Dome in Hollywood, which originally opened in 1963. The Arclight Hollywood was one of the highest grossing venues in the country, which illustrates just how crippling overheads can be in this business.

Dine-in chain Alamo Drafthouse also filed for Chapter 11 bankruptcy this past March and was forced to close three of its theaters permanently. In a plot twist worthy of a Hollywood movie however, by late May it had completed a sale which lifted it out of bankruptcy, and announced plans for a further five new locations.

It wasn’t only the larger chains that were affected. Independent cinemas the world over have also been forced to permanently close, although many were able to narrowly avoid that fate by conducting crowd-funding initiatives to supplement any official recovery support that they were able to access.

AMC – It’s what all the cool kids are into.

Throughout the pandemic both AMC and Cineworld/Regal, the worlds’ biggest operators, had several close calls with bankruptcy but secured their futures with last minute refinancing deals. AMC’s major shareholder, Dalian Wanda Group, effectively cashed out in May by selling all but 10,000 of their shares for USD $426 million, adding to the USD $220 million it had raised the month prior. Bizarrely, the availability of shares to “regular” investors transformed AMC shares into a what has come to be known a as meme stock, and thanks to Reddit (and an offer of free popcorn to investors), this sent the price of AMC shares soaring – twice – in a way completely unrelated to business fundamentals and performance. AMC intends to cash in on the frenzy and ironically, to potentially acquire sites such as the Cinerama Dome.

The Future
There is one thing that is abundantly clear about this business, which is that change is the only constant. It is change, however, underpinned by an enduring set of values, relationships and practices which have fundamentally existed for over 100 years. The industry is resilient and has fought off many threats, and it is those threats which allow for adaptation and growth. Those players who do adapt and grow live to fight another day, whereas those who refuse to embrace innovation (or run a commercially unsustainable business) do not. But even the end is not the end in some cases.

What is particularly exciting about Summer 2021 is that this feels like the cinema industry is on the edge of something huge. The past 15 months have forced the industry to examine the relationships that we have with the customer, and audiences have missed the big screen. The opportunity is there for the taking; refine the offer, invest in the best product you can afford, communicate with your patrons. It isn’t difficult and is the very least the customer should expect from cinemas.

It’s time to use this period of rebuilding to consolidate what the exhibition sector has already learnt, and to truly understand what audiences want going forward. If cinemas can survive COVID and come back this strongly, they can survive anything.

Claire Beswick
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