20 April 2022
The news that Netflix lost subscribers in the first quarter of this year for the first time in a decade no doubt caused some Schadenfreude amongst cinema operators, scarred as they were by pandemic-induced headlines proclaiming the demise of cinema at the altar of streaming. The news that Netflix lost 200,000 global subscribers over the last quarter, rather than gain an estimated 2.5 million, also led to a mass pile on of every media, film and cultural commentator, not to mention analysts, bloggers, tweeters, hot-take havers and general opinion dispensers; so we would be remiss not to offer our USD $0.02’s take on it and illustrate how exhibitors and Netflix might both benefit from becoming frenemies.
The explanations for the decline were laid out in a note to investors stating, “Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds.” So password sharing, and competition from the likes of HBO Max and Disney+ has brought the lockdown boom to an abrupt end. It didn’t help either that Netflix lost 700,000 subscribers in one go when the company suspended its service in Russia.
What it means was summarised in brutal candor by La la land’s new favourite trade-publication-with-an-attitude The Ankler. “As was widely predicted, this marks the official end of the tech utopian period of Netflix growth, after which it will be subject to earthbound laws of finance, profits and loses — just like a company! — rather than magical fairy dust valuations.” It should be noted that while GlobalData predicts that Netflix US market share will drop from 25% to 16% by 2026, it is not cause for celebration by its bigger rivals, with Disney+ cancellation rates having tripled this year compared to Q4 2021. Nor is it a pure case of smaller niche services (inserting a shameless self-promotion plug for Cultpix) mopping up any lost Netflix subscribers.
This scenario has led to Netflix being pushed into having to consider creating an advertising-supported tier, rather than it being part of a well-thought out long term strategy. But if Netflix is prepared to consider the previously unthinkable, it should reconsider how it can form partnerships with the cinema industry to build a stable and profitable future for its still considerable content output. It is unlikely that Netflix will ever embrace a 45-day window or even a 30-day window for all of its titles, but a degree of flexibility that deviates from its standard two-week window for feature films that arrive in cinemas prior to dropping on Netflix is possible. In France it can now show films on its platform 15 months after a theatrical release, so why not settle on something between 15 months and 2 weeks for the rest of the world?
“Misery acquaints a man with strange bedfellows,” as Trinculo said in Shakespear’s “The Tempest,” and there are few worse miseries for a CEO then watching your share price collapse by double digits overnight. Netflix might yet make good complimentary bedfellows with cinema operators, now that the outline of the new post-pandemic media landscape is starting to come into focus.
By the way, you won’t want to miss the CJ Cinema Summit on 21 April. Pete Ludé, the CTO of Mission Rock Digital will give us a detailed presentation on the latest advances in LED direct view cinema displays and an update on market adoption. Mark Collins of HARMAN will explain the latest solutions sound engineers have come up with to overcome LED’s audio challenges.
Patrick von Sychowski
, Editor, Celluloid Junkie
China’s containment of the Omicron variant of COVID continues to depress the local cinema market, with only 44.43% of all cinemas operating as of 19 April, 5,337 locations, a decrease of 177 from the previous day. There is fear that the traditional 1 May holiday will not do enough to boost the cinema market, which risks seeing China lose its standing as the world’s largest box office territory this year.
Analysts estimate that the steady release of local titles will not be secure until cinema operating rates return above 70%. With extended lockdowns in Shanghai and other cities, it is difficult to estimate when this is likely, given that China is sticking with its “Zero COVID” strategy. Several local films are still scheduled for release this May holiday, including comedy, drama and romance titles such as “I Really Hate Long-distance Relationships,” “Keep You Safe,” “Brother, Hello” and “Prosecutors,” as well as animated titles “Awakening of Mini World,” “Bad League” and “I Am Tyrannosaurus Rex.”
Currently all top five films on release are Hollywood titles, including “Fantastic Beasts: the Secrets of Dumbledore,” “Uncharted” and “Hotel Transylvania 4.” Yet they have recorded some of the lowest grosses since cinemas first closed and reopened in 2020. It is also worth noting that the number of May releases this year are significantly fewer than a year ago, when 15 local titles were released. Some of the films might yet move, as was the case with several Chinese titles just prior to the Qingming festival in March. “In the end, the total box office of the 2022 Qingming period was CNY 120 million (USD $18.7 million), which was the lowest box office value of the Qingming period in the past ten years (except 2020).” One animated title has already announced a postponement from its original 1 May slot.
Meanwhile China’s largest cinema operator Wanda was revealed to have applied for trademark to milk tea Wancha, as it tries to branch out from its core business. It could be a defensive move as overall box office in the territory was down 23% in the first quarter of 2022 compared to the same period of the previous year.
Concessions & Dining
The consumption of concessions and drinks in cinema auditoriums in South Korea is being allowed as part of an easing of COVID restriction measures. However, eating and drinking will not be permitted in Hong Kong’s movie theatres when they reopen. Even as countries across Asia try to get over the pandemic, the example of these two countries illustrate very different approaches and pace.
Korea lifted restrictions on audience numbers on Monday 18 April and will do away with restrictions on eating and drinking in cinemas on Monday 25 April. Similar restrictions were also abolished for all indoor cultural facilities, sport stadiums and places of worship. However, the requirement to wear face coverings before and after consumption remains in place. With many Korean films having postponed their release date, it is expected that many titles will now be brought forward and re-dated, with a hoped-for increase in ticket sales.
Meanwhile cinemas are set to reopen in Hong Kong after more than 100 days of closures. However, concessions will not be allowed by the three largest cinema chains: Multiplex Cinema (MCL), Broadway Circuit and Golden Harvest. In the future “film-goers and cinema staff must have had three vaccine doses in order for food and drinks to be served.” Other significant restrictions also remain in place: “The Multiplex and Golden Harvest chains also announced that all movie fans must wear masks and have temperatures checked upon arrival. Use of the QR check-in code is also mandatory along with vaccine pass requirements.”
China’s Special Administrative Region (SAR) has embraced the same “Zero COVID” approach as the rest of China, where around half of all cinema screens are shut at the moment, as the country grapples with the Omicron variant. Korea has meanwhile adopted the policy of ‘living with Covid’ and keeping only some restrictions. The Korean cinema industry has recently been hit hard by falling attendance and the news that restrictions will be eased have been broadly welcomed.
Sanctions against Russia in retaliation for its war against Ukraine are having a negative impact on cinemas, which face a shortage of films, equipment and spare parts. With Russia having become the largest cinema territory in Europe in terms of admissions in the last few years, this is the toughest blow yet to a market that was practically wiped out after the fall of Communism and which was previously predicted to become a billion dollar cinema market this year.
Russia had earlier seen the strongest post-pandemic recovery of any territory in Europe, with Comscore recording a 63% increase year-on-year in 2021 with 159.3 million admissions. With Hollywood films accounting for around 70% of total box office, the announcement by all Hollywood studios that they would suspend the release of new films came as a major blow. Russian cinemas have tried to overcome this by re-releasing Russian films, as well as screening new films from South Korea, Latin America and India. Domestic films have done well in recent years, offering a glimmer of a hope for the Russian cinema sector.
However, Russian cinemas also face a squeeze on new equipment, such as projectors, as well as spares and components. One of the most pressing shortages is of lamps for projectors, with Russia not having a significant uptake of laser projectors. As well as the Russian Federation, the sanctions also cover Belarus, as well as having an impact on Central Asian territories such as Kazakhstan, which have traditionally had Hollywood films distributed to them via Moscow. Cinemas in those countries appear to have found ways of importing and also dubbing films in ways that avoid going via Russia.
“There is a worldwide crisis related to lack of components for many products,” a vendor for a western cinema equipment company in Russia is quoted as saying. “When the war started the situation got even worse because many logistics channels were blocked. Lead times are very long now, unfortunately.” It thus seems that the latest crisis for Russian cinema, which had previously faced challenges ranging from currency devaluation to tragic cinema fires, could be its most challenging yet. However, it is still nothing compared to the fate of cinemas in neighbouring Ukraine that are being shelled by Russian forces.
EVO Entertainment’s CEO Mitchell “Mitch” Roberts adopted a bold approach for his cinemas in coming out of the pandemic. But it is an attitude that has stood him well before, as the fourth generation cinema operator demonstrates how cinemas continue to evolve and attract audiences. In 2020 he was one of the first cinema operators in the United States to reopen, even though he could only show older films like “Grease” and “The Goonies”, or rent out cinemas for video gaming.
While his grandfather Lee Roy Mitchell, founded Cinemark, Roberts went into business with a loan from Capital One bank. His expansion was financed by Bryan Sheffield, a 43-year-old third-generation oilman, who embraced Robert’s vision of the “crowd business” keeping people going to the cinema, even in the age of streaming. “We live in an experience economy. People crave experiences. They want to get together,’’ Roberts is quoted as saying. He has a laser-like customer focus:
EVO uses its movies as bait to sell patrons higher-margin items. Roberts forks over 55% of box office receipts to the studios but keeps nearly all revenue from bowling, arcade games, popcorn, beer and margaritas, with gross profit margins as high as 90%. To balance his own inexperience, Roberts stocked EVO’s executive team with cinema and restaurant veterans
This has meant that EVO Entertainment’s best locations generate over USD $25 per head with operating margins of 20%, which is above the US cinema industry average. EVO has seen a significant growth in its business on the back of the success of titles like “Spider-Man: No Way Home” and is on the lookout for new location in “boonburbs” in Texas, Florida and Colorado. EVO currently has 16 cinemas with a total of 148 screens and 108 bowling lanes, as well as an expected USD $125 million in sales this year.
Celluloid Junkie is the leading online resource dedicated to the global film and cinema business. The Marquee is our newsletter focused on motion picture exhibition; keeping industry professionals informed of important news, the latest trends and insightful analysis