THE SHOW MUST GO ON-LINE

In mid April of 2020, I spoke with a representative of the Sony Pictures Worldwide Acquisitions Department for his take on how the pandemic had upended Hollywood thus far. Although he was ambiguous in positing any definitive directive the industry might employ moving forward, he did cryptically declare, "I can tell you that the longer this whole thing goes on, the weirder it is going to get." Exactly two weeks later, AMC theater corporation declared war on Universal Pictures.

In a breakdown of where Hollywood now stands (both domestically and internationally), we have decided to document the Summer of 2020, and then revisit the industry after coming full circle, to assess how it has responded to a crisis unlike any in the hundred and twenty five year history of cinema.

ARTICLE 2 (IN A SERIES OF 4) -- HOLLYWOOD RE-IMAGINED

The great pandemic of 2020 made land fall in America on January 20, 2020, forcing a historic decline in business activity and consumer confidence across all sectors of commerce. It has been nothing less than catastrophic. The reduction in the population's use of gas, day care services, health care and just about everything else aside from food and toilet paper, forced the GPD to drop by 9.5%.

Amongst the numerous industries tragically knocked off course by the coronavirus pandemic, the entertainment world has not been spared. And although the big five (Walt Disney Studios, Warner Brothers, Universal Pictures, Sony/Columbia Pictures, and Paramount Pictures) are megalith corporations with plenty of commodity to leverage against optional bank loans, there are other divisions of the Hollywood ecosystem that will not be as lucky; namely the movie theater corporations.

It is bad enough that the multiplex as we know it was already suffering from a sharp decline in audience attendance, no thanks to the advent of streaming. (See our article on the demise of the modern cinema.) But to then add pandemic insult to injury may forever alter the movie theatre experience.

When it comes to the locale multiplex, most folks do not realize that there are only ten major theatre chains through which Hollywood distributes its product. These ten chains do not, of course, include dollar theatres, art house cinemas, Mom and Pop drive in movie theatre, etc. Of the big ten, AMC Theatres and the Regal Entertainment Group lead the pack with the lion's share of the screening facilities found in North American.

But without appealing, "audience-drawing" content playing on theatre screens, these companies cannot and will not survive. Heck, with content the theatres are barely getting by as it is. Movie theaters make the majority of their income from the commerce of concessions. The early share of ticket sales (revenues from the first several weeks of screening a film) contractually end up in the studio coffers long before the theatre owners begin to notice any revenue benefits. And none of the theaters receive any percentage of merchandising income, which often helps to significantly pad a film's ROI.

With many theaters still shuddered, plummeting revenues due to capacity restrictions, and an extremely slow re-opening process underway, the question now becomes, 'who will' or 'who even can' survive the devastating impact that the pandemic has unleashed on the commerce of the entertainment industry.

In early Spring the word "bankruptcy "was tossed around regarding both AMC Theatres and the Regal Entertainment Group (owned by parent company Cineworld). Such claims shook investors and sent company stock quotes spinning, which didn't help to make the situation any better.

By early June AMC managed a stop gap by raising nearly $500 million in cash and furloughing 25,000 workers, allowing them to avoid filing for Chapter 11. But it was touch and go for several weeks as they encountered the need to engage in rent negotiations with landlords nationwide. Those negotiations were hampered by the looming question: how long before there is a return to "normal"? And even if a reliable COViD-19 vaccine becomes widely available within the next year, how likely are audiences to return to public spaces, in close proximity and in environments that rely on re-circulated air.

Roughly three months into the pandemic, Standard & Poor’s reported that AMC did not posses "sufficient sources of liquidity to cover its expected negative cash flows past mid-summer". All hope was suddenly re-focused towards “re-opening” day for theaters, which for AMC was pushed from late July to mid August to eventually late August before all was said and done. Now that "re-opening" has come and gone, there is still talk of rescue measures being taken, such as liquidating certain theatre locations in an effort to downsize, a move entirely dependent on how flexible landlords can be.

Regal Cinemas, which was the very first chain to close all of its locations (starting on March 20, 2020), is fairing no better. The leasing agreements that Regal Cinemas has with each individual property does not allow for a one-fix-all scenario. And even though all the chains have re-opened in some capacity, the future is looking more and more grim as a potential second wave of COViD-19 is predicted to hit in the Fall of 2020. Loop Capital analyst Alan Gould recently reported to the New York Post that he foresees a quarter of theater locations in the US closing before all is said and done.

So far, none of the theater organizations are being forced to close up shop… just yet. But things may take a turn for the worse as more studios continue to push back release dates, leaving the theater chains without the necessary content to attract audiences back to the cinema.

This “pushing back the release date” trend began in early March 2020 when the latest James Bond installment, No Time to Die, was deferred to a November 2020 opening. As the realities of the pandemic became clearer, other studios followed suite, pushing all major tent pole releases (including the likes of the Black Widow, Fast and Furious 9, Maverick: Top Gun, and Wonder Woman 1984 to name a few), to the Fall of 2020 or in some cases to the Winter, Spring or Summer of 2021. Other films such as Disney's blockbuster Mulan, which was initially postponed indefinitely, eventually opted for a straight to streaming release on Disney+ (with a whopping $29.99 premier access fee!). We may start to see similar tactics in the coming months as the pandemic evolves, making it difficult for theatres to secure theatrical release dates with any degree of confidence. (See the full list of rescheduled and upended release dates here.)

In fact, Disney recently announced that the Avatar sequels and Star Wars franchise will have their production schedules pushed back by one full year, thus moving their respective release dates back, as well.

Other mid-tier films such as Russell Crowe's Unhinged found their way to overseas markets (some of which were surprisingly open by late July), before opting for a theatrical release in the States in late August where it garnered a meager $10 million ($9,426,569, to be exact). Other higher profile films, such as the Tom Hank's movie Greyhound, shifted directly to a VOD format on AppleTV. The decision by some studios to switch release platforms angered theatre owners who began screaming “breach of contract!”. In response, Christopher Nolan declared solidarity with the theater corporations, announcing that his new film Tenet would indeed be released theatrically and not resort to any streaming option, no matter how long it took to arrive in theaters. And he was true to his word when Tenet open theatrically on September 3, 2020. But what will Tenet’s domestic box office numbers look like, and will it be enough to appease investors trying to assess the best business model moving forward?

The most concerning question now becomes, can theaters truly survive in this climate? All summer long the industry hung on by a thread as re-openings were announced, and then pushed back over and over again. It began when Cinemark announced a June 19th return to business. But that date soon became July 17th before doors started officially opening nationwide, and only in territories that allowed for indoor businesses to resume operation.

AMC had high hopes of reopening all summer long, only to face delay after delay, which finally pushed their official reopening date to August 20, 2020. To entice audiences (and celebrate 100 years of service), ticket prices were slashed to 15 cents on opening day (the cost of a ticket when the chain first opened in 1920). But with limited seating capacities, show times spread further apart and the cost of new additional COViD health protocols, how long can this reality be economically sustained?

To answer these mounting questions, perhaps we need to reflect on history. What can the 1918 pandemic teach us about the return of the theater industry? Will the drive-in movie theatre model now seeing a resurgence become a force to be reckoned with? What are the health conscious protocols, which are now being adopted by the theatre chains, going to cost, in the long run? Would a return to lockdown be a final nail in the coffin? And more importantly, as the theatrical release structure is upended, can theater chains survive if release windows shrink and simultaneous "day and date" streaming becomes the norm?

Our next blog article will be focusing on these questions, and more, as we explore different perspectives on the future of the theatre industry as reflected in the mirror of the 2020 pandemic.

Until next time, stay masked and healthy.

This article wraps up our two article reflection series on the impact of the pandemic, to both production and exposition. In the Spring and Summer of 2021 we shall follow up on this series with response articles, posted roughly one year after the fact to assess progress made within the industry as we dig our way of the Great Pandemic of 2020.