Movie theaters after COVID
Part 3: Movie theaters are not going anywhere
In the final column in his three-part series, Center director Jeffrey Cole explores what the future will bring for movie theaters
By Jeffrey Cole
Paramount, Sony, and Universal were fully committed to returning to the old model of exclusive releases in the movie theater followed by a shorter window (60 days?) before making the movies available for in-home viewing. Warner’s Tenet experience convinced it that fans were not ready to return to the theater. It made all their films available on HBO Max and the theater the same day. This was a strategy born of frustration: the studio was uncertain what to do with a library of unreleased films and attempted to recover from the mishandled unveiling of its own streaming service.
Disney, the studio that controlled 40% of domestic box office in 2019 and had the most to lose if theaters were greatly diminished or disappeared, was the most motivated to explore how films could be best released in the post-COVID world.
As audience fears about returning to movie theaters waned (even with the Delta Variant), Disney wanted to see if the time was right to release the old way: only in movie theaters. Although testing could have gone on for years with lots of different films, stars, and options to generate data, a return to an exclusive theatrical window would give it enough evidence to make fundamental distribution decisions.
Shang-Chi and the Legend of the Ten Rings was the 25th Marvel Film, and featured one of the least well-known characters of all the stories made into films. Unlike Avengers, Thor, Captain America, or Black Widow, it had no A-List stars headlining the film. On September 3, it was released only in movie theaters across the U.S.
Over the Labor Day holiday weekend, Shang-Chi grossed $94 million.
In five days, Shang-Chi reached $100 million—the fastest film to do so since Star Wars: The Rise of Skywalker opened in the “old days” before COVID.
The critical question was: what would happen in its second week? Could it command leadership at the box office, or would it drop 67% or more as Black Widow did? The answer would determine if theaters could stand alone in distribution without support from streaming.
The answer was good news for theater owners.
In its second weekend, Shang-Chi remained strong as the number one film at the box office. No disastrous drop. And it continued as the biggest film in the country through its third and fourth weekend. These were more than respectable numbers, these were pre-COVID numbers. And streaming was nowhere in the picture. (Although Shang-Chi will eventually end up on Disney+ after a 45-day window, it is unclear if there will be a premium charge.)
Shang-Chi was what movie theaters were waiting for. It showed the old release pattern was not dead and theaters would survive and thrive.
Disney called an end to most of the experimenting when, less than 10 days after Shang-Chi debuted, it announced that all its remaining films would be available only in movie theaters with a minimum 45-day window before streaming.
This was a resounding victory for movie theaters. All the experimenting led the studios back to the old system, although with shorter windows. Had the theater owners had enough confidence in their strong position, and allowed some experimenting before COVID, they might have gotten to this place sooner.
It was also a validation of MGM’s decision to hold the James Bond film, No Time to Die, and Paramount’s decision to hold Top Gun: Maverick for close to two years.
Everything has come full circle. Eighteen months of experimenting have produced some answers.
Here’s what have we learned:
1) Movie theaters and streaming are both here to stay.
Viewing on streaming grew 74% during COVID. Movie theater attendance dropped to near-zero. If anything could have killed movie theaters, the pandemic would have been it. Our COVID Reset Project shows that even as people leave their homes, streaming use does not decline, but we want to be back in movie theaters (and concert venues, sports arenas, and theme parks).
Shang-Chi and the Legend of the Ten Rings was the 25th Marvel Film, and featured one of the least well-known characters of all the stories made into films. Unlike Avengers, Thor, Captain America, or Black Widow, it had no A-List stars headlining the film. On September 3, it was released only in movie theaters across the U.S. Over the Labor Day holiday weekend, Shang-Chi grossed $94 million. In five days, Shang-Chi reached $100 million—the fastest film to do so since Star Wars: The Rise of Skywalker opened in the “old days” before COVID.
The first dollar anyone spends on entertainment is spent on Netflix. The film industry and television have co-existed and prospered for generations. But beginning in 1948 and continuing today, the film business has lost audience every year to television. That will continue with streaming. Both will flourish, although the number of people who go to a film may slowly continue to decline.
2) There is a difference between streaming content and theatrical content
The audience knows the difference between a streaming film and a theatrical film. Of course, streaming already dominates mini-series and has seriously eroded comedy and drama from broadcast and cable television. The battle between streaming and the movie theater is over two-hour stories. Most of the A-List talent in streaming appear in six to 10-part mini-series. (Perhaps it is time to retire the adjective “mini” since it is mini compared to network multi-part shows and those barely exist any more). A streaming movie is generally a less familiar title with fewer major stars than a theatrical movie. It feels smaller. Streaming movies are convenient and less expensive, but they aren’t majestic.
3) You can’t have a billion-dollar film without a movie theater
Billion-dollar movies are what drive people to movie theaters. They have the biggest screens, stars, budgets, and effects. Movies do look majestic on the big screen.
We learned during COVID that $20 or $30 surcharges can generate $100 million in revenue. But that revenue will never approach $1 billion. That would require 33 million households (or almost 1/3 of the country) to pay for the film. As streaming charges reach the rest of the world, they are likely to pay far less than $30 in the largest countries. To get to a billion or more internationally (Avengers: Endgame got to $2.9 billion) you need massive marketing budgets and the sense of urgency and spectacle. If everything went to streaming, there would no longer be billion-dollar films, and along with that, $200 million budgets would disappear.
No Time to Die will be released on October 8. It will have the buzz, the stars, and the marketing budget (as well as the soundtrack) that will draw millions into theaters. The odds are overwhelming it will be a billion-dollar film. MGM had the opportunity to offload the film to streamers during COVID and avoid carrying interest charges but declined. They knew they had a billion-dollar (or more) film and could only see that kind of revenue in a theater. It’s a good bet they are right.
4) Big franchises need movie theaters
The big theater successes in COVID were all sequels of one type or another. A Quiet Place 2, F9 and Godzilla were all part of franchises. Black Widow and Shang-Chi were sequels in the sense they came from the familiar Marvel Cinematic Universe. All the experimenting clearly shows that it was familiar sequels that brought people back to theaters. The evidence is compelling that you need movie theaters to create and sustain franchises.
Film franchises don’t get built on streaming.
5) Day and date doesn’t work. It needs to be all one or the other
Black Widow showed that Premiere Video on Demand (PVOD) cannibalizes box office and does not replace it with equal revenue. When a film is available in theaters and at home at the exact same time, it feels less important to see it right away. As COVID disappears, if films continue to be released Day and Date, fans will develop the habit of inviting as many as 20 friends over for a PVOD premiere (maybe even charging them). Streaming and theaters are different propositions. They are not meant to and cannot compete against each other. It needs to be all one or the other. And it will be based on the content.
6) Windows will never again be 90 days; they will be variable depending on the film and its reception at the box office
Five years ago, films were released in the theater and appeared on cable or streaming 90-days later. Those days are gone. Studios thought they wanted no windows, but that hasn’t worked out. If the window is too short (or nothing), fans will simply wait to stream. Streaming needs to take advantage of the awareness that comes from theater box office and marketing. The goal posts have been moved to 45 days and are very likely to stay there for a while.
7) Profit participation agreements must be redrawn
Scarlett Johansson made an important point. The contracts of all major stars are written to get a percentage of massive box office grosses. The studios took advantage of the time lag between when the contracts were written and the emergence of a new way to release films. The big stars who could earn as much as $75 million for a hugely successful film were shut out of streaming revenue.
Warner paid untold millions to the stars and creators of the films it moved onto HBO Max to keep them happy (happier) and prevent them from suing.
Disney may have to do the same. This time lag will never happen again. New contracts are being written with streaming in mind. What happened to actors and creative talent’s profit participation during COVID will end up as an historical footnote.
Never has so much been learned so fast. The entire business backbone of motion picture content has been reset by technology and a pandemic. Looking at the importance of movie theaters, we are back where we started. But it’s not that simple. New methods and options have been introduced.
The new status quo of Autumn 2021 is unlikely to last very long.
Jeffrey Cole is the founder and director of The Center for the Digital Future at USC Annenberg.
See all columns from the center.
September 30, 2021