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In a World Without Movie Theaters …

Those cheering the demise of theatrical should consider the consequences of a full move to streaming.
October 16, 2020
In a World Without Movie Theaters …
View of a closed AMC movie theater near Time Square on October 12, 2020 in New York City. - The Broadway League, a trade organisation representing producers and theater owners, announced that performances in New York City will be suspended through May 30, 2021 due to the coronavirus outbreak. (Photo by Angela Weiss / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)

(Bulwark+ members can listen to an exclusive discussion of this topic between James Emanuel Shapiro and Culture Editor Sonny Bunch here. Sign up today!)

There’s a great deal of concern about the state of the exhibition industry given the impact of COVID-19 on attendance figures and release schedules. Prominent filmmakers and the exhibition’s business lobbying group, the National Association of Theatre Owners (NATO), are appealing to lawmakers directly and are asking for financial assistance, citing the potential loss of 69 percent of small and mid-sized exhibitors and two-thirds of the industry’s jobs.

Compounding worries is news that Disney, with a 2019 market share of almost 40 percent of the theatrical business, is restructuring their content focus and putting their streaming platform Disney+ first. When announcing this, they referred to theatrical as a “legacy distribution business.” It’s undeniable now that COVID has accelerated the growing shift from consumer watching movies in theaters to watching movies at home. A future without theaters is an increasing possibility.

This worst-case scenario is unlikely: I firmly believe that audiences will return to theaters once they’re convinced of the activity’s safety. However, the word—“legacy”—used by Disney’s new head of Media and Entertainment Distribution, Kareem Daniel, is striking. Disney, the biggest generator of theatrical dollars in the world and the owner of the two largest domestic franchises (Marvel and Star Wars), views the theatrical business as something that has been superseded. For our purposes, let’s just consider how the world of movies will change if theaters vanish altogether.

It’s important to understand the basic economics of how movies are fully exploited, at least prior to the lockdown in March, to understand how the disappearance of theatrical dollars will impact the world of film economics. Box office dollars are a major source of revenue, of course, but they also drove and defined all other revenue streams as well. The better a movie does at the box office, the better it does on iTunes and Amazon, in Walmart and Target, etc. License deals for broadcast (like HBO or Netflix) were based on a percentage of the theatrical box office. Once you take away theatrical, you are taking away the driver of the film’s overall performance and it can’t be replaced by VOD or streaming.

Here are five major results that I think will happen if the world’s movie theaters vanish.

1) Studio movie budgets—including MCU features and Star Wars movies—will be cut in half.

The days of the $200-million-plus budget blockbusters will be over. 2020 digital releases like Trolls: World Tour and Scoob did more digital revenue than usual thanks to their higher-than-usual price points, but not enough to replace the total pie of theatrical and other transactional revenue streams. Even if studios shift the millions of dollars they are spending on marketing the theatrical release to digital, and even if studios keep a higher percentage of VOD sales than they do box office sales, they are still making less money. The costs of making even the biggest and most profitable movies will come down. Films made from preexisting intellectual property (comic books, the Fast and Furious world, etc.) will still be the biggest demand titles, but they will look decidedly cheaper.

The superhero team up movies like Avengers—which are consistently the most popular movies—won’t be impossible, but they will take more creative talent deals: no more $50 million paydays for Robert Downey Jr. The scale of adventures for heroes like James Bond—that used to showcase many exotic locations—will be noticeably smaller. It could also influence storytelling, as studios could have fewer days to develop scripts and shoot films.

2) Digital platforms like iTunes will be flooded with ultra-low budget Direct to Video content.

Given that digital platforms don’t have inventory constraints, they can carry every movie under the sun. However, they give the best placement to movies that receive a theatrical release for two reasons. First, these films have a higher demand because their huge marketing spends guarantee awareness. Second, consumers believe theatrical releases guarantees a certain level of quality. This is why you see the words “In Theaters” on these platforms even for movies you’ve never heard of.

Without even a limited theatrical release, part of a film’s marketing spend will likely go to pay for the best placement on digital platforms, and anything short of millions in guarantees will relegate a picture to the “bargain bin” of the digital world. While some factors can still lead to higher demand with bargain bin placement (e.g., big stars like Bruce Willis or good word of mouth), finding success in this space is almost random: like winning the lottery. Even straight-to-VOD movies with decent budgets—say $3M to $10M—will share digital placement with micro budget films. As it stands, a studio can spend $100,000 releasing a movie theatrically to get strong digital placement. If theaters go away, that placement will be reserved for movies with marketing spends of tens of millions.

This will lead to decently budgeted movies that used to be worthy of small theatrical releases lowering their production budgets while micro-budget producers create a lot more content knowing that they’ll need lots of movies out there to have a better chance at hitting the bargain bin jackpot.

3) The arthouse movie world will collapse.

You could argue that February—when Parasite won best picture at the Academy Awards—was the pinnacle for the arthouse business.Without its hugely successful theatrical release, I don’t think that win would have happened. Its limited release broke records and signaled to educated audiences that the movie was something special. How do you replace that without theaters? A big festival premiere could help and a movie like Parasite will always have its pick of the best fests, but it is not a replacement for building awareness and excitement with general audiences. Netflix will likely own the awards circuit if theaters go away.

But this doesn’t apply just to the movies gunning for awards. It applies to the entire arthouse industry, which relies on platforming: These movies start in a handful in the best theaters in New York City and Los Angeles before they grow in release, expanding from a couple screens to 1,000-plus if all goes well. Success on a few screens suggests they have higher demand and better quality than other non-studio movies, attracting audiences around the country as they grow. Without the proving ground of platforming, most movies like this are likely getting the same digital placement as micro budget DTV fare and success again comes down to winning the bargain bin jackpot.

Additionally, the best arthouse distributors like NEON, A24, Searchlight, Magnolia, Bleecker Street, IFC, and Focus are dependent on their broadcast or streaming deals to make their models work and these deals pay out based on their box office. Without a theatrical release, those deals likely go away. Companies like NEON and Magnolia might be forced to pivot to more mainstream content like thrillers or action films with big stars. (This is the space DTV companies like Saban and Vertical occupy right now.) I could see A24 pivoting entirely to television since they’ve had success in that space already. Disney and Comcast will likely shutter Searchlight and Focus.

4) Streaming platforms will be extremely competitive for content and subscribers.

One potential bright spot for big-name studios and filmmakers, at least in the short term, is outsized spending by streamers trying to capture films that will grab eyeballs. Between legacy platforms like Netflix, Amazon Prime, and Hulu and new competition from services like Disney+, Peacock, HBOMax, and Paramount, the competition for subscriber dollars is fierce: there are only so many subs to be sold.

Movies that are expected to be popular and content creators with strong track records will be the subject of immense bidding wars between streamers: consider Amazon’s reported expenditure of $125M on Coming 2 America. I expect several streamers to end up consolidating to keep up with Disney. Disney had no idea COVID was around the corner when they bought Fox, so imagine what Fox would have gone for in the middle of this pandemic? Whatever huge number you can consider, it’s probably even more than that.

5) Film journalism will look very different.

I mentioned earlier that one aspect of how movies might be able to get recognized in a saturated digital platform is audience ratings. Netflix is a good example of this as their recommendation engine drives viewers. We’ve seen the Rotten Tomatoes audience score, which is more reliable now that the service has added a tab to track verified viewers, growing in awareness recently. This reflects a growing trust between consumers and how other consumers are evaluating product rather than being driven by critics.

The film journalism world is already consolidating and shrinking. While non-theatrical marketing campaigns will still use PR to drive awareness, the promotion that takes place on the purchasing platform itself—a verified fresh badge; reviews on Amazon—is more valuable as it quickly answers consumers’ basic questions: “What’s new?” and “What’s good?” Still, I’ve asked this hypothetical question about journalism without theaters to a number of members currently in this industry and there is real optimism around a film journalism environment dedicated to niche content like horror/genre or African/Hispanic/Asian/Native American programming, so I don’t think this industry will go completely away.

It’s easy for film twitter to get excited when a highly anticipated movie shifts to a home release: We’re all desperate for good movies. But there are ramifications to bypassing theatrical altogether that need to be considered. If you love movies—from big budget blockbusters to smarter arthouse fare—you better hope theaters survive. Because the future of film without them is a little dimmer, a little duller, and a lot harder to navigate for filmmakers and movie lovers alike.

 James Emanuel Shapiro is a 20-year vetearn of the entertainment industry. He’s been the COO of NEON and Drafthouse Films and most recently started the analytics department at the Alamo Drafthouse. His gravestone will read “Made the only other offer to buy PARANORMAL ACTIVITY.”

James Emanuel Shapiro

 James Emanuel Shapiro (@JamesEmShapiro) is a 20-year veteran of the entertainment industry. He's been the COO of NEON and Drafthouse Films and most recently started the analytics department at the Alamo Drafthouse. His gravestone will read "Made the only other offer to buy PARANORMAL ACTIVITY.”