The Shifting Sands Of Movie Exhibition

I believe in movies, I believe in the joy, entertainment and the distraction they can provide audiences. What I do not believe in is the industry that has built up around this once fabulous industry. I believe strongly that chickens are about to come home to roost and there is a massive re-positioning now taking place and it is going to get worse before it gets better.

AMC announced a pretty significant loss this week for the second quarter of 2017, this comes at a time when AMC and similar chains are seeing their shares suffer. AMC Entertainment’s shares fell 27 percent to $15.18 last Wednesday, hitting an all-time low of $15.15 . The chain said it would report a net loss in the April-June period of between $174.5 million and $178.5 million, compared to profit of $24 million during the same period a year ago. Its largest competitor, Regal Entertainment Group also took a dive and were down Wednesday, dipping about 5 percent to $18.19, and Cinemark saw its shares fall 5 percent to $37.82. IMAX shares dipped even further, dropping 8 percent to $20.27.

A lot of value went out the door, but few were surprised since many though that AMC since its purchase by Wanda Dailan was living a fantasy.

Analysts report that Americans’ adoption of streaming services like Netflix and Hulu are partially to blame for the decline in trips to the movies. AMC attributes at least part of the dip in shares to a pretty stinky summer film lineup. The reduction of the theatrical windows are training consumer to not go the the theatre.

Speaking of streaming …the House That The Mouse Built Disney and Netflix are parting ways.

The orignal deal between Disney and Netflix concludes at the end of 2018. After 2018 Disney and Pixar content will migrate over to a brand sparking new to a Disney-branded streaming service. This is not surprising since Warners, Sony and Lionsgate have services already deployed. The Disney announcement makes it clear that the studios want direct access to the home markets and they want a direct relationship to the consumer.

Netflix, never one to stand still is producing a bunch of animated programming shows, and have just acquired comic book publisher Millarworld, which opens the door for lots more original content, both on the streaming service and in the comic book industry. It is obvious that Netflix is going to counter program against the Marvel and DC universe pictures. What is scary for the theatres is this programming is going to go directly to the streaming service and avoid theatres all together. The studios in turn will be tempted to go toe to toe against this upstart and may consider releasing on their own platform as opposed to the studios.

When Disney offered its content on Netflix, you only had one subscription to juggle or maybe two with Amazon. Now you probably also subscribe to Amazon Prime, possibly Hulu, HBO Now, or even traditional TV cropping up on various streaming platform. You may start to subscribe to the services such as the CBS streaming offering. Meanwhile Amazon sits patiently and eyes the portal model.

American homes are abandoning cable TV at an astonishing rate, and services like Starz, HBO and Showtime are all available now without a cable package. But it all adds up. Before you know it, you’ll be paying as much or more than you would for traditional TV. In this new cord-cutting economy ever-increasing streaming options, consumers face an increasing cost just to keep up. It’s a situation where competition may drive content and quality.

What is truly disturbing for me , is that for the first time the studios will have a direct link to the consumer, something that they have craved since 1984, when Fox did the Star Wars study on potential direct to home revenue. To refresh you mind Fox did a study on how much they would make if they could avoid theatres and charged home to watch Star Wars directly for $4 per household. The number that was presented go them frothing at the mouth, $114 million dollars. They have been stumbling to that goal ever since.

We will see the theatrical windows diminish. The analysts see the exhibition sector as having reduced economic appeal. The studios will manipulate the sector in order to maximize the income on it’s 10K and 10Q’s…report that have to be filed when you are a public company. They will want more control over product and more control over the revenue sources. The majors will slowly and expertly extricate themselves from dealing with the theatres.

Lets take a look at Paramount, the studio of Top Gun now owned by VIACOM, 9 films to be released in 2018, 5 announced for 2019, 2 announced for 2020. Warners 20 titles for 2018, 11 titles for 2019. A similar story exists with the rest of the major studios

The game is changing and changing rapidly. It is time that theatre change their own path and divorce themselves from the whims of the studios.