The cracks are forming. A giant tectonic shift is about to be inflicted on the world of the independent theater operator. This week the slow tide of change and market disruption begin to slowly boil. The undercurrents and the anticipated rumors of change are becoming deafening. It is the beginning of some dramatic changes and some rapid disruption in the way movies are distributed. This fall will be the beginning of the end of movie going as we have come to know it.

This week Movie Pass began its headlong stumble into oblivion. Helios and Matheson, the parent company of the popular movie subscription service, said that it had a service outage on Thursday since it couldn’t afford to pay for movie tickets. The company borrowed $5 million in cash Friday to pay its merchant and fulfillment processors, according to a Stock Exchange regulatory filing.

Helios and Matheson acted to make its fulfillment processors whole, since that contractor temporarily refused to process payments for MoviePass until it’s bill was paid. An explosion of comments exploded across social media Thursday that they couldn’t use their MoviePass accounts to purchase movie tickets at theaters. In a quote from a company spokesman “We ask for your understanding and vocal support during this time, as we continue to fundamentally change an industry that hasn’t evolved much in years,” It was simple…the payment processor was nervous and deeply concerned it was not going to get paid. It was a drastic and very public step to take, but my guess that MoviePass was warned prior to this action.

Stock in the MoviePass’s parent Helios and Matheson, meanwhile, sunk on Friday and went from nearly $7 at stock market open to a horrible $2. The company approved a reverse stock split earlier this week to boost the price from 8 cents to $21 to keep it from falling off the NASDAQ stock exchange. If valued at its pre-split amount, Friday’s closing price would be equivalent to less than a penny.

It is most likely that MoviePass will soon face de-listing on the NASDAQ exchange as investors lose even more confidence in the movie subscription service that since its founding has been riddled with both speculation and suspicion. It never made sense, but it did reveal both opportunities and impasses within the theatrical market place. It real screamed out that consumers still like going to the movies, there is just a problem with movie goings perception of value within this market. This perception is creating a huge impediment for true market growth.

Like other companies which base their future on the whims and vagaries of the stock market, this week Netflix faced the cruel whip of its masters. On Monday afternoon, Netflix Inc. posted weaker-than-expected second-quarter subscriber numbers and revenue, sending its stock into a sharp dive during after-hours trading. In its letter to its wide base of shareholders, Netflix posted the blame on the strengthening of the U.S. dollar for its weaker than expected international revenue. In Spring, the company predicted a $65 million or higher impact on international revenue year over the fiscal year, but the impact turned out to be smaller due to the strengthening of the dollar against many international currencies in which Netflix traded. With is upcoming 13-16 billion dollar spend on acquisitions Wall Street will be watching nervously as Netflix charts its future into an unknown and sometime choppy future. Any perceived weakness could bring forth a significant market impact.
To widen its marketing reach and maybe in a move to mimic older movie campaign strategies, this week Netflix said it was willing to spend $300 million to acquire Los Angeles-based Regency Outdoor Advertising. Regency is a billboard company operating out of Los Angeles and Orange County. By owning all the billboard property on busy Sunset Strip, Netflix at the very least visually flexing its dominance over the movie and television industry. The billboards seen daily by actors, writers and directors is primarily a corporate ego play and is designed solely to shape perceptions of a shifting industry. Minimal revenue will be derived from this investment and this decision by Netflix just gives testament to the rampaging corporate egos at play.

My next point is exceedingly significant and really gives testimony to the true intent of the studios.
Netflix has just managed to rob the theatrical market of a major release. …and Warner Brothers is the prime accomplice in the caper. In the costliest acquisition of a finished movie by Netflix, Warner Bros has handed the worldwide rights to Mowgli, the CGI live action film directed by Andy Serkis. Mowgli is based on the Jungle Book stories by British author. The anticipated October 19 theatrical release by Warner Bros has gone away, and now the movies will be released globally on Netflix next year in 2019. Netflix has proclaimed that it wants to release an enhanced 3D version to select screens as well. Frankly I think any self-respecting theater should say no, but I suspect conversations have already begun with the Majors.

In acquiring worldwide rights from Warner Bros, Netflix is finalizing its movement and strategy in becoming the first window of release for major studio releases. Disney’s The Jungle Book directed by Jon Favreau (who is presently preppy the live action Star Wars series for the new Disney Streaming Service) grossed $966 million worldwide. Any theater who does not see a pattern forming and an increasing erosion of theatrical market is suffering from a deep market myopia. It is time folks to keep your eyes open, things are changing rapidly.

The exhibition industry has to begin speaking in one voices and stress in no uncertain terms that movie going is a key part of American culture. It is time for the independent theaters owners to start speaking in a strong voice and to no longer speak through NATO. NATO which in my estimation does great work in logistics, education and government relations, as an organization is not best suited to speak on the behalf of the independent theater. A new voice must arise which speaks of market changes, of market education and the need for a fair playing field. By the way the time for this voice to speak up is now.

What is interesting is that in regard to the outcome of what will happen, there is no foregone conclusion. Personally, I think that deep damage will be inflicted by the studios to the theaters, I believe that in the end a collective push back will occur, and the American public will realize what is at stake and will come to the defense of the independent theater. I do think the public holds some animosity toward the large chains and my not be so generous in their support.

With the future of some of the regional NATO chapters in doubt, I am hoping that one of the regional organizations like TOMA and California NATO, immediately come to mind, and consider re-shaping itself into a National voice for independents. The time is now to act. What is interesting in that due to these weekly articles I have had numerous outreaches from many independents and movie producers who have desire to shape an independent vision for theatrical exhibition.

Have a great week.