Blitzkrieg Bop

I like allegory. I think it is one of the best ways to drive home a point and provide almost instant understanding of a situation or issues. One of the things I find is that often this industry backs away from conflict with the studios. They initiate talks, they are often told things that they want to hear. In the end though I think the power of the studios places them in a mindset of appeasement rather that conflict, fearing what may erupt if the studios are pushed too hard.

Here comes the allegory part.

The policy of appeasement that was put into place in Britain during 1930s included allowing Hitler to expand German territory consequence. Most closely associated with British Prime Minister Neville Chamberlain’s “Peace In Our Time” approach, this policy by Britain is now widely discredited as a policy of weakness. In the 30’s though, many thought it to be sound thinking.

Appeasement was popular for several reasons. The British were desperate to avoid the slaughter of another world war. Britain was stretched administering it’s colonies in an increasingly modern world (see VPF’s). Its main ally, France, was weakened by internal politics. The support of the British Commonwealth was not assured and many in Britain thought Germany got a raw deal at the end of World War 1. At the time appeasement with Hitler made a modicum of sense.

But the commitment to non-aggression was, as we know one sided. Despite Hitler’s promises of ‘no more territorial demands in Europe’, Hitler more or less took advantage of appeasement. In March 1939, he violated the Munich Agreement by occupying the rest of Czechoslovakia. Six months later, in September 1939, Germany invaded Poland and the world was at war.

As exhibitors we have, for the last little while collectively have put forward a policy of appeasement. I think as a group and as an industry we feel we have no choice but to bend to the will of the studios. I think it is becoming very clear that this way of thinking is not going to pan out well in the very near future. I am certainly not comparing the studio with the evil that was Nazi Germany but I am stating that a policy of appeasement will lead to a bad end.

For the first time Disney’s last quarter earnings report included streaming earnings. This is a firm indication that in the future Disney would be resting it’s fortunes and future on streaming. This division brought in $918 million in revenue in the first quarter and lost $136 million due to investments in ESPN+ and Disney+, partially offset by “increases in subscription and advertising revenue” at Hulu.

Streaming had contributed to just 6% of Disney’s overall revenue in the quarter.

Disney CEO made a simple statement in both the earnings call and in a email to all Disney employees that laid out where the Mouses’s priority laid. Iger said in plain words that streaming “remains our number one priority.”

Disney is prepared to take a $150 million dollar haircut in order to premiere Captain Marvel and taking Netflix out of its release strategy. Iger calls this loss of $150 million an investment in Disney’s future. “It’s almost the equivalent of deploying capital to build out our theme parks,” Iger said. “This is a bet on the future of this business.”

The logic follows that if it is willing to lose the Netflix money and choke off the Netflix subscribers who are Disney fans until they capitulate and move over to the Disney+ service can in reality theatrical exhibition be far behind. I think that soon and very soon Disney will contemplate direct to consumer release patterns if the number warrant. With Disney now controlling pretty close to 50% of the theatrical market, this is a very dangerous position to be in.

Iger also stated that “In terms of making decisions about where content goes, since we are betting on this direct-to-consumer business long-term we obviously need to fuel it with intellectual property,”

Mark my words Disney is now a Netflix killer. Within Disney there seems to be a singular focus on diminishing the influence of that upstart Netflix. They will choke it off from content, they will release their streaming service at a much lower rate than Netflix and they also plan to start acquiring other product other than their own to flesh out their offerings. They will do anything and everything in order to grab the deepest possible market share.

I do believe firmly that they are willing to sacrifice the theatrical market in order to win the game against Netflix.

I am not being negative, I believe my assessment is accurate and based on precedent. What I want to see is that the various thought leaders in this industry to get together and see if strategies can be development to counter this. The time is now and it’s time to get to work.

I want to congratulate the newly elected board of the Independent Cinema Alliance. I truly hope you embrace issues like those contained in this article and that you do not embrace the policy of appeasement. If you do not confront the studios head on, relevance will become an issue.

One of the things I suggest is necessary is the establishment of a think tank to focus on the question whats does a 21st Century Movie Theater look like and how can we strategize to both protect and evolve this business. A think tank which should include the thinking of both Jeff Benson and Vincenzo Guzzo and others.