Movies and cinemas on Corona Business Insights

Intro From the University of Sydney Business School, this is Sydney Business Insights.

Sandra And this is Corona Business Insights. I'm Sandra Peter.

Kai And I'm Kai Riemer.

Sandra And we're back unpacking the impact of COVID-19 on business, the economy, industry, government, workers and society, and looking at the effects of the pandemic.

Kai And this podcast is part of a larger initiative by the University of Sydney Business School.

Sandra You can find our COVID business impact dashboard online at sbi.sydney.edu.au/coronavirus.

Kai And today we talk about the impact of COVID-19 on the movie industry and cinemas.

Sandra Since the start of the pandemic, the movie industry has been hit quite hard. Most of the movie production has been halted around the world. Cinemas are closed, movie releases have been cancelled or moved online to streaming services. And the whole industry is facing a rather uncertain future.

Kai Let's remind ourselves that the movie industry is big business. The industry collectively had hoped to break through the 50 billion dollar mark by the end of 2020, which of course, will not happen at this stage, and big blockbuster film productions cost well over 100 million dollars, some of them a multiple of that, and not only in production costs, but also in marketing costs. And so when the pandemic hit, a number of big blockbuster films were right at the end of their marketing cycle, ready to be released. And the US summer of course, the period between May and August, is where the industry globally makes about 40% of its revenue. So having the pandemic rage during this time, is quite devastating for the industry, and necessitates to come up with new solutions, creative ways of dealing with this.

Sandra And this is hitting not only the big production companies, the well-known film studios, but it's also been decimating the independent filmmakers, who now no longer have the festivals like Sundance that they used to rely on to showcase their movies and then to be picked up to be shown in cinemas or to be picked up by companies like Netflix. So the entire industry is really running out of options.

Kai Yeah, for independent filmmakers, it's really devastating because those films do not rely on an established value chain, they cannot rely on the support of big studios. So they're really reliant on doing well with the judges in the festivals. And the festivals, while they have tried to move online, they don't really quite work.

Sandra And then the film festivals are proclaiming the death of indie cinema as we know it. And this is spurred on not only by the fact that streaming giants such as Netflix, Amazon, and Apple sometimes only let the movie makers keep 0.5% of their rights, and this is likely to diminish even further now that this is their only option, but also because of the recent reduction in the theatrical window, the period that movies will play exclusively in the cinemas before they are shown on streaming services.

Kai So this is one of the creative solutions that the industry is looking at. So traditionally, the so-called release window is about 70 to 90 days, around two to three months, which it takes from a movie being released in cinemas to it then appearing on DVD or streaming services. And during the pandemic, we have seen this window being challenged, collapse, or in some instances movies have gone straight to release on streaming. Recently, Tom Hanks's Greyhound has been released straight on Apple TV, much to the dismay of Tom Hanks who had hoped for big success at the box office. So we can see that from an artistic point of view this is only the second-best solution, but sometimes the only way to recoup some of the exorbitant costs that these movies have incurred in production.

Sandra So recently, AMC Theatre, Universal have reached the agreement to shorten this window down to just 17 days. That means that films will only be in theatres for three weekends before they go to places like iTunes or Amazon or other on demand services. And this has been spurred on by the success that some movies have had with being really straight to streaming services. And the example here is "Trolls - The World Tour" had also skipped theatres to go straight to an online release but has made nearly 100 million dollars in only three weeks of digital sales, bringing in more revenue for university than the original "Trolls" entire domestic theatrical intake.

Kai And so "Trolls" is not your super blockbuster in terms of production costs, but this needs to be looked at in the context of a full pipeline. Some movies have been delayed now as far as 2023 in the future, and there's a whole number of films that are waiting for their release. There's the new James Bond which has been postponed to next year. There's "Top Gun: Maverick", "Wonder Woman 1984", "Black Widow", there's a whole number of movies. And so some studios are getting nervous, they're trying new things. So most recently, Disney has announced that its new blockbuster "Mulan" I remember Mulan being an animated movie that was originally released decades ago. This is the live-action version, which was announced with much fanfare back in March, and supposedly cost about 300 million US to produce. Some Disney has now announced that this will come out on Disney Plus for $30 US, as a one-off purchase on top of the subscription fee that people will have to pay for the Disney Plus service. So this has been discussed with much controversy, but it shows that studios are quite desperate to try out anything to recoup those costs.

Sandra But interestingly collapsing the release window is not the only strategy that studios are trying. Warner Bros looks like it's attempting the complete opposite strategy. Whilst they have kept postponing the release date of "TENET", one of the most awaited movies of 2020 originally set to come out in July, then in August now it looks like it's coming out in early September, is actually expected to be in cinemas for a lot longer. Warner Brothers says that it will stay in cinemas for a period far beyond the norm, which incidentally is also one of the few good news stories for cinema theatres.

Kai So "TENET" is probably the most awaited movie release in the last few decades because it's the first blockbuster that's set to be released after cinemas worldwide are starting to open up. So in the UK about 50% of cinemas are now open, in much of Europe cinemas are reopening, the US is reopening cinemas in 40 plus states and of course in Australia cinema so open but so far, cinema hasn't been great business because not a lot of fresh produce has been released to the market. And it's been a game of chicken really, because without cinemas open, none of the studios want to put their big blockbusters to market, and equally, cinemas are hesitant to open everything up without anything to screen. And so "TENET" by Christopher Nolan has now crystallised to be the big test case to be released in a few weeks’ time, which will then serve as the test case to see if people worldwide are actually ready to go back into cinemas in numbers large enough to make it actually worthwhile.

Sandra Let's remember in places like Sydney only 25% of seats can be filled to allow for social distancing. Fewer sessions are allowed because of extra cleaning in between sessions. Also discounted tickets are offered so people would return to see all movies that have been released in the theatres.

Kai Which explains why movies like "TENET" are looking at screening for much longer in the cinemas than the normal release window.

Sandra And recent data from UK Gower Street Analytics says that overall, about 48% of the global box office has reopened last weekend. That figure is slightly up from about 40% the week before, but a significant leap from just a month earlier when it stood at about 28%. That is, before Chinese cinemas reopened.

Kai While on the upside, in Sydney at least you can now rent an entire movie theatre for $500 for your friends and family to make it a private experience. So again, there's some innovative ideas to gain some extra business. And so it's not quite clear where the industry is headed. So on the one hand, forecasts show that people might be keen to get out and go watch releases such as tennis. So there's some who argue that it might actually become the biggest ever Labor Day release in the US because it has no competition if it comes out as the only movie that weekend. On the other hand, there is still the requirements for social distancing and the anxiety of people to spend significant time indoors with a group of strangers.

Sandra And indeed to spend significant money. Even though as we said before about 48% of venues have reopened across Europe and Asia, most of the US and South America and Africa remained closed, which means that overall, the global revenues for the movie industries have been only $6.4 billion, that is 74% or almost $20 billion less than worldwide cinemas would have normally done by this point. In places like China, the revenue from ticket sales was down to about 109 million yuan, that's about 15 million US dollars. And that's down 92% from about a year ago. And it's not only the money from ticket sales, it's also the fact that there's no popcorn, no food, no drinks served at movie theatres. There's also fewer sessions to allow for cleaning. And we have to note also that many of the international markets are now flocking to homegrown successes, or new-to-cinema adaptations. This has been the case in China with movies like "The Mermaid" and "The Wandering Earth" and "Operation Red Sea" or "Detective Chinatown", at the expense of international blockbusters or Hollywood blockbusters, as we normally would have seen during the summer.

Kai So while indie movies in much of the Western world are suffering, places like China, which have largely opened up are rediscovering some of their local productions. But if you wonder where all this money has gone in the meantime, look no further than streaming services of course. And while we might look into this in a separate episode, it is worth noting that Disney, for example has surpassed 60 million subscribers in the second quarter of 2020, a goal that was forecast to be reached by 2024. And also Netflix has added more than 25 million subscribers in the first six months of this year. Again, an unprecedented growth largely due to people staying at home.

Sandra And this is where we want to leave it today. We're going to come back to streaming in another episode.

Kai We want to thank our colleague, Mike Seymour who has provided some of these insights and you can find more of this in the shownotes of course.

Sandra This has been Corona Business Insights.

Kai Thanks for listening.

Sandra Thanks for listening

Outro From the University of Sydney Business School, this is Sydney Business Insights, the podcast that explores the future of business.