Everyone has a Boss. Ours is Hollywood — Part II

The pandemic impact on movies theaters isn’t pretty, and from a business standpoint, it could spell the end to many cinemas across America.

In a previous article, I wrote about the state of the film industry, as I’ve experienced it as a manager at a family-owned movie theater, as viewed through the lens of the COVID-19 pandemic. It isn’t pretty, and from a business standpoint, it could spell the end to many cinemas across America. Hollywood is a house of cards trying to shelter an industry in a hurricane.

An announcement was just made on October 4th that 543 Regal Cinemas in the US and 128 Cineworld locations in the UK will close for an undetermined period of time in the coming week due to the postponement (its third) of the latest Bond film, No Time to Die. The film had been slated to release in April 2020, then moved to two different dates in November of 2020, and now moved into April of 2021. This is one year after its initially planned release. Without this ‘tentpole’ film in the schedule for November, and the world’s second largest theater chain closed, there is a strong chance the few remaining tentpole films (Disney/Pixar’s Soul, Warner Brother’s Wonder Woman 1984, and Dune) will also move into 2021 — leaving an empty shell of the 2020 film industry behind them.

It is highly unlikely Hollywood will try to fill the void without Regal’s 7,000+ screens in the US, so what does this mean for the small theater companies? A recent industry poll of movie cinema owners by the National Association of Theater Owners (NATO) found that the vast majority of independent and mid-sized companies will be forced to file for bankruptcy, or simply go out of business for good. Over half of all their jobs will be lost. The majority of the businesses reported over 75% in losses in the months since the pandemic hit in February or March, and some have already gone out of business. Small cinema companies did nothing to bring these unfortunate events upon themselves, and did nothing to deserve the loss of their livelihoods. Nobody does.

Before this bombshell dropped, I read an article this past week from slashfilm.com, which focused on the financial status of Regal Cinemas (Regal is the nation’s second largest cinema chain, AMC is the largest). Cinemaworld Group is the corporate parent of Regal Cinemas, and it recently informed its investors that the group took a loss of $1.58B (that’s Billion dollars) over the past six months.

Let’s put that into perspective for a moment. In 2019, the global movie industry grossed $42.2B. The United States and Canada made up $11.4B of the global total. Countries ranked in the top five leading box office markets in the world (including the United Kingdom and South Korea, but excluding China) contributed less than two billion dollars each to the worldwide figure. So in perspective, the losses Regal Cinema experienced in the past six months would be close to the equivalent of eliminating five countries worth of revenue for the entire previous year. Staggering losses indeed.

How does this translate to from a big corporate theater chain down to small companies and independent theaters? Some of the big cinema businesses will be shored-up by government funds like the Payroll Protection Plan or investors (Regal and AMC have thousands of screens across the country which constitute a vast majority of all moviegoers in the nation). Consumer spending will return to auto markets, appliances, housing, travel, etc., but it is worth mentioning that the United States movie cinema industry is made up of a few big cinema corporations, plus many, many business owners who operate single locations, non-profit theaters, and small regional theaters which consist of less than a dozen locations per company. These businesses cannot leverage big investor buy-ins like Regal and AMC. These businesses are dependant on Hollywood to supply films in order to bring customers in the doors. Without product to put on screen, moviegoers stay home to stream content online via Netflix, Hulu, Amazon, Apple TV, etc. Without moviegoers, small cinemas have no revenue and no safety net. The pandemic has limited the ability of these smaller cinema businesses to get full capacity of moviegoers in their auditoriums multiple times per day. This business model is breaking down in the tenth month of the pandemic.

Many movie cinemas chose to (read ‘forced to’) shutter their doors for six months or longer this year, depending on where they are located. Each state has different guidelines for reopening businesses affected by the pandemic, and the nation's largest markets for moviegoers and the film industry as a whole, California and New York, have been some of the hardest hit and longest closed economies thus far. Some states have allowed movie theaters to reopen, but with limits on how much business they can conduct while following important safety measures. This translated into fewer moviegoers in fewer theaters across the country on any given day, week or month this year. With a fractured distribution model, and the need to recoup their time and money spent on producing movies, the big film companies are faced with a decision: do they release a movie globally, nation by nation, or via Video On Demand (VOD), or a combination of these?

The traditional model for theatrical release is based on a movie premiering in movie theaters first, either globally, or in a specific country or countries, in an orderly roll-out. A window of theatrical release is determined by the film company whereby a given movie will only be available in theaters for an exclusive amount of time before opening up distribution to include VOD. This model provided movie cinema owners to capture the consumers who wish to primarily experience movies in theaters. Afterwards, the market is watered down by the group of consumers who also wish to view those movies in theaters, and those who wait for VOD, thus not spending their money at a cinema. This business model is a mutually parasitic relationship where both theater and film company could benefit. The pandemic has created panic by the film companies for their languishing products scheduled for theatrical release in 2020. Without the ability to release films into the theaters, many have chosen to skip ahead to VOD and bypass the cinemas either all together, or release films day-and-date through multiple distribution channels. All of these choices by Hollywood severely hinder an exhibitor’s ability to earn a living. This could spell the end to those smaller, independently owned cinemas without stockholders and access to the deep pockets of equity firms interested in shoring up a safe-bet like Regal and AMC.

If the dismal outlook from Hollywood isn’t enough to stir feelings of dread amongst theater owners, without the moviegoing consumers of the pre-pandemic economy, which is unlikely given rising COVID-19 case numbers and mortality rates and the vacuum left by vanishing movies, a great number of these small businesses will fail, go bankrupt, and vanish for good.