The Complicated Future of America’s Cinemas

Movie theater chain AMC recently made headlines for a surprising reason. After several tough years on the public market, the company was getting a new lease on life from a group of stock-enthused Redditors. With the help of new, unexpected cash flow, AMC has been able to edge itself further from bankruptcy

The irony of the situation lies not only in the fact that the stock itself has long been unprofitable, but that this year has been one of the most difficult yet for AMC and the cinema industry. 

Of course, it isn’t just the pandemic that’s hurt the cinema industry. Movie theaters were already barely grasping to life at the start of 2020. In fact, overall cinema attendance has been on the decline since 2001

In the wake of the pandemic, movie theaters have all but been annihilated. The top three publicly traded cinema chains alone saw a loss of $1 billion in Q3 2020. AMC reported a 91% decline in revenue during this period. 

However, as states lighten restrictions for social gatherings, there’s newfound optimism for one of the entertainment industry’s most prominent pandemic victims.

But will an acclimation to streaming and changing distribution timelines provoked by the pandemic spell out the demise of cinemas altogether? Or will the cushy comforts of buttered popcorn and a big-screen movie help the industry overcome newfound challenges?

If the past year has taught us anything, it’s that we can’t predict the future. We can, however, examine the shifts that have taken place thus far and the impact they will have on distribution, content, and cinemas’ chances of survival. 

Set up for a shakeup

To talk about the future of movie theaters, we cannot neglect the impact of streaming. This decline in theater attendance and the concurrent success of streaming creates the perfect storm for an industry shakeup. 

The streaming revolution has given rise to a new adversary: the PVoD release. Studios have long-awaited the day when they could release PVoD content on the same day as theatrical releases. The pandemic is making that dream a reality. The standard three-month window between theatrical and at-home releases is simply no longer optimal in a world where many viewers are becoming accustomed to watching a movie release from the comfort of their own homes instead of in the cinema. 

While this scenario is a dream for studios, it could be a nightmare for theaters. Movie theaters depend on exclusive access to new films for survival. The three-month window prolongs this exclusivity and the revenue that comes with it. Giving at-home viewing channels the same rights or exclusive rights to this content could be devastating for theaters. Furthermore, it could tarnish an already-strained relationship between studios and exhibitors. 

The PVoD revolution

Despite a negative response from their longtime cinema partners, major Hollywood studios are jumping on the PVoD bandwagon, citing the need to innovate and become more flexible as the way people watch new content changes.  

An early sense of this massive shift in film distribution came in December 2020 when Warner Brothers announced that they would release all 17 of their blockbuster films on HBO Max at the same time as they are released in theaters. 

Warner Brothers CEO Ann Sarnoff said about the change: “No one wants films back on the big screen more than we do. We know new content is the lifeblood of theatrical exhibition, but we have to balance this with the reality that most theaters in the US will likely operate at reduced capacity throughout 2021.” 

Though groundbreaking at the time, the Warner Brothers announcement now seems more indicative of an industry-level shift than an isolated event.

Disney, too, is making moves away from the once strictly-binding distribution windows and promotion timelines. In September, they tested the PVoD-release waters themselves with the exclusive release of Mulan as a PVoD offering on their Disney+ streaming platform. With Disney+ subscribers forking up an extra $30 to watch Mulan at home, the digital feature film grossed $33.5 million domestically on opening weekend

What’s more, studios turned streaming platforms are reaping the benefits of not having to pay out theaters in part for these releases. Studios typically split revenues for the sales of ticket prices with exhibitors, but with PVoD releases, they’re able to enjoy a bigger slice of the pie. In the case of Mulan, Disney was able to enjoy 100% of the revenue from the film, making PVoD an even more attractive offering for the multi-billion dollar brand with more than 100 million streaming subscribers

Hot on the heels of this successful PVoD release, Disney CEO Bob Chapek suggested that the days of the three-month theatrical window — for Disney at least — may be numbered. Chapek cited consumer impatience and a push for at-home releases during the pandemic as drivers for this change. He noted that titles would be “just sort of sitting there, gathering dust” during the three-month window. This is instead of, say, accumulating higher viewership and perhaps more revenue in the form of simultaneous PVoD/theatrical or exclusive PVoD releases. 

Considering the top six highest-grossing movies at the box office in 2019 were products of Disney, this could signal even darker times ahead for the cinema industry. 

Death to the multi-million dollar flick

So, the shortening theatrical window undoubtedly impacts studios, distributors, and cinemas. But what does it mean for viewers, beyond increasing the options for viewing newly-released titles? More films being released for the small screen will impact the production and creation of content. This will ultimately alter what we see on our screens. 

Long-time entertainment industry journalist Thomas K. Arnold discussed the impact of shortening theatrical release windows on content during our recent webinar: “State of the Entertainment Industry.” He explains, “We’re going to see fewer blockbusters. But the ones that are made are going to be more expensive and more dazzling because, to get people to the theaters, you’re going to have to really have that ‘wow’ factor now that everybody is trained to watching movies at home.” 

Webinar Recording: State of the Entertainment Industry with Thomas K. Arnold and Sheri Conn

Webinar Recording: State of the Entertainment Industry

The entertainment industry is in a state of constant change. Prepare for the future with insights from industry veterans Thomas K. Arnold and Sheri Conn.

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While theatrical releases will be built to dazzle, the increase in streaming releases suited for the small screen will mean movies with fewer special effects and lower production values. This, as Arnold explains, is a result of two major factors: “Number one, the economic realities of streaming don’t justify a bunch of $200 million movies if you’re going to watch everything for $10 or $15 a month on a streaming service. And number two, you don’t need to have these big spectacles if you’ve got most of the movies getting the majority of their plays on the small screen.”  

Something like a silver lining

While the increase in streaming players and shortened theatrical windows pose a serious threat to movie theaters, there’s evidence that they may see a resurgence of sorts post-pandemic. According to our research, 38% of Americans say that they are likely or extremely likely to go to a theater in 2021. With more than one-third of Americans eager to return, cinemas can expect their attendance to rise as cities lift restrictions. 

Streaming’s time in the limelight is far from over, but the curtain hasn’t closed on the big screen. Streaming a movie and going to the theater to see one provide completely different experiences. This is far from an either-or situation. Streaming platforms, studios, viewers, and cinemas can benefit from the innovation that will undoubtedly emerge from this dark time. 

As America rises from the pandemic, viewers will undoubtedly return to the comforts of the old world. With theaters reopening just this week in Los Angeles — the US capital of movies — time will soon tell whether viewers are ready to embrace them once again. The industry will undoubtedly continue to innovate, breaking cycles and disrupting customs as it does. That said, there will always be a space for big-screen films with sensational special effects, glitzy red carpet premiers, and overpriced, oversized popcorn in American culture. 

Invoke helps major entertainment industry players keep their finger on the pulse of viewer behavior with research that delivers meaningful change. Care to join us? Request a demo to see just what our revolutionary platform can do for you.

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