Widespread optimism a few months ago that domestic box office revenues could easily return to pre-crisis levels has given way to a new sense of pragmatism about the movie business.
This year’s total will far exceed last year’s $4.5 billion in revenue, but it will certainly be billions less than 2019’s $11.4 billion in revenue, and all bets are off for 2023. Given the uncertainty, Wall Street analysts and media executives are sharpening their pencils and revisiting books. Their general consensus is that there is still money to be made – especially on the studio side – but the old methods are no longer enough.
At a Bank of America investor conference this week, Sony Pictures Entertainment CEO Tony Vinciquerra was asked if he thought box office returns would eventually return to pre-pandemic levels. “I hope so,” he said. — I believe it will be close. He noted that despite internal struggles, “the rest of the world is still growing in cinema. There are big problems in China, big problems in Russia and Ukraine, obviously,” but places like Korea, Indonesia and India “still feel very good.”
Vinciquerra added that the Covid production shutdown a few months ago led to the current drought of viable new games, and a strong plan for the fourth quarter and 2023 will provide much-needed energy. “Next summer is going to be absolutely crazy,” he predicted. “We’re going back to pre-pandemic where you have a lot of movies in the market, a lot of marketing to promote those movies, and you’re going to see significant, significant box office returns.”
Studio owners are adjusting their operations to reflect the new landscape. Even before the fight against Covid kicked off in 2020, the rise of streaming was changing release window strategies and profit-sharing formulas. The complexity is likely to only increase. And that’s just on the distribution side – for exhibitors, this week’s bankruptcy filing by parent company Regal Cineworld highlights the difficulty of resurrecting a business that has long been dependent on a Hollywood product.
Jason Armstrong, executive vice president, deputy chief financial officer and treasurer of Comcast, described the film business at the BofA conference as “generally less risky” than before the pandemic. “There are more options and more places to distribute content,” he explained. Control of both Universal Pictures and streaming service Peacock presents the company with “an incredible opportunity.”
The theater showcase is “important to us,” he stressed. “Maybe it’s not important in the context of the historical 90 days and the traditional theatrical performance, but it’s incredibly important to us.” Jurassic World: Dominion as well as Minions: Rise of Gru Summer releases, which have collectively grossed over $2.1 billion worldwide, are valuable streaming assets thanks to Universal’s updated approach to windows. New film releases are sent to Peacock as the first stop after cinemas. After four months of streaming exclusively there, they transition to Netflix and Prime Video before returning to Peacock as library titles. Armstrong said that over time in such a dynamic environment, “you can adapt. If there’s a better selling window, you get an opportunity all the time.”
Exhibitors billed the summer box office as a breakthrough after the brutality of Covid, which forced cinemas in many markets to close for nearly a year. AMC Entertainment CEO Adam Aron in a recent profile on Bloomberg Businessweek, marveled at the intensity of the period. “You know what they don’t teach at Harvard Business School?” he said. “The Case of Zero Income”. The Omicron option in late 2021/early 2022 caused additional headaches.
In a recent note to clients, MKM Partners analyst Eric Handler said the lack of new releases has led to a “slower-than-expected” recovery in theaters. Handler said that in addition to lowering his third and fourth quarter revenue estimates, he has “questions about the trajectory of growth for 2023,” which he predicts will lead to an 8% year-over-year increase in revenue to about 8.3 billion dollars.
“On a positive note,” he wrote, “moviegoers have shown a willingness to return to theaters when they have the opportunity to see the product, as evidenced by July’s revenue surpassing $1 billion for the first time since the start of the pandemic. However, business hit a wall in August and trends should remain dull until the second half of October.”
Eric Wald, analyst at B. Riley, who has long been a show bull despite pandemic wages, sees “an attractive setup for exhibitors heading to
to stronger film lists” in the fourth quarter and 2023. In a recent note to clients, Wald highlights “positive traffic and spending per visitor over the last 6 to 12 months.”
Sony Vinciquerra was looking to generate revenue from the licensing of select films. A multi-year streaming deal with Netflix launched in 2021 includes a co-production component and a first look at direct streaming games. Unlike its big-studio counterparts, Sony doesn’t own a general-purpose streaming entertainment service, although it does have two lucrative niche platforms in Crunchyroll and PureFlix.
Yet despite continued interest in filmmaking, Sony’s releases have dwindled to half of the roughly two dozen titles it used to show in theaters each year. Last year he won gold with Spiderman: No Way Home ($1.9 billion and is considered globally as the third biggest release ever) and has had less impressive (albeit solid) performances recently with Where crayfish sing as well as High-speed train. However, obtaining these results is becoming increasingly complex, says Vinciquerra.
“The biggest challenge in cinema right now,” said the executive director, “is judging the “level of theatricality” of a given project. The bar for what works in theaters “has risen sharply, and it is clear that this line is completely subjective. You have to trust the people who collect these films to make this decision, and it’s getting more and more risky. … You are taking a big risk with these movies now and you just don’t know what will come of it because audiences are fickle to get them out of the house to get them away from their SVOD services they are focused on spending money for trips to theaters, parks, popcorn and everything connected with it. So, you have to have a really good product, and that threshold is higher than ever.”