Cinema: Marathon not a Sprint to Recovery

As a guest presenter at the London Film School in early 2024, the opportunity arose to speak to a group of enthusiastic, international MA Film students, and debate the current state of the cinema and film industry. It was an engaging and enlightening discussion, to say the least.

Key topics that fundamentally impact the global film and cinema market were:

1. The fall out of the Hollywood Strikes.

2. Cinema v Streaming (Hollywood v Data and Technology)

3. Reduced Cinema Exclusivity Window

4. A Blockbuster - Tentpole Driven Market

5. Lack of Arthouse / Mid-Market Films

6. The requirement for Local Content in Market

7. Audience Engagement / Frequency Challenges

8. Landlord, Investor and Operator Financial Distress

9. The increased costs to open and operate a cinema day after day.

Never ever before have so many issues of such magnitude been dumped on the global film industry at any single point.

It is no surprise then to witness a whole plethora of actions and reactions within the market place that has moved the cinema market from being the blue-chip investment and anchor tenant that it was in 2019, into a period of volatility and a fight for relevance and survival in many Western markets.

At the same time Emerging Markets in Africa, the Middle East and Asia, with less reliance on Hollywood continue to expand their content and operating bases. Audiences in most emerging markets were never brought up to see Indiana Jones, Star Wars or Mary Poppins; albeit have created their own youth and pop culture far removed from the swinging sixties or Beatlemania!

An area of focus for me is Kazakhstan, bordering on both, Russia and China. Despite the geopolitical challenges Kazakhstan faces, it has emerged as one of the fastest growing digital, culture and media landscapes in the world, with a burgeoning film and cinema ecosystem. The country has become mostly self-reliant for cinematic experiences through a nascent local production market that feeds the state-of-the art cinemas in major Kazakh cities.

Abundant high quality locally relevant content is core to this market’s successful evolution to become one of the world’s fastest growing cinema markets, just as the top 3 global market of Japan also enjoys a concentration of over 60% local content market share.

We live in a contrary and volatile world, where politics and economics are colliding and impacting populations across the world. Collectively we are living in less certain times, which impacts all of us, regardless of where in the world we go to the cinema.

Referencing from my international experience, there are companies within the cinema sector who have the most (the West) that promote their own successes in good times; while denying or delaying failure by not recognising the profound changes taking place now; and seeking lifeline drip-drip-drip-feed support during their challenges (not solely attributed to the pandemic) from the state as well as other stakeholders. Good film news weeks have been limited but also suppressed in the trade and business press by lack of in-cinema merchandising and promotion as well as the bad news generated simultaneously by cinema exhibition, with more of the same inevitable in future.

At the same time, Emerging Market companies are unlikely to ever receive state support, neither do they expect it, hence these companies must build-in robust contingencies to enable them to weather the volatility that they continually face. Emerging Markets don’t have the capacity to print money at will; but bounce back after each adversity at a faster pace, as a result of built in resilience.

In previous recessions the “cinema is recession proof” line would quell any doubters, but Eric Wold - CFA B. Riley Securities - Wall Street doesn’t see it that way nowadays… "This year (2024) will have a tough time measuring up to 2023, even in the always critical fourth quarter. The October-to-December period, which often provides a climactic surge of revenue from holiday moviegoing, could be “relatively weaker” than this year’s strike-hit one. Production schedules and talent windows continue to be in a state of flux, presenting “more downside risk than upside at this point.”

While Phil Clapp, CEO, of exhibitor funded, UK Cinema Exhibitors Association stated that, “Most pre-Covid cinemagoers are now happy to check out movies at their local theatre from time to time, but frequency is the issue. If an average person was going to the cinema six times per year before the pandemic, now they would be going three to four times.”

The cinema market is rocking along the bottom and needs to adjust and move towards a re-boot and onwards to growth, as opposed to being stricken in survival mode. This may not be possible for some, given their balance sheet (lack of capital, credit ratings and cash) challenges and in some instances a lack of vision.

There are exemplary operators and benchmarks who will set the scene for the future development and innovation of the cinema marketplace. Look out for their annual reports or emergence in the coming months and years.

While the Netherlands is a small market by comparison to others across the world, there are lots of positive reasons to look inwards into Dutch market dynamics and ingenuity as well as for others to take note. Bigger isn’t always Better!

Gross Box Office in the Netherlands is back to 97% of pre-pandemic levels, while North America is tracking at 80% and the U.K. at 83%.

Ticket Admissions to the Top 5 Markets in Europe (France, Germany, Italy, Spain and the United Kingdom) are at 75% of 2019 levels while in the Netherlands the recovery number at the end of 2023 is back to 83%.

According to the 2023 The Harris Poll research, 77% of respondents to the survey either strongly (38%) or somewhat (39%) agreed with the statement “In general, I prefer watching movies at home over watching in the theatre.” Just 6% strongly disagreed. Cinema must win back hearts and minds.

Being solely a cinema that only focusses on transactional ticket sales in times of easy and convenient access to streaming services is not working anymore. Brands need to invest in understanding their audience better and think differently about how they can actively engage with their customers, to create more reasons to visit for all age groups.

A 2023 S&P Global Cinema Survey noted that there are, "a variety of reasons why consumers do not attend the cinema. For instance, in France, 59% said that going to the cinema was too expensive. Among Americans who are not movie-goers, the cost of movie theatre tickets (52%) was also a top reason for not attending".

Now more than ever, audiences need cinema to offer something they can’t get at home. This may be the content itself, the social experience, with family, friends or a roomful of like-minded strangers, a chance to disconnect from people or gadgets; or unrivalled technology - the biggest screen, luxury recliner seats with exceptional F&B offers and immersive sound.

Finding the motivating factors for different audiences and titles, when also competing with the entire experience economy, will be key in tempting people out of their homes, particularly in times of economic crisis and market disruption.

The solution isn’t new or un-tested, but many operators remain complacent, assuming the sector will bounce-back rapidly or that distribution (also in a state of flux) will do the heavy lifting. Should cinema operators hire door-to-door sales people to communicate directly with the missing millions of customers across Europe? What ticks their boxes face to face as well as Tik Tok’ing!

In a recent GLG report 86% of cinema industry operator experts surveyed believe that investing in luxury amenities including recliner seats and improved F&B offers is essential and likely. Knowing what is needed and being able to do it are two different things. Some operators will invest to grow, whilst others will struggle for support finance and for mere survival. It’s already happening, and the inevitable restructuring outcomes will determine the future relevance and solvency of the market.

In the West the market will be smaller, leaner and most likely more profitable and sustainable. The can will not be kicked much further down the road during 2024…

In Emerging Markets, there are still decades of growth ahead, until they too reach the same customer demand vs over supply of screens challenges.

This is a Marathon not a Sprint to Recovery on a global scale that will define this decade and beyond.

Link to ESS has produced a 2024 Budget Plan and Statement: https://entertainmentsolutionservices.com/cinema-budget-dilema.html