Does the Warner Bros. - HBO Deal Signal the End for Theater Operators?

Guest writer: Michael Geczi

The entertainment industry, dependent on production at the front end and attendance at the back end, is at an obvious Covid-19 crossroads. New movies aren’t being produced – either because they can’t be completed or production has been delayed. Attendance, meanwhile, has been hammered by the combination of forced closings, voluntary shutdowns, the lack of fresh content, and the public’s reluctance to spend a couple of hours on a Saturday or Sunday with a theater filled with strangers.

The creative side of the business isn’t at risk, however. The question, instead, is this: Can operators of movie theaters survive after going through their worst year, financially, in more than two decades?

?         AMC, the number one chain, incurred a loss of more than $900 million in the third quarter ended September 30 and its revenue for the first nine months plunged to about $1 billion from $4 billion a year earlier.

?         Number two Cineworld (which operates the Regal chain in the U.S.) had a pretax loss in 2020’s first half (most recent results announced) of $1.6 billion, compared with a year-earlier profit of $139.7 million.

?         Third-ranked operator Cinemark posted losses of $210.8 million in the third quarter and $468 million in the first nine months, respectively.

One-off examples also tell a tale: Disney pushed superhero film “Black Widow” into the new year and Warner Bros. apparently is postponing “Dune” until October 1, 2021. What might be most threatening to the theaters’ survival, however, is Warner Bros. announcement that it will stream its full 2021 movie inventory on HBO Max simultaneous with theater rollouts.

Is this the death knell for the theater operators? Perhaps. Major transformative event for entertainment in general? Could be. Should we be looking for winners and losers? Always.

These answers, of course, represent traditional analysis. Given the magnitude of the questions, let’s also use an additional way of assessment.

The Alchemical Transformation POV

“Synaptic Alchemy – The Art & Science of Turning Ideas Into Gold,” provides us with an interesting and unique way to do just that. The Alchemical Transformation (AT) is a way of thinking linked to alchemy…you know, the lead-into-gold process. It maintains that success is driven by three elements: Nigredo (destroy something/break a rule), Albedo (create something/make a new rule), and Rubedo (standardize/scale something).

This discipline provides interesting insights into the repercussions of the Warner Bros. - HBO Max deal.

What Does Nigredo Suggest?

Destroy something? It seems too easy, obvious, and premature to declare the demise of theaters overall. There’s a lot of history to deal with. “The communal experience of going with friends and loved ones to a dark room with a big screen and smell of popcorn is too powerful to die,” says Marc Simon, a former filmmaker who is now a partner at Fox Rothschild and chairman of the firm’s entertainment law department.

Dialing back our thinking a bit, and staying within the AT framework, Nigredo – at the very least – more likely is the death of the opening weekend concept for new releases.

What Does Albedo Suggest?

So, if new films no longer debut each Friday at your local theater, and studios aren’t uber-focused on weekend box office numbers, what is the new rule being created?

Well, let’s define the need: all parties need to generate revenue. If theater launches don’t do the trick, and streaming media strategies alone won’t generate the numbers, it’s pretty clear dual theater-streaming launches are the most promising new path for entertainment companies.

What Does Rubedo Suggest?

This is where it gets interesting, because the new rule – simultaneous launches – while timely, can only be temporary. There simply is too much going on in the entertainment industry to think we’ve come to a stable endpoint. The fact is, given the changes in media-consumption habits, entertainment was going through incredible change even before the pandemic.

“Consumer interest in moviegoing will be meaningfully reduced,” Rich Greenfield, a founder of the LightShed Partners media research firm, wrote in an Aug. 6 report. “Moviegoing will not disappear, but there will not be enough demand (nor supply of content) to support 40,000+ screens in the U.S.”

The Takeaway

We are going to see a great deal of adjustments during 2021, including how films are brought to consumers. Some of it will work; some will not. Alchemical Transformation analysis, however, indicates these current/imminent fixes can’t be scaled, or made standard, and do not represent a real transformation of a challenged industry. More change is coming. Stay tuned.

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