Some thoughts on movie theaters in 2020

I've spent most of my free time over the past week thinking about the WB/HBO Max situation. The latest is here (Christopher Nolan Rips HBO Max as "Worst Streaming Service," Denounces Warner Bros.' Plan). The headline is designed for clicks, but it's actually a really good look at the complexity of the situation - especially from the perspective of talent relations and transposing traditional "profit participations" into some kind of imputed license or buyout formula.

It's clear that the "theatrical business" is going to fight this in the press and probably in the courts. As a consumer and someone interested in the industry, it's going to be fascinating to see how it plays out. What the theatrical business hasn't really done, however, is fight it based on value and consumer experience. If it is smart, it will view this as an opportunity to reevaluate some of its traditional assumptions and business practices and come out stronger on the other side.

The theatrical competitive "moat" is based on four things:

1. Movie Stars (if you want to see Tom Cruise or Will Smith, you have to come see our new movie).

2. Technical Superiority (we have huge widescreens and surround sound; you have a puny 4:3 CRT TV and will be watching in low resolution on VHS with mono or stereo sound);

3. Windowing (we've contractually assured that you won't be able to rent this movie for 3-4 months, and it won't come on TV for 1-2 years); and

4. Shared Experience (see our film in a dark room with other people).

These four "value propositions" have essentially worked in the same way for the past fifty years. However, times have changed. Of the four factors listed above, the first two have essentially disappeared. OLED 4K TVs are both affordable and incredible now, and are perfect for watching movie stars perform in the latest premium limited series on Netflix, Apple or HBO Max. The third factor also seems to be going away, at least temporarily. Windows are going to compress, and for the next year we are looking at day-and-date for a lot of movies. Which leaves number 4. At the same time, the exhibitors have much greater competition for time and dollars than they had in their heyday - not only from "television" (whatever that is today), but alsofrom social media, TikTok and video games offering better value and more immersive experiences.

Moreover, theaters have done little to improve their experiences or provide better value to consumers. Digital delivery led to arguably better picture quality than 35mm, while sound systems are inarguably improved (although this is relatively inconsequential to a layperson). They tried to introduce 3D as a premium standard (largely to justify higher prices), but aside from a few isolated examples, the audience didn't really want it. And now, moreso than ever, movie theaters are being asked to justify their existence.

Accordingly, the business really needs to think about ways it can improve and innovate its experience and provide better value to consumers. Here are a few half-baked ideas:

1. Value: In a world where a movie ticket is $15-20 before overpriced snacks (and an SVOD subscription provides limitless content for $10-15), moviegoing is terrible value. Either theaters need to provide a much better experience, or the price needs to come down. In my view, the exhibitors urgently need to get together and work out a “Moviepass” type subscription model that makes sustainable economic sense and gets people back (post-COVID) in the habit of going to the movies.

2. Social: Moviegoing is inherently shared and social – just watch one of those YouTube reaction videos to the end of Avengers: Endgame. You can’t replicate that at home. Exhibitors need to find a way to capitalize on that magic. Once COVID is passed and the vaccine is widespread, people are going to be excited to be in each other's company again, and there needs to be a full court press by the exhibitors to make moviegoing part of that.

Additionally, movie theaters have been very slow to leverage cellphones and social media - one of the best ways to build a direct relationship with consumers and allow them to evangelize for your offering. This needs to change - but the question is how to do that without compromising the theatrical experience. In my view, there should be two “tracks” of screenings – traditional (zero tolerance for noise or cellphones, like Alamo Drafthouse) and “social” (where talking cellphone use is both permitted and encouraged). That's a much better use of a screen than a 3D showing that nobody really wants or needs. Exhibitors need to understand that a cellphone is an extension of the self for Gen Y, and you will never get them in a theater if they can't use it.

3. Variety of Movies: The movie business has in part been an architect of its own destruction by bifurcating its output into only two types of films – tentpoles (largely superhero films) and “prestige films” designed to win awards (with a few low budget horror movies dumped at the top of the year). There's a reason for this. Tentpoles are more expensive to produce but there is an economy of scale and they are ultimately more profitable in success. Prestige films are essentially PR and talent relations vehicles. However, this approach is alienating moviegoers and has trained a vast section of the audience out of the moviegoing habit - which is critical to the sustainability of the business.

Movie studios need to bring back mid-budget films – thrillers, comedies (especially romantic comedies), literary adaptations, broad dramas. Go onto Box Office Mojo and compare the top 20 grossers in 1993 or 1994 to 2020. Granted, mid-budget movies are much less profitable on an individual basis than a franchise movie, but they (a) cater to part of the audience; and (b) are largely talent (as opposed to IP) driven). By not making those kinds of films, the movie business is essentially ceding its business to the streamers.

4. Embrace Diversity: It has been proven time and time again that diverse movies do great business at the box office. And yet, Netflix has arguably done more to promote diverse filmmakers in five years than the "traditional" movie business has done in fifty. From both a practical business and a PR perspective, the theatrical business needs to fix that - first by working with the movies to promote diverse talent, and then by embarking on a PR campaign to let the public know that's what it's doing.