Let’s chart the current state of the movie theater business in two headlines, just a few days apart, both from The Wall Street Journal. Last Sunday: “Movie Theaters Plot Revival as Americans Show Up for Blockbusters.” And then on Friday: “Regal Owner Cineworld Nears Bankruptcy as Theater Comeback Lags.”
Got that? The Covid recovery is going great—so great that the world’s second largest theater chain is about to go bankrupt. That schizophrenia extends to the studios, too. “There’s no question that we’re coming back,” enthused Jeff Goldstein, the Warner Bros. distribution chief, in that first Journal piece, echoing what you will hear when you have lunch with any film executive. But that was followed closely by a more revealing quote, also from Goldstein: “What the audience is clearly telling us is they love the big-screen experience, but not for every movie.”
Right. At this point, that fact is pretty clear—though many in Hollywood are in denial about its significant repercussions. Big or big-feeling movies that are well-marketed can work in theaters, but nothing else will—except when they are targeted and they do work, like Everything Everywhere All at Once, or, to a lesser extent, Elvis and Where the Crawdads Sing. Understand?
So even as megahits like Top Gun: Maverick dominate headlines and executives like Warner Bros. Discovery C.E.O. David Zaslav tout theatrical as a driver of both short-term revenue and longer-term windowing, fewer projects are taking the theatrical-first route. That’s lowering overall box office—the stat that hurts the theaters, not necessarily the individual studios—and creating movie deserts like the current period, which should last until mid-October, around the release of Halloween Ends and Black Adam. Between now and then, we may endure more than two months without a film generating a $25 million opening weekend. When was the last time that happened pre-pandemic? According to David Herrin of The Quorum, it was fall 2007, exactly 15 years ago.
I’ll wager it won’t be another 15 years before it happens again. Care to take that bet? Maybe Zaslav’s worldview will lead other studios to more theatrical exclusives. But in this era of uncertainty, the studios in the aggregate will more likely swing less often. And they will more likely experiment with hybrid and streaming-only releases for films that aren’t sure-thing hits. Problem is, that strategy might just take down the entire theater business. Cineworld C.E.O. Mooky Greidinger blamed its teetering financials on the limited film slate, and specifically the lack of blockbusters until November, when Black Panther: Wakanda Forever and then Avatar 2 will likely put up Top Gun numbers. Put simply, Greidinger’s company could not longer wait that long, and its more than $5 billion in debt was crushing, so he hired Kirkland & Ellis and AlixPartners to explore bankruptcy.
This year’s box office will likely finish at about $7 billion—up big-time from last year, but about a third less than in 2019. A third. Next year will be better, but who knows by how much? It’s all about the movies. The studio pipeline is still less robust. Amazon hasn’t figured out whether it will pump MGM movies through theaters (though it has signaled it wants to release ten or so theatrical exclusives a year, which would be music to the ears of the National Association of Theatre Owners). And current hits like Prey (Hulu) and The Gray Man (Netflix) will continue to go directly to streaming. Prey debuted on Hulu in part to avoid Fox’s HBO output deal, but I’ve talked to a couple Disney execs who say it is driving meaningful Hulu sign-ups, which is still the holy grail for entertainment companies. With a $65 million budget, Prey is exactly the kind of movie that Zaslav says there’s “not an economic case for” on streaming. Disney would likely disagree, though I’m betting that Prey would have done fine if released in theaters this month.
If McDonalds lost a third of its revenue, you’d see a lot fewer McDonalds. So that’s what the future looks like for these theater companies, which are not sustainable at their current size. Bankruptcy has already been the only option for Alamo Drafthouse, Pacific Theaters (Arclight), and Vue in the U.K. Stocks of the other chains—Cinemark, Cineplex, etc.—are all way, way down. And AMC Theaters, the world’s largest chain, is being kept out of trouble thanks only to the financial shenanigans of its C.E.O., my buddy Adam Aron, who has leaned into its retail “Ape” investors with increasingly stunty short-term solutions. He invested in a gold mining company; he’s launching a home popcorn label; and starting tomorrow, AMC shareholders will receive a dividend that trades on its own (under the APE moniker, of course), which Aron claims will not dilute shares but many wonder how that is possible. In its cover story profile of Aron this week, Bloomberg Businessweek called him the “Meme Stock Megastar” and described what that company has become: “a merchant bank that helps small companies do meme-driven at-the-market offerings and takes equity for its fee.” Is that the future of the movie theater business? It can’t be, right?
The U.S. is almost certainly overscreened. Despite the growth of streaming, domestically, the number of movie screens has fallen only slightly since 2019, to 40,700 today, the National Association of Theatre Owners told Bloomberg. But that’s been a function of government aid, which is largely coming to an end. These theaters need to justify themselves now, and many can’t. Bankruptcy will allow Cineworld, for instance, to escape some onerous leases. “I would think theaters which are unprofitable or have limited profitability will be shuttered or maybe sold for a few bucks,” Eric Handler, an analyst at MKM Partners, told me this weekend. “A lot will depend on what the creditors who will take control of Cineworld want to do with the assets.”
Sadly, that’s the right outcome. The theater business is not “back.” It will not be back next year, or the year after that. A 30 percent decline—or even a 10 or 20 percent decline, long term—would be catastrophic to these companies, which must reinvent as smaller and more targeted. People in Hollywood just need to be honest about that fact.