The Changes Are Coming To The Film Industry
Plenty of lessons can be learned from the COVID-19 pandemic. As it ravages the economy, one sector that has been severely affected is the film and entertainment industry. It is not just the movie directors and producers, but the whole ensemble of people who work in the industry. The actors, actresses, personal assistants, production assistants, scriptwriters, editors and set technicians. You also have the supply chain and services who cater to the studios that have been shutdown since measures were taken in Los Angeles to flatten the curve.
On a typical weekend before the pandemic, studios would gross enough revenue to keep movie theaters in business. With the lockdown restrictions, movie theaters have had to close. The ticket sales plunged and this has led cinemas to temporary lay off or furlough workers as the economy remains closed. Concessionaires who would earn from moviegoers are also not getting their share of the proceeds from the purchases of soda and popcorn. It affects the entire system of support from the top down. So it is not only the big studios who are suffering, but also the workers at the cinemas who give your ticket.
If we look at the numbers though, the movie market has been somewhat flat prior to the pandemic. Annual ticket sales have been steady since 2017 but trending downward. The average ticket prices have also been increasing with inflation taken into consideration, since 1995. The average ticket price in 1995 was only $4.35 compared to the average price for a movie in 2020 is $9.11. The average ticket price has increased by 109%. 2019 was memorable at the box office for movies like “Avengers Endgame” and “The Joker”, while other films just tanked. It is fair to say that not every Hollywood production is going to be a smash hit.
Since 2012, Walt Disney and Marvel Studios have been the leader in top grossing films with 2019’s “Avengers Endgame” being one of the highlights of their success. Walt Disney’s other success is the “Star Wars” franchise other than the Marvel Studio films and original Disney content. Box office numbers are based on in-person ticket sales at the cinemas, so it is still a lucrative market until lockdowns led to shutdowns in the beginning of 2020 due to the pandemic. That is when all ticket sales plummeted, as no one was allowed to watch movies since cinemas had to close. Hollywood has been at a loss, along with cinemas and distributors across the globe.
The film industry is also heavily dependent on advertisers. Without movies showing in theaters, no ads are being placed because there is no audience for it. The movie market is huge so ad buyers will take the most from it when pushing a brand to consumers. This could also lead to lesser ad spends by local businesses if the economic downturn takes its toll. Some of these businesses could fold, which is the unfortunate reality of this crisis. Ad spends are now going into OTT because that is where the audience is at right now.
What the film industry needs to do is find ways to reach their audience and push content using digital methods. It was inevitable with the coming of VOD (Video-on-Demand) and streaming services. During this pandemic, OTT service providers like Netflix and Hulu have seen a surge in demand and traffic as more people are staying home. Consumer preferences have been changing in the last years as more users are cutting the cord and going for streaming. It was already shifting toward this market, so the pandemic somehow just accelerated it further.
Direct-to-Streaming
Delivering new content straight to the consumer is not exactly beneficial to film studios if it doesn’t earn money like the box office. A major Hollywood studio earns more money from the sale of tickets at the cinemas, while it may not be the same when distributed via OTT. At the moment, the studios do not have a choice but to stream their content or make it available streaming on demand for pay. Using a PPV (Pay-Per-View) service that can be distributed by cable TV operators or other OTT providers.
In fact, many upcoming movies will be streamed online since there is no exact way of knowing when cinemas will be able to open safely to the public. Movies like “Scoob” and “Capone” are going to have a digital release date rather than a box office release. Other movies that have been recently released in the box office are also being made available for digital streaming.
With OTT, the pricing structure is definitely not the same as in the cinema. You don’t get the IMAX experience or encoding, but you can still stream in 4K UHD if available. If most moviegoers will pay a streaming service fee that is slightly higher than movie tickets, it still seems reasonable. OTT does have a large international audience but only where it is available. In the US the figures estimate around 180 million consumers use OTT services. A studio can profit from a production cost of $100 million if they can capture 25% of the market by charging $19.00 for VOD. That would generate $855 million in revenues.
Correlating the number of user accounts who subscribe to an OTT service with tickets is not an exact figure. The reason the cinemas have a more accurate figure with ticket sales, is because there is a 1:1 relationship of ticket to moviegoer. With OTT, you can have 3 or more people watching from the same user account on services like Netflix. Some accounts may even be borrowed by a friend or family member and at this point it is not the same as ticket sales. For studios box office figures are probably still more prestigious because of the numbers they generate, not to mention the revenues. New metrics will have to analyze the number of concurrent streams by account, region and provider.
Not everyone is welcoming this change. Cinema operators, who stand to lose from OTT, see the streaming providers as competition. If the studios can release more new content to OTT, it will affect the cinema’s business. Outside of Hollywood, in India the Bollywood studios are faced with this dilemma. Cinemas reopening in China is also important for the film industry since China is the second largest box office in the world. Right now they are fine with their OTT providers for local and some foreign films.
The New Norm For Cinemas
The big question is when cinemas are allowed to reopen and when they can reopen, what will be the rules?
Here is one scenario:
- Attendant takes your temperature at the door.
- Anyone who is visibly ill (e.g. coughing, sneezing, groggy, dazed, etc.) will not be allowed to enter.
- Attendant provides hand sanitizer for all moviegoers entering.
- Cinema workers must wear a mask at all times.
- Moviegoers must be spaced 1 or 2 seats apart, so there will be limited seating allowed per viewing.
- More signs will be placed around cinema reminding moviegoers about proper hygiene (e.g. washing hands).
- More ads will be placed by health providers and products.
- More hand sanitizer units will be placed in restrooms and near the snack bar.
Digital Content Creation
There is also the idea the content creators can push for new technologies when producing their content. Since studios are closed and there are social distancing rules in place, it is not possible to shoot a film with actors and actresses complete with staff. Another problem is traveling on location with more than 10 people will be considered a violation.
This is a great time for animators who produce cartoon or animated series. The actors and actresses will be doing voice overs, so a total online collaboration is possible for this type of content. It is an entirely virtual studio where no one needs to be physically present at the same location to create the content. Once completed it can uploaded to content sharing sites like YouTube or Vimeo, or if it is a feature film by a studio it can be sent to a distributor for paid streaming.
While deepfakes are not encouraged, the technology is actually ideal for more legitimate content like virtual movies. There have been small clips around the Internet, and the topic is more about the violations to personalities these deepfakes are based on. While it is now possible to generate “fake” actors for a movie, the audience is somewhat still limited since well known actors are still who people pay to watch. If you render a no name actor using computer imaging against a well known Hollywood actor, most likely it is the latter people will pay to see. However, the former will probably generate plenty of interest because it is making use of a new type of digital content technology.
The security of digital content creation can also be more effective, in protecting copyright. In film workflows, it is very important to secure the content during and after the shoot. The raw footage is often encrypted in a storage unit and physically transported to the studios for editing. Other workflows use a data network with a fast connection to transmit the content following a purely digital workflow with end to end encryption. It is further secured with user permissions that allow only those accounts (e.g. producer, editors, etc.) to be able to open the content, as configured by the studio’s IT administrator. This can prevent leaks that often end up on the Internet black market, costing studios plenty of money.
Conclusion
The COVID-19 pandemic has ravaged the film industry, but has boosted digital media streaming services. Moving to an all digital streaming service for movies is not exactly what everyone is hoping for, especially those who are in direct competition with OTT. These are the cinemas and movie theaters that rely on ticket sales for in-person audience attendance. It could take several more months and new rules regarding health and safety to reopen the cinemas to the public. In the meantime, OTT is the way to go. It might become a new norm for studios if the revenue streams are bigger. With box office releases, revenues are much higher for studios, but they also have to deduct costs. Remember that if the studios can stream direct to the moviegoers, they minimize costs paid to distributors and the cinemas. They can also make money from ads which can be inserted before the streaming begins.
Adapting to changes in consumer behavior is also another thing the film industry has to consider. More consumers are cutting the cord and going OTT. When the market reaches the figures of social media giants like Facebook (e.g. 2 Billion+ users), it becomes even more lucrative to stream content because of the market size. Ticket sales show the film industry has been down in the last year. Whether it is due to audience fatigue or just horrible movies, if this trend continues then OTT will be viable for some studios. It can also further bolster changes in the way the film industry produces and distributes content, where the box office will represent a smaller share while the larger part of the business goes streaming.
