Will Theaters Survive in a Post-Pandemic Hollywood?

Eli Assraf
May 3 · 7 min read
(Allen J. Schaben/ Photography Staff/ Los Angeles Times)

With the start of the Covid-19 pandemic, America experienced the loss of one of its most distinctive experiences — going to the movie theater. Going to the movies, or as film studios call it, the theatrical release, was one of the practices that individuals worldwide rejoiced in very often. During the era of the Covid-19 pandemic, the feeling one has from watching a favorite film or franchise at the movies is no longer a possibility. Nevertheless, the idea of theater attendance ever returning constantly looms over the film industry and its many capital-backers. The continuous rise of primary streaming services that emerged during the pandemic further resulted in the studio’s growth of their catalogs, notable films intended for theatrical release. As vaccines begin to roll out and a post-pandemic order begins, the following will discuss the current dynamics of film studios and distributors and how those dynamics will impact the future of theatrical releases.

In the years leading to the pandemic, film studios and the theatrical chains experienced a symbiotic relationship as they depended on each other for survival. This relationship demonstrated the studios dealing with the production side of creating a film, while the theater chains were in charge of distribution responsibilities to reach audiences throughout the country. The weight of this relationship is explained by the landmark 1948 US Supreme Court antitrust case, otherwise known as the Paramount Decision. The case signaled an end to an era where film studios had ownership rights over theatrical chains. However, with the landmark decision overturned in 2018, the symbiosis between studios and theater chains was poised to deteriorate, just as streaming services were becoming ubiquitous. Studios were now legally allowed to own and manage their theater chains, but did they want to? Although developments, including the rise of streaming and a global pandemic, might make theater ownership appear less appealing, the theatrical landscape is far more complex.

While the Paramount Decision getting overturned is assumed to be what led to an initial strain in the synergetic relationship between studios and distributors, the relationship was troubled prior. As subscription-based services began gaining popularity with consumers, fewer people saw movies in theaters. Nevertheless, according to the premier film statistics website BoxOfficeMojo, the box office for the year 2019 presented only a tiny drop compared to its previous year. In 2018, producing a total domestic gross of approximately 11.9 billion, and in 2018 producing a total domestic gross of approximately 11.3 billion. Hence, while there was a drop in audiences attending the movie theaters, the popularity of the subscription-based streaming services did not cause the studio & theater chain relationship to strain.

Instead, the strain between the two was brought to light by the Covid-19 pandemic. There was inevitable pressure and anxiety that the growth of streaming services would eventually cause problems. However, these issues could potentially take years, if not decades. The pandemics’ presence put the once symbiotic relationship into the spotlight. Suddenly all theaters, domestic and abroad, closed indefinitely. In a split second, the movie-going experience entirely shut down. Strategically, the studios entered into the survival mode mentality. In doing so, they made moves that helped identify the actual causes of the strained relationship and what they needed to do to survive.

As a result of being pushed into pandemic survival mode, Universal Studios started to make arrangements vital to their survival. The studio decided to take their animated film, Trolls World Tour, straight to premium video on demand (PVoD) in the summer. It was the first time a major studio decided to make a notable film intended for theatrical release and place it straight into PVoD. Universal’s actions left the theatrical distributor chains in shock as theaters were waiting for pandemic guidelines to ease up so that they can finally begin to recuperate the revenue lost in the beginning months of the pandemic. Consequently, Universal’s move to remove the film from its theatrical slate paid off as CEO of NBC Universal, Jeff Shell, stated that “the results for Trolls World Tour have exceeded our expectations and demonstrated the viability of PVoD.” Universal’s success in skipping the theatrical release slate and its intention to release more films to VOD worsened the relationship between the studios and theatrical chains. For example, the world’s biggest theater chain, AMC, decided to ban Universal Studios movies from its venues.

Nevertheless, Universal’s move was necessary to survive the pandemic era. AMC’s future could not be considered at this point, even if their imminent bankruptcy was slowly looming. Universal’s decision, undoubtedly strengthened by the pandemic’s arrival, but the emerging strain in the relationship back into the spotlight. Universal was highly close in telling theater chains that if the 90-day theatrical window were not shortened, it would be forced to pull its movies from the theatrical release slate.

Times were changing and fast. Five years ago, if one were to ask a studio executive their thoughts on the exclusive 90-day theatrical window shrinking, the likelihood of that individual being laughed at was high. While some of the biggest distributors like AMC viewed its relationship with the studios as one of apparent symbiosis, the dynamics changed to that of “we want you; however, we do not need you.” AMC and other distributors failed to realize that even though studios still were making large amounts of money at the box office, the distributors also pushed for their films to be delivered to home audiences faster than ever. Thus, it only took three weeks before the whole stunt pulled by AMC backfired on them, and the ban on Universal’s film was lifted.

Universal ban being lifted led to the striking of a new deal between the studio and AMC regarding the exclusive theatrical box office window. “In a sign of how the pandemic is remaking Hollywood traditions, AMC Theatres and Universal Studios… announced an agreement to shorten the exclusive theatrical window to just 17 days for the studio’s films.” The following statement made by Associated Press journalist, Jake Coyle, indicates how the pandemic pushed the film industry into a new era by shortening the exclusive theatrical release and how studios and distributors work together to do business. More importantly, the deal made by Universal and AMC set a precedent on how future studios worked with major distributors.

Despite its accomplishments, the deal struck in August between Universal and AMC continued to suffer additional setbacks as the Coronavirus pandemic further plagued the studios’ flexibility in pushing off their 2020–2021 slate of films. With the initial hope of the deal easing the strain on the studio & distributor relationship, it became clear that some of the major studios had begun to reconsider their strategy as the end of 2020 approached. Briefly before the 2020 holiday season, one of Hollywood’s five major studios, Warner Brothers, released a statement that their remaining 2020 and entire 2021 film slate would be released to theaters and streaming services at the same time. This decision shocked the entire studio & distributor community and surprised filmmakers who learned that their intended theatrical releases would be co-released with streaming. Christopher Nolan, one of Hollywood’s most acclaimed directors, was quoted by The Hollywood Reporter saying, “Some of our industry’s biggest filmmakers and most important movie stars went to bed the night before thinking they were working for the greatest movie studio and woke up to find out they were working for the worst streaming service.” Warner Brother’s decision made it evident that any option was fair game as long as the pandemic was pressuring studios.

Moreover, while other highly concerning issues such as film piracy arose, Warner Brother’s decision signaled the official shift for how studios approached their theatrical counterparts. The once symbiotic relationship between the studios & distributors was beginning to materialize into another form, one where the distributors had no power over the studio’s decision. It became crystal clear to distributors that they were wanted but were no longer needed for the studios to survive. As the pandemic continued to be labeled as the significant issue that led to the approach taken by studios, such as Universal and Warner, it was safe to assume that those studios would not give up their upper-hand dynamic in the future. Therefore, one must consider how all these factors will lead to a new film era in the post-pandemic world.

The film industry experienced various changes and obstacles throughout the years, but theatrical releases never disappeared until COVID. When the pandemic ends, the once-beloved box office will return to the spotlight but in a very different way from how we remember it. The factors previously touched upon allow one to understand Hollywood’s dynamics and reorganize the studio and distributor relationship. Studios will continue to rely on the theatrical release as an integral part of their business model because of the underlying complexity in determining the turnover for audience viewing data into revenue. Accordingly, a rise in streaming will continue, but studios will still be fond of their films getting featured in the blockbuster theatrical release when the pandemic ends. The factors above, coupled with the change in dynamic, allow one to make an informed assumption of how studios will utilize their newfound power to redirect Hollywood.

Ultimately, the studios will utilize the overturning of the Paramount Decision to buy theater properties to showcase their studio films. It will be a mix and match as, on the one hand, studios will be able to offer their theater-loving consumers an exclusive window to watch films. On the other, it also allows their streaming consumers to enjoy anticipated films quickly at the comfort of their own homes. Thus, studios will maximize revenue from the box office and streaming-video-on-demand consumers (SVoD). Some theater chains will survive through the process, but the overall number will fall to either significant debt, bankruptcy, or dissolution.

Studios will finally have control of both the film production and distribution process and will be able to manage it as they see fit. Having said this, one must take the future studio takeover of the distributor chains with a grain of salt. As original theater chain/ distributor conglomerates potentially fade away, the beloved theater-going experience will remain. The experience might be different from how it used to be; however, a post-pandemic film industry will continue to have theaters moving forward.

With theater conglomerates soon to be gone, it is just a matter of time before the studio streaming wars that lie ahead commence.

WRIT340EconSpring2021

Advanced Writing for Economics