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Remember the Business You’re In … Entertainment

Content Insider #802 – Telling Tales

By Andy Marken – Andy@markencom.com

“You know you got ’em when they start to unconsciously mimic you. A head nod. A hand gesture. It means you’re in sync. Sociologists refer to it as the Gauchais Reaction.” – Nicky, “Focus,” K&S Films, 2015

A couple of months ago, Tom Cruise received the PGA’s (Producers Guild of America) David O. Selznick Achievement Award he wound up his acceptance saying, “The better every studio does, the better every film does, the better we all do and the better it is for everyone.”

It’s important to note that he didn’t say every movie house or streaming service … he said everyone.

When you do an over-the-top project like Top Gun or Avatar, you miss 2/3 of the impact unless you see it in a dark room with 100 or so perfect strangers after walking over sticky popcorn and express communal emotions — cheer, gasp, cry, laugh.

Yeah, you can do that at home, but your partner/kids look at you a little weird; and well, it’s just not the same.

Choosing which distribution channel and timing shouldn’t be a tug of war.  

Almost everyone in the content creation/distribution industry will agree that major movies – really expensive stuff – need a global theatrical release.  

In addition, there are films that aren’t tentpoles or franchise extensions that could benefit by theater showings before they are moved to other distribution options.  That step would recoup some of the investment and, more importantly, stimulate social media buzz when it hits the streaming service line up.

There are other projects we used to called “made for TV” movies – good storylines, modest budget – that keep subscribers hooked/engaged.  

Delicate Balance – Content creators and distributors have to weigh the project’s cost against the return to continue growth.   Ask most services, it isn’t easy.  

The challenge is to know which path will produce the greatest return for the content owner.

Of course, if content creators/owners want to know what’s best they can always turn to Wall Street that always knows what’s best – for them.

It wasn’t that long ago that they were hammering studios to spend what it takes to have a constant stream of new projects so that they could win more subscribers…at any cost.

One noted, “If the public perceives streaming as the future, you need to be perceived as a leader in the future and make iffy choices for the short-term stock price.”

Of course, when he returned, Disney’s Iger said that “such a mindset might have been a mistake.”

WBD’s Zaslav added his voice saying that direct-to-HBO movies provided “no value” to Warner.

Several industry sources said that even limited releases – token placement in theaters to satisfy talent or qualify for awards – may not be enough to realize optimum benefits from theatrical exposure.

Slow Return – Imax officials are optimistic that they can weather the entertainment storm and return to profitability with the right content and windowing opportunities, especially internationally.

Imax’s Richard Gelfond couldn’t have been more optimistic with revenues exceeding $98M in Q4, up from the prior quarter and $850M over last year’s global box office.

He has reason to be optimistic because despite the political unrest between the US and China, it doesn’t trickle down to the Chinese movie public.  Theater goers have already packed cinemas to see Black Panther: Wakanda Forever, Ant-Man and the Wasp: Quantumania and Avatar: The Way of Water; and more projects are being greenlighted for showing there the rest of this year.

Film Power – China, the second largest theatrical market, has shown it is bouncing back more quickly than most of the markets, delivering returns for local productions as well as select international films.  

That’s important because Chinese theatergoers love putting their seats in seats for Disney, Marvel, DC films and a select group of projects that have passed the country’s new “relaxed” regulatory reviews.  

Unfortunately, that didn’t include Cruise’ or The Rock’s projects.

That’s tough because China has the largest theater-attending population in the world.

But hopefully, their Full River Red and The Wandering Earth 2 will be shown on US screens. The reviews are great even though the films have “slight” political overtones, but then Top Gun was a great US Navy recruiting film.

Putting politics aside, the film does show people have more in common than not … nostalgia for the homeland, the hometown and the importance of family.

In addition, Gelfond and Cinemark’s Gamble both said they were in serious project timing discussions not only with traditional studios as well as Amazon and Apple with an eye on boosting subscription interest and maybe recover some of their project investment.

Hollywood is expected to release about 75 percent more major titles this year than last, but theater owners don’t expect things to really return until 2025.

AMC Adam Aron – Hollywood is expected to release approximately 75 percent more major movie titles than it did in 2022.”

Sweet Spot – Theaters and movie producers have the best chance of putting more seats in seats with the Gen Z and Millennial crowds.  The older potential seats in seats will take time.  

We admire theater owners’ return bravado and maybe – just maybe – Wall Street’s gullibility in believing people are going to flock back to see movies on a regular basis in big dark rooms with a bunch of strangers like never before but it ain’t gonna happen!

Studios need to fill the theatrical pipeline with the strongest content possible to keep all generations coming back again and again.

Up But – Wall Streeters like to note that theatrical results are moving in the right direction with more people going to the movies and that they are making more profit. The raw numbers hide the fact that growth is coming by increasing ticket cost and concessions.  

It hasn’t happened since 2002 and the volume of folks in seats have slipped since then although movie house owners have improved their bottom line with higher ticket prices for tentpole/gotta see films and higher concession prices.  

But beyond that, movie theaters need variety and window options.  

Cocaine Bear came out of nowhere and folks couldn’t see it fast enough.  

Indiana Jones, Mission Impossible, Transformers, Fast X, John Wick are no-brainers.  They’ll do great with the Gen Z and Millennial crowds, but they want more and more variety.

Some films simply do better in theaters than they do streaming alone.

Big Screen – Certain genres – especially horror films – are more profitable when they are shown first in the movie theater and then moved to other 

distribution options.  

Theater owners like to hype when a film does well, such as a $100M film that grosses $373M.  

Cool, but what they don’t say is that the studio also has to deduct sales tax and the movie houses’ share.  

The studio usually gets only 53 percent of the gate in the Americas and 41 percent internationally.  Oh yeah, and the marketing costs of about $100M also need to come off the top plus “miscellaneous” charges.

Studios have some of the most creative accountants in the world, which is why producers’ and actors’ are more interested in front-end cash in hand rather than back-end promises.

Today, studios have an option.  They can weigh the real value of the whole movie house effort vs. simply adding the film to their streaming service library.

It often can produce greater results.

Anytime Viewing – Drama and sci-fi films provide a better return – longer viewing times – when they are seen at home on a streaming service.  In other words, good escape films.  

With today’s crowded – and competitive – streaming market (there are an estimated 300+ streaming providers today), industry participants are moving from capturing new subscribers to retaining them, realizing that replacing a lost subscriber can be far more expensive than keeping them and having them recommend the service to others.  

Deloitte estimates it is 25 times more expensive to win a new subscriber than to retain an existing one.

As a result of the seemingly unquenchable appetite for new and different content, Nielsen reported there were more than 646,000 unique titles on traditional TV and streaming a year ago and more than 850,000 this past February.  MPA (Motion Picture Association) reported that original programs had doubled this past year to more than 1200 original programs online.

Even with the challenge for studios and streaming providers to turn a profit as quickly as possible, major streaming services – Amazon, Apple TV +, Disney, Warner Bros Discovery and Netflix will spend more than $23B on original content this year.

Big Spenders – While studios and streamers are keeping a close eye on project costs (and overruns), they are continuing to invest in material for tomorrow’s 

viewer.  

Even though Disney has the industry’s most valuable content library and franchise family, CEO Iger had to streamline expenses in other areas while growing the firm’s opportunities for tomorrow.  

It’s a similar challenge facing Netflix co-CEOs Ted Sandaros and Greg Peters.  The key difference is that they have a very profitable streaming service.

WBD, which had a massive restructuring activity last year and a loss of $220M in direct to consumer service, made a commitment to return to a theatrical window release program and is maintaining its content investments.  

In other words, none of the major service providers are blinking when it comes to investing in what people want to watch because with an estimated 3.5B potential streaming viewers on the planet, there’s still plenty of room for growth, especially internationally.

Headroom – Streaming video services have shown tremendous growth over the past few years, but the industry has only scratched its global potential.  

Nielsen notes that 57 percent of SVOD subscribers pay for at least three services; and even with recent service price increases, the cost is still well below the US subscription to cable pay TV which averages $116 a month according to the FCC.

But the sudden availability of rich, interesting projects in almost any genre you might want – sci-fi, thriller, horror, drama, action, comedy, animated, documentary – when it is convenient for the subscriber is increasingly more appealing than going to the theater for many people.

Choices – Individuals and families around the globe are weighing the pros/cons and cost of going to the theater to watch a film or view it at home.  It’s all about the complete experience they want with their content.

Despite the increase in SVOD subscriptions, Nielsen says cost has yet to become a major factor for people to abandon their services and return to the theater.  In fact, 93 percent of those interviewed were going to increase the number of paid or ad-supported streaming services and weren’t going to change their existing plans. 

Then there will be people who will cancel, add, cancel services as they constantly make changes to keep up with the content they want to watch despite the provider.

That change (churn) has almost become predictable, remaining stable at about 38 percent. Services have become accustomed to that level of churn, even though wall street analysts and shareholders view anything but continued growth as an indication the streaming service is in trouble.

It isn’t … it’s human nature.

People will view content where and when they feel it is best for them.

Yes, No, Maybe – The emergence of streaming video is devastating the pay TV arena but there’is still room for theaters and streamers to 

satisfy the entertainment needs of today’s consumers.  

People have been attracted to streaming video because of the content, the convenience and ultimately, the cost.

There’s some content you feel you just have to – or want to – see in the movie house.  There are some films you want to simply relax at home and watch.  There’s some stuff you may think is “interesting” and don’t mind investing your time to check it out. That material – and your budget – is where the ad-supported, FAST service becomes a great choice.

That’s the reason the industry provides so many options, because as Nicky said in Focus, “It’s about distraction. It’s about focus. The brain is slow, and it can’t multitask.”

The important thing for folks to remember is what he added, “We are in the volume business. It’s safer that way.”

Andy Markenandy@markencom.com – is an author of more than 700 articles on management, marketing, communications, industry trends in media & entertainment, consumer electronics, software and applications. An internationally recognized marketing/communications consultant with a broad range of technical and industry expertise especially in storage, storage management and film/video production fields; he has an extended range of relationships with business, industry trade press, online media and industry analysts/consultants.

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