Paramount can withdraw from the cinema to focus on streaming: why?
When the Walt Disney Company swallowed up 20th Century Fox, it pulled one of the Big Six movie studios from the Hollywood hierarchy. With Fox torn from the hierarchy, Netflix, the world’s most prolific film studio, has stepped in to fill the void. But Netflix, as proud couch potatoes and filmmakers know, operates in a completely different ecosystem than its theatrical compatriots, and the voracious streamer’s direct model has only grown in value during the pandemic. How much more? From March 15, 2020 to September 15, 2021, Netflix’s share price rose from $ 298.84 to $ 577.76, an increase of 93%. So almost every major studio is fighting to be the next Netflix, rather than the other way around, and the status quo has been changed forever.
According to Hollywood journalist, Paramount Pictures is now saying “reduce its theatrical productions to focus on titles that will serve Paramount +. “ Although Paramount’s parent company, ViacomCBS, has not made any such official statement, it recently removed Paramount CEO Jim Gianopulos, one of the last studio heads with real-life cinema experience. , for the friendliest Brian Robbins. Even without confirmation of a new strategy, the mere idea of a historic 109-year-old studio responsible for some of the most influential cinemas of the last century retiring from the medium is a red flag for the industry. Add to that the deluge of massive sales and hybrid streaming / cinema releases on the same day that the pandemic brought about, and it’s clear Hollywood is in the midst of a metamorphosis.
What has brought Hollywood to this point, what does it mean for the main players involved, and how do you fill the growing void? Let’s explore.
Why movie theaters are going out of fashion
Paramount would be stepping back from 12 months of building a multi-purpose theatrical release list. It comes just a few years after the Murdoch family surveyed the landscape and waved the white flag at Fox. Why? Over the past 15 years, we’ve seen the box office move to three distinct levels:
- Big Budget Franchises: Marvel, Star wars, DC and other IP-based blockbusters, over $ 100 million
- Low Budget Dice Rolls: Low risk but high reward movies when they go online, like horror franchises (Paranormal Activity, Insidious, The Purge) who made Blumhouse Productions an actor
- Mid-budget comedies and exciting award-seeking dramas and projects: Typically between $ 50 million and $ 100 million, these types of movies are gradually dropping from the movie list as they move on to streaming.
With changing audience behaviors putting pressure on movie theater and studio profits, Wall Street began capitalize on the long-term benefits of streaming. As a result, almost all of the major entertainment media conglomerates have restructured to prioritize subscription activities, which has the dual benefit of making revenues more predictable and reducing costs.
“For Paramount, or Disney, or one of the big studios, there are two big costs to consider with theatrical filmmaking: production and distribution,” David Offenberg, associate professor of entertainment finance at LMU’s College of Business Administration. “You have to spend money to make a film and you have to spend money to show it to consumers. Both are risky because if audiences don’t like the movie, it’s incredibly difficult to get that money back.
Offenberg notes that navigating the film industry has become even more difficult at a time when streaming services are losing money. Netflix just hit black this year and major players like Disney + and HBO Max are not expected to be profitable until at least 2024. Studios therefore need to make careful bets on what to produce and distribute.
The easiest way to cut distribution costs is to stream a movie directly, which poses the whole dilemma for Paramount. Every major studio outside of Sony (which doesn’t have a premium internal SVOD service) has a choice of whether or not to release a movie in theaters, or save between $ 50 and $ 150 million in marketing by redirecting it to streaming. . You can guess which route anxious executives who are not in love with the end product will choose. It is therefore natural for the cinema market to contract further.
We are still in the embryonic stage of SVOD cinema and it is difficult to assess how much a live streaming movie is playing in terms of matching to the income generation of the traditional release (early returns aren’t, uh, great). Without ticket office and all following windows, a studio must resell a film, streamers need to measure a movie’s ability to gain new customers and how well that movie helps build customer loyalty and reduce churn.
What is the new normal in Hollywood?
Yes THRreport is accurate, we can expect Paramount to take advantage of the intellectual property it currently owns and also develop IP-based movies from its TV library (which may explain the new Paw Patrol and Spongebob movies). The advantage of a streaming service is that it provides parent companies with a lot of data on audience viewing habits, so that it can tailor movies to specific audiences and hyper-target those audiences with the promotion. . But that doesn’t mean Paramount, or any other big studio, is going to give up movie theaters – especially not after keeping A quiet place II on Paramount + for 45 days and see it earn $ 297 million at the global box office, more than seven times its budget of $ 39 million.
“Studios can walk and chew gum at the same time,” Shawn Robbins, chief analyst at Box Office Pro, told Observer. “As the streaming war rages on, there are different financial realities depending on the type of content being distributed. Paramount obviously has a great interest in strengthening their home content model, but they’ve also made it clear that movie windows remain important after the success of A Quiet Place, Part II and the delays of Top Gun Maverick and the Impossible mission sequelae to more favorable global corridors next year.
Robbins sees an industry still attached to traditional versions. Take Sony, for example. The studio has sold a small crop of streaming movies that either had minimum box office potential to begin with or that weren’t going to be able to attract the audiences needed at this current stage. At the same time, he maintained theatrical exclusivity for upcoming blockbusters such as Venom: let there be carnage and Spider-Man: No Path Home.
“As a result of Disney’s re-engagement in exclusive windows for the remainder of its 2021 releases, as well as the re-engagement established in 2022 by Warner Bros., it seems to me more that the balance we envisioned is starting to emerge. across the industry, ”says Robbins. “Studios are certainly always open to experimentation and adjustment on the fly when necessary, but aggressive pandemic models and strategies are slowly fading away as an intermediate approach begins to take hold and these companies aim to s. ” ensure their theatrical and home goals are met. . “
Recent box office figures support the idea of a progressive theatrical recovery and barring any unforeseen bombs, 2022 is on the verge of being a real stabilization year for cinema. A mutually beneficial happy medium is possible and, as Robbins notes, is probably taking shape before our eyes. But that doesn’t mean the overarching priorities of the big studios have changed as long as Wall Street continues to value streaming, either.
“On the one hand, we are witnessing a theatrical surge in the industry. On the other hand, it’s a half-hearted push, isn’t it? Asks Offenberg. “Hollywood is not doing what France is doing, whereas before the pandemic Netflix waited 36 months after the release of a film in French theaters to receive a film. I would consider it a real theatrical push if a studio showed a real commitment to prioritizing movie theater revenues over streaming revenues. None of them are going to do that right now.
Training effects and vacuum filling
We’ve gone from six big movie studios to three big cohesive theaters (Disney, WB, Universal), one prolific streamer (Netflix), two bit players (Paramount, Sony) and two tech-backed streamers with one foot in both. streaming and theatrical (Amazon, Apple). Reducing the number of buyers is never an ideal situation for talent, who is already struggling with a power disparity with studios. But even if some of the bigger studios disappear or shrink, there are a growing number of non-native Hollywood companies that want content, like the company that has yet to be named, backed by Blackstone Group and overseen by alumni. senior Disney executives. Kevin Mayer and Tom Staggs who acquired Hello Sunshine from Reese Witherspoon.
Some believe that studio shops like A24 and Neon could benefit from the winnowing of the big players. But they make the kinds of movies that don’t do well in theaters. Streamers would be more willing to acquire their content, most likely on a cost-plus model, which means there is very little benefit to the film companies that fund them. They are somewhat capped by selling to streamers and are slowly capped by box office performance.
“This is bad news for A24 and Neon,” said Offenberg. “Fewer theaters to monetize their movies and consumers now expect theaters to be the place where you go to see superhero and horror movies, not the place where you go to see a theater. that inspires thought. I don’t think they will fill the gaps left by the majors, who have good economic reasons for abandoning these spaces.
The only company that has a chance to benefit from it is Lionsgate, headquarters of the John wick and Hunger games franchisees. They have a sufficiently large distribution system and know-how in distribution. If they can find the right kind of movies outside of horror and superhero action (which requires a stunt of luck), they could make these unique offerings shine with theatrical releases. But they will have to be creative. These days, success goes beyond the simple content itself, especially for IP news. Mini-majors like Lionsgate need to figure out how to monetize beyond the box office and licensing, whether it’s through consumer products, creating digital environments for audiences like Fortnite, or something else.
Movie Math is a chairside analysis of Hollywood strategies for big news.