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Are Movie Theaters a Dead Business Model?

Will 2021 Reveal the Verdict?

· Enterntainment,Consumer Trends,Investing,Hollywood

Are Movie Theaters a Dead Business Model?

Will 2021 Reveal the Verdict?

- Will the movie theaters be replaced by streaming channels?

- Will the movie theaters disappear in the future?

The COVID-19 outbreak in early 2020 was a major blow to the booming film industry. The epidemic has hit the box office hard, causing box office loss more than 90 percent of their expected income. Most films scheduled in 2020 all have been delayed or withdrawn, and projects in progress have been suspended or postponed. All the changes are affecting the global film market.

Under extreme circumstances, some Hollywood films have abandoned cinemas for streaming platforms. A war film “Greyhound”, starring Tom Hanks, with 10 years of preparation, and cost $50 million in production, however, the release date has been repeatedly delayed under the influence of epidemic.

In the end, “Greyhound” was purchased by Apple for $70 million and made available on its own streaming platform, Apple TV+, on July 10.

Similarly, a Disney princess movie “Mulan” went live directly on Disney+, streaming in the U.S. and some other countries on Sept. 4. Subscribers will have to pay an additional $29.99 to rent the movie.

So, are movies theaters a dead business model?

First question, will the movie theaters be replaced by streaming channels?

No one would have thought that the new steam car would make the horse obsolete, or that gasoline combustion would make the steam car obsolete at that time.

So, right now, the answer is probably “No”. At least not in the near future. Unless streaming channels have absolute advantages, such as the cost, manufacturing difficulty can be ignored, cinemas are hard to replace.

Here are some reasons that cinemas are resilient.

1. Audio-visual experience: The regular PC, TV, or even the home theater doesn't provide the same screen size as the movie theater. The experience of going to IMAX or Dolby cinema is beyond words that can describe. Not to mention, under the current technology, the cost of installing a home theater is rather high, and that’s not the first choice or priority for a regular family to pursue such a luxury.

2. 3D experience: At present, 3D movies are not common on streaming channels for multiple reasons. Common ones are regular households that do not possess the 3D equipment. So, the streaming channel has the risk of buying expensive copy rights of 3D movies but does not have matching customers. Second, even if the technology can make 3D experience available on a Web page, the film company doesn't always want to sell the copyright to streaming channels. Which leads to my next point.

3. The industrial chain: Once a movie is sold to the streaming channel, it will surely affect the box office, and the box office is an important thing in the film industry. The industry will try their best to not make the concept of "box office" vanish. Because one of the most important factors for whether to invest in a movie is the box office returns. It is a vital part of the industry, it has been tied to many jobs, occupations and some influencers’ interests.

4. The social effect: Many people go to the movies with their lover, friends, and families. Young lovers in the back row, parents with noisy little children. The smell of caramel popcorn, drinking coke, and finding for the best seats. This common occurrence is imprinted in the mind of movie lovers, driven by the unique affections for the theater, subconsciously desire to meet like-minded people. They won’t miss a good movie, and the cinema will always have a place of its own.

Although the movie theater is hard to replace, we cannot ignore the fact that they are under the influence of new technology. The number of movie theaters and their financial status will surely take a blow.

Second question, will the movie theaters disappear in the future?

And the answer could be “Yes”! This is destiny that every industry will inevitably undergo upgrading or extinction in the iteration of science and technology. For movie theaters, the change of content distribution is the most direct cause of the death of cinema, and the change of business model will bring a devastating revolution. But there is something needed to make clear first:

  1.  Cinema is just a downstream industry of the film industry, and only when it is not needed, it will die out.
  2.  Cinema is mainly the product of industrialization. It comes with the development and change of industrialization.

The essence of its business model is the rental of venues installed with high level audio-visual equipment.

Comparatively speaking, the cinema still has the absolute superiority at present stage, and it also has an influential tendency. The cinema industry has never stopped innovating on technology. They are changing rather than dying.

Also, cinema is not as low-end as it seems to be. From manual film showing to IMAX to the emerging screening technology, it is some typical technological innovation products of the film industry. Cinema is mainly composed of projection equipment (screen and projector, projection server), sound system (audio, power amplifier, etc.), theater venue (construction and decoration), and management system (TMS+POS system, etc.).

Cinema innovations for example:

  1.  Projection equipment from manual to electric, from single 3D to dual 3D to IMAX and now the appearance of Samsung Onyx LED screen.
  2.  Projection system from manual projection to TMS system of cinema to NOC system of headquarters.
  3.  Management system from manual ticketing to POS system to online ticketing to self-service seat selection.
  4.  Content production and distribution from film copy to digital copy, from hard drive delivery to network transmission to satellite transmission.

Many new technology applications are emerging in the industry of cinema, but it is difficult for non-practitioners and regular consumers to get access to know them.

Film is one kind of way to present content. Every commercial movie has a particular standard and precision for quality and production, which leads to its cost being relatively constant.

From the revenue model: Film income = box office income + copyright income (including the Internet copyright authorization, film and television broadcast rights, etc.).

So, cinemas are not going to die any time soon because the business models have not changed.

It is true that streaming channels are booming, YouTube and Netflix’s subscribers this year have increased rapidly, which enriched the user's access to content. Metaphorically speaking, video sites are high-speed trains, cinemas are aircrafts. For travelers, they are in a parallel relationship, each has its advantages and disadvantages.

For the film industry, it is a matter of choice to decide which distribution channels they want to use to release their film. It is driven by interests, and whichever distribution channel brings more benefits will be more inclined.

Just like this year, “Greyhound” issuer chose HBO, and “Mulan” chose Disney+ to release their content.

All in all, the trend for future entertainment and audio-visual experience must be personal and customized, the cinema has its disadvantages for providing individual user’s experience. With the development of personal entertainment devices, and change of position in the industry, the end of movie theater may eventually come. Of course, everything has just begun, so, let’s just cherish every chance we have to enjoy a movie in the theater while we still can.

Written by Yiheng Zhang

Edited by Calvin Ma, Jack Argiro & Michael Ding

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