Theaters Bought by Streaming Players

As a result of COVID-19 fears, theaters (movie exhibitors) were forced to close. But they had a number of problems that predated this crisis.

For a long time, box office revenues have been declining as a share of total film revenue for studios. For many years, the exclusive window for exhibitors has been contracting as at-home viewing technology improved, with studios eager to push titles into home video format to get revenue from movie purchases and from pay TV widows. Even now, when DVD purchases and transactional video on demand have shrunk as revenue drivers, getting content quickly onto owned or external streaming platforms makes sense. Major studios were already using their leverage to compress exhibitor economics (see how Disney has recently handled negotiations for Star Wars) and with their own platforms they can increasingly bypass exhibitors altogether (as Netflix often tries to do). Exhibitor economics were already poor; theaters were trying to drive margin by becoming restaurants with screens. They had also largely consolidated into two players: AMC and Cineworld.

Premium Video on Demand, i.e. premiering movies at home, is not a new concept. PVOD was attempted with missteps for the release of Tower Heist in 2011, for example. But closed theaters, coupled with some of the dynamics above that have already been shrinking exhibitors' exclusive windows, have been the right motivation for select studios to make the move. The success of those PVOD titles, coupled with the challenge of making money on a sanitized theater environment (how do you eat the popcorn in your mask?), should make it very hard to reverse even once theaters open. This would mean that many more titles go direct to streaming and bypass theaters altogether.

But theaters are still valuable. For one thing, actors/directors/filmmakers still very much want to see their titles on the big screen, so much so that they request it even when working for digital studios like Amazon and Netflix. Today, the Oscars still require some theater screening time (though COVID has allowed a moratorium). Box office openings are also useful as highly predictive of total title revenue, and provide useful bargaining data when negotiating for titles to be sent to streaming platforms. Ultimately, the box office window, especially if it involves consumers lining up for a midnight show, is great marketing for a title. And today, as streaming players compete against each other but also against YouTube, TikTok and lots of other attention grabbers besides for your eyeballs, expect a consortium of studios or a pure streaming player to see the value of that experience. It is reasonable for one of those players to buy theater chains out of bankruptcy as marketing tools, allowing subscribers to attend screenings for free.

New Audio Formats Gain Favor

The transition to digital music was a very public one, and you’d be hard-pressed to find someone actively building a CD or MP3 collection today. But terrestrial radio has managed to hold on, despite an onslaught from digital music, satellite radio and podcasts. Car commuting has been key – radio still lives on in older car models, and some of us appreciate the unique experience of being pitched carpet cleaning services by a radio DJ. But new car models were already phasing out the option in favor of Bluetooth connectivity to mobile phones, and obviously rideshares change the dynamic as well. Now, COVID-19 has really accelerated things by grinding commuting to a halt for nearly half of the workforce.

The result is an open opportunity to change what we listen to. While in this window podcast consumption is down 10-20%[1], that is likely reflective of the fact that podcasts also tend to be consumed on commutes, and so should be a temporary depression. Spotify also saw a dent, but there is a more interesting story under these temporary impacts. Spotify is experiencing strong momentum in its free tiers[2], for example, an indicator of new audiences testing the format. Perhaps when commutes return (and I really mean any kind of short trips, as sustained WFH environments should depress commuting permanently), podcasts and streaming music should get much of their base back, and they will also add an entirely new audience who have just tested out on-demand audio entertainment and are now hooked.

It would make sense, then, that Spotify is so aggressively investing in podcasts with some of the big deals it has recently inked. And if we look at the movement within podcast data, fiction has seen substantial gains, perhaps highlighting that COVID has given scripted audio formats a time to shine. I expect more embrace of great audio stories across formats.

This period, and I’d argue specifically the isolation of lockdown coupled with Zoom fatigue, has also driven enthusiasm for another audio format. Social apps like Clubhouse and Roadtrip are creating audio-only gathering spots. Unlike the completely asynchronous interaction of the large social networks, these create the feeling of presence, of hanging out together live with friends. But unlike Zoom parties, it enables that in a pretty low-key way by removing the pressure of video and allowing users to bounce from room to room. There is no easy Zoom proxy (though there are some interesting efforts from future of work startups) to replicate the motion of leaving one conversation and joining the next. Whether these will survive the resumption of our (new) normal lives post-COVID is hard to say, but if you believe in a sustained reduction of travel and transition of many events to at least somewhat digital formats, an opportunity should remain for audio formats like these, even if the purely social versions fade.

Reimagined Events

Obviously this crisis has hit live events hard – the first to feel impact were events that gathered crowds. On the entertainment side, concerts were core to the economic puzzle for artists ever since album sales faded. Some entertainers have found success with shows online, but hosting events through YouTube or Instagram inevitably accrues much of the monetization to the hosting platform. It should be a while before crowds get comfortable resuming their concert-going, and in the interim there is opportunity for ticketed, high-production value digital formats. Perhaps we’ll all be watching performances in Animal Crossing; perhaps there is a better solution than that.

Conferences, too, don’t yet have a great virtual proxy. Webinars hardly capture the serendipity of in-person networking or drive engagement in the same way as the real thing. A few efforts have been very recently funded, but here especially I am excited to see innovation. I do think a focus on entirely virtual events misses the mark; with resumption of travel I expect many events to simply scale back on venue and manage a hybrid virtual and physical crowd. Surely there is a better solution for integrating the present and the telepresent than Zoom launched on a few screens throughout a venue.

Breaking Apart Broadcasters' Hold on Sports Rights

Plenty of others have highlighted the fact that the crisis has driven more content viewing. Broadcasters have benefited from a spike in local news viewing, for example, and subscriptions to Netflix and other SVOD platforms are climbing. Certainly, some of this viewing behavior will survive, though the hours of consumption will take a hit as out-of-home employment ramps. It is likely that this means some continued benefit to the streaming platforms at the expense of accelerated losses from cord-cutting for cable companies. As advertising picks back up, it should also strengthen the position of ad-supported platforms that gained new viewership, and perhaps more revenue for broadcasters as a focus on news will drive their value to advertisers and in bundles.

The sports angle of all this is an interesting one. In the abrupt cessation of sports events, networks can lean on force majeure clauses to recoup costs or can downward pressure on carriage agreement discussions. The likely result is some aggressive battles as normal schedules resume, but also efforts by rights holders to increasingly break up rights and seek out new buyers. After many false starts, digital players are likely to get more access to traditional sports. Meanwhile, pay TV broadly has been experimenting with gaming and alternative sports to fill the schedule. Expect future bundles to have a very different variety of “sports,” including alternative leagues and esports.

Of course, sports have long been a motivation for customers on the verge of cutting the cord; accessing favorite teams and games without subscribing to multiple dedicated services has been a challenge as skinny bundles court networks and local affiliates. In commercial contexts especially, the ability to offer sports has kept many a bar and restaurant a cable customer. That $2bn business has already felt a wave of pain as sites shut down and cut the cord entirely. As those retail and hospitality locations open back up, expect them to be rethinking their costly commercial bundle and looking for cost-effective alternatives, especially with exposure to esports. It is no wonder Dish is currently offering free service, aiming to stay top of mind as merchants evaluate their options.

We would be missing a lot if we completely neglected to mention how much lockdowns have accelerated gaming, but we’ll cover that in a more substantial post soon. While you wait with bated breath, tell us how your consumption has changed in lockdown. And check back next week as we discuss how COVID has accelerated digital banking and made trading a national pastime.

To see previous posts on education, cities, retail and CPG, or the intro to this series, please go to https://jumpcap.com/blog.

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[1] Hays, Kali. “Coronavirus Causes Dip in Podcast Listening.” WWD, March 2020.

[2] Kelley, Caitlin. “Spotify Gains 6 Million Paid Subscribers As Listening Habits Change Due to Coronavirus.” Forbes, April 2020