Struggling Theaters Should Buy Movies From The Streaming Services, Analyst Suggests

With Hollywood studios pushing most blockbusters into next year or even later, the already grim prospects for movie theaters are only getting worse, with a dearth of content exacerbating audiences’ Covid-19 concerns.

One solution: buy movies from Amazon, Netflix and other streamers, the exact companies whose online alternatives are making the theaters’ continued operation so complicated. At least, that’s the suggestion from MoffettNathanson analyst Robert Fishman.

“Theater owners should consider finally striking a deal with Netflix
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, Amazon
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and other SVOD services as a lifeline to get more product on movie screens,” Fishman wrote in a new report.

Fishman predicts this year’s domestic box office will drop a stunning 81 percent, deflating to just $2.1 billion. After years where that number hovered somewhere around $11 billion, now there’s vast uncertainty about when, or even if, the movie business in the United States will fully recover, he wrote.

Other analysts are expecting a collapse in box office too.

PwC partner CJ Bangah told me her big consulting firm’s annual media and entertainment outlook is projecting a 65-percent drop in global revenues for the movie sector, and, “The industry may slightly even underperform our forecast is the way it’s been looking recently.”

Rich Greenfield at LightShed Partners has even suggested in several recent posts that the Hollywood studios should accelerate their embrace of streaming by pushing more of their movies directly into the streaming services they’ve launched, and building the cost into the subscription priced. To do otherwise, he suggests, is ceding a huge opportunity to Netflix.

In response to the Regal announcement this week that it would shut theaters for the next several weeks because of a dearth of new movies, AMC
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Entertainment said it would remain open. In part, that’s because the nation’s biggest theater chain also was the first to cut a revenue-sharing deal with a Hollywood studio, in this case, NBCUniversal. AMC executives said this that their company can continue to make some money under that deal with NBCU films even when people don’t go to theaters. 

MoffettNathanson’s Fishman is advocating what might be called a cousin of that approach for other theater chains, cutting deals for content with streaming companies. Of course, if studios aren’t freeing up their films for theatrical distribution and aren’t putting them on their own streaming services either, that leaves a very short list of providers of Hollywood-style entertainment: Netflix , Apple
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and Amazon Prime
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. 

Perhaps Netflix would do a deal for some of its films, a variant on its Oscar season strategy of the past couple of years.

Those deals involved short theatrical releases for some of Netflix’s biggest awards contenders, including Alfonso Cuaron’s Roma, the Coen Bros. The Ballad of Buster Scruggs, and Martin Scorsese’s The Irishman, all of which received multiple Oscar nominations.

That approach brought extra attention during awards season to those films, and helped signify Netflix as a place that not only offered lots of content, but some really good stuff too.

But Regal, AMC and most other larger chains declined to participate because the Netflix strategy gave them exclusive distribution windows for only one to four weeks, too short to make money, they said.

Now, given their difficult situation, perhaps some of those chains might reconsider.

Apple is another possibility, especially as it appears to be ramping up investment and marketing for its nearly one-year-old TV+ service. But despite a raft of recent acquisitions and production announcements, TV+ remains a relatively lean content slate. 

That leaves Amazon, which has a fair number of original movies and even more series, and importantly may have other, broader goals that also could be met with a clever theater deal.

Perhaps in exchange for programming access, maybe Amazon would be allowed to convert part of theater lobbies into holiday demo areas featuring Amazon Fire TVs, smart speakers, and Kindle readers, alongside other Amazon house brands? Would there be an opportunity to create the kind of attendant-free grab-and-go shopping that Amazon already has installed in a handful of its own retail outlets?

And obvious opportunity would be to install one of those automated storage lockers you can find at many Whole Foods
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stores, allowing easy pickup of Amazon packages while seeing a show. And of course, there’s no way Amazon turns down the chance to sell movie tickets and concessions through its online store.

It’s too soon to see what’s going to happen to the theater business. Congress and the president remain split over another round of stimulus spending, and it’s not clear an eventual deal would include struggling industries beyond the airlines. 

But it’s pretty clear the theaters need to adapt quickly. To their credit, as PwC’s Bangah pointed out, the theater chains have had to adapt rapidly before to the streamers’ challenge. First they converted to digital projection, then over the past decade, they significantly upgraded the movie-going experience with better food, seating, premium dining and drinking options and much else.

Could the streamers that have caused so much havoc for the theaters now become their savior?