The history of the movie industry is filled with challenges and doomsayers predicting the demise of Hollywood. From the introduction of sound to the advent of television, the motion picture industry has always been forced to evolve to stay relevant. Now the industry is facing flat ticket sales, strong competition from streaming services, and a heavy economic reliance on blockbusters and so-called franchises that are producing an inordinate number of superhero movies and sequels.
Movie fans are consuming films in new ways, including as streamed or downloaded content that is accessible on smartphones and tablets.
Industry data shows that younger cinema-goers will still flock to the movie theater for the biggest blockbusters from “Star Wars” to “Deadpool,” but increasingly prefer the small screen for other types of film.
And while watching movies on a mobile phone is not the same as seeing it in a cinema, home theater systems, video game consoles and the internet make visiting a movie theater far from the only entertainment option.
This has had a marked effect on attendance figures.
According to the National Association of Theater Owners, there were about 41,000 movie screens in the U.S. and Canada in 2016, nearly twice as many as 30 years ago. North American box office reached a record high of $11.4 billion last year, while global box office also set a record of $38.6 billion.
But attendance has been flat for more than a decade. In North America, a 49 percent increase in ticket prices since 2002 simply masked the 16 percent decline in ticket sales during the same period.
Trend in Cayman
Cayman is not immune to the trend. “The world is changing, so we have to change to,” says Simon Watson, the operations manager for Active Capital Ltd., a subsidiary of the Dart group, which runs the local six-screen Regal Cinemas.
He says that clearly the quality of films is vastly degraded when people stream movies, but it still constitutes competition for cinema operators all over the world.
The movie industry answer is to emphasize the experience. “Our view is that if you want to watch the latest movies in the best way possible, the only place to do that is the cinema,” Watson says. “You can never get that experience anywhere else apart from the big screen. But we have to continue to upgrade.”
This includes Regal Cinemas’ latest VIP Auditorium theater, which offers luxury leather recliner seats, state-of-the-art surround-sound and a 4K ultra-high-resolution digital projection system.
The theater’s Dolby Atmos sound system delivers seamless, crystal clear surround-sound through speakers installed on each of the four walls and the ceiling. It is so cutting edge that it has been rolled out only in a few high-end U.S. cinemas.
The extra-large recliner seats with double arm rests and small tables for drinks, food and other concessions provide a maximum of comfort and space. Regal cinema had to convert one of its theaters from 150 to only 56 seats to enhance the viewing experience.
To make up for the likely decline in attendance, tickets are priced $10 higher than for movies that are shown on other screens, making it $21.50 per movie.
Customer feedback has been positive as cinema-goers realize that they pay for quality, says Watson.
“As we go forward, we hope that the VIP [facilities] will be so popular that we look at eventually upgrading a second theater.”
The VIP auditorium also helps the cinema to put on events for private hire with an adjacent lounge and concessions area.
Cayman’s theater operator has made further changes to enhance the cinema experience.
Regal eliminated separate queueing and payment transactions for tickets and concessions. Customers can now buy their tickets, popcorn, drinks and 3-D glasses in one location at the same counter.
To manage the longer queues Regal has more than doubled the number of tills from five to 11 and implemented a queue management system.
In addition, the cinema has upgraded its food options from nachos and hot dogs as the only hot food options to a full range of food, including home-baked thin crust pizzas.
“Now we have an opportunity for people to go to the cinema, buy their tickets, their popcorn, their pizza, go into the VIP if they wish, recline on those nice big leather seats and eat their pizza in comfort, watching a film,” Watson says.
Offering a wider range of food and drink items and a more streamlined sales transaction not only improves the experience for customers. For theater operators, these concession sales are key, because the ticket revenue is shared with the movie producers, who receive half of the proceeds.
Shortening the theatrical release window
Globally, cinemas continue to benefit from the theatrical release window which ensures that movies are first shown in theaters for a period of the first 90 days before they are released on a staggered schedule to video on demand, Blu-ray, streaming services and other distribution methods.
However, this exclusivity is increasingly questioned.
Last year news hit that six of the seven biggest Hollywood studios were in negotiations to release their films for home viewing less than three weeks after they hit theaters for a higher price.
For studio bosses, the idea that a product cannot be sold for a certain time period becomes increasingly anachronistic. Fox Film chief Stacey Snider told delegates at February’s Code Media conference that most big films and blockbusters have done 90 percent of their business in the first three to four weeks. “Who is it helping not to offer premium video on demand earlier? Who is it hurting?” she asked.
The studios are getting agitated because revenue from U.S. home entertainment like DVDs, Blu-rays and video on demand is fading and has shrunk nearly 50 percent in the last 10 years to $12 billion in 2016, data from Digital Entertainment Group shows.
The studios are trying to recover some of the losses by exploring different options for premium video on demand but neither the price point, the release window nor the distribution method is clear. They range from paying $30 after 45 days and $40 to watch a movie 10 days after big-screen release to $50 on the same day as the release in theaters. The latter option is touted by The Screening Room, a venture backed by former Napster and Facebook director Sean Parker, which would stream current cinema movies via an encrypted set-top box.
Because of antitrust laws, the studios, which include Fox, Paramount, Lionsgate, Sony, Warner Bros., and Universal, are talking unilaterally to major theaters chains like AMC or Regal making negotiations a protracted process.
In an attempt to bring theater owners onboard, distributors are offering to give them a cut of their digital sales. But cinema operators have vehemently opposed the idea and warned that a shortened cinema release window would significant harm and potentially cannibalize their business.
Unpredictability of consumer behavior
Part of the problem is the unpredictability of consumer behavior. Would movie fans still prefer the big screen if they can see films shortly after their release? And how many would be willing to pay a premium?
Cowen & Co. media analyst Doug Creutz does not believe demand will be sufficient to make up for the losses in DVD sales.
In his annual industry report, Creutz predicted that 2017 will bring “another round of punishment for the industry characterized by several big-budget bombs and disappointing performances from mid-budget pictures.”
The pressure is high for producers. Movie operating profits for the seven leading Hollywood studios declined by 14.6 percent to $4.18 billion last year. Yet Disney raked in 60.5 percent of total profits, as Paramount and Sony lost money.
Meanwhile streaming services like Netflix and Amazon have become major industry players not only in the distribution but also the production of movies.
Netflix is defying industry conventions by releasing its own films online without any theatrical distribution. Those Netflix-produced movies that are released in cinemas, often simply to qualify for awards, hit the big screen the same day they are available online.
Amazon Studios in contrast, which hit the big time with Kenneth Lonergan’s Oscar-winning drama “Manchester by the Sea,” continues to respect the 90-day theatrical window. “Manchester by the Sea” alone grossed $62 million at the box office through April, according to Box Office Mojo.
“We really believe in the theatrical experience by fully supporting the theatrical window for our releases,” Jason Ropell, Amazon’s head of motion pictures, said at CinemaCon in Las Vegas in March.
At the annual trade show organized by the National Association of Theatre Owners, studio bosses were quick to hail the cinema experience, and like Dave Hollis, the executive vice president of distribution at the Walt Disney Co., told delegates that they “all believe deeply that films should be seen in a theater” and that they “have a common goal to get people to see them in your cinemas.”
Making best use of the cinema asset
In Cayman, the theatrical release window is less of an issue, where Regal Cinemas is constantly turning films over. It is rare for a movie to be shown for more than two weeks. “We only have six screens. That is a lot of for the island but not for the amount of films that are being produced,” explains Watson.
“The cinema has a good following on our Facebook,” he adds, which is used for feedback, to announce new movies and to inform movies fans when films are taken out of the program.
“To weather the competition that we have, we also look to make best use of the cinema,” Watson notes. For instance, Regal is putting on Kids Club every second Saturday matinee, which features a children’s film classic for $5. There is a culture-themed event once a month with a showing of ballet or theater filmed live with up to six cameras. There are live sports events and even a church service on a Sunday.
In a small place like Cayman where it is impossible to grow the set cinema audience, the customer base can be widened to people interested in these non-movie events.
“We have this fantastic asset and it is up to us to make best use of it, not just for Hollywood movies,” Watson says.
And for the movie buffs, Regal will launch a Classics in the Cinema series next month. Set in the VIP auditorium at slightly reduced prices, it will offer showings of true classic like “Gone with the Wind,” “Casablanca” or Alfred Hitchcock’s “The Birds,” which moviegoers are unlikely to have ever seen on the big screen. The the next set will feature classics from the ‘70s and ‘80s, such as “Terminator,” “Alien,” “Dirty Dancing” or “Pretty Woman.”
“We can give a lot more than just the blockbusters,” Watson says.
This is all the more important in an industry that becomes increasingly dependent on blockbusters and the exploitation of existing intellectual property with remakes and sequels.
“The non-blockbuster market is losing dollars and to a certain extent that’s going to TV,” analyst Creutz told industry publication Deadline in March.
Hollywood is likely to repeat its response to the advent of television in the 1950s and 1960s when movie studios went big and produced Bible epics and spectacular musicals.
“You might see a situation where the budgets become more and more barbell over time where maybe you’re going to make 15 movies and seven will have budgets of $100 million-plus and eight will have budgets of $20 million and under,” Creutz said. “You hope that one or two of the $20 million movies break out, but if it doesn’t you don’t really hurt yourself and you keep your product rolling and maybe other movies do better in later windows. And you pray to God that those seven big movies do well.”