Can cinemas bank on a big return to the big screen?

Cineworld’s $3bn (£2.17bn) loss for 2020, unveiled this week, is a stark reminder of the vulnerable state of the once all-powerful cinema owners, as Hollywood studios embrace streaming and jeopardise hopes of a post-Covid box office recovery.

Cinema owners have barely survived the last year with the pandemic-enforced closure of movie theatres for months on end resulting in the lowest annual admissions ever recorded, in turn fuelling an 80% slump in box office revenues.

Cineworld – heavily indebted and this week forced to issue a “going concern” warning that underlines its precarious financial position – is gearing up to reopen in the US next month, and in the UK in mid-May, and it desperately needs movie-goers to flock back to the big screen experience.

Cineworld’s rather optimistic thinking is that, come May, cinema-going will immediately jump back to 60% of 2019 levels and rise to 90% by the end of the year, on the basis that there will be no more closures. Crucially, the group believes going to the movies will pretty much return to pre-Covid popularity, with admissions down just 10% on 2019 levels by next year and just 5% lower in 2023.

But the pandemic has changed everything, from consumer behaviour to the breakdown of the traditional business model – based on exclusive screenings in cinemas, before movies become available for home viewing – that has underpinned cinema owners’ success for decades.

The public spent 40% of waking hours watching TV during the first lockdown alone, bingeing on box sets and movies on the small screen. So the lure of other pursuits allowed with the easing of pandemic restrictions through the summer may push cinema trips down the “to do” list.

“Cinema-going will inevitably initially be at much lower levels, the question is what level will they return to,” says Richard Broughton, research director at Ampere Analysis. “There have been changes in consumer habits, with the boom in streaming, and theatre owners aren’t in the same position to put their foot down with studios over exclusivity.”

Hollywood studios have seized on cinema closures to experiment with digital releases, charging up to $30 to watch films once destined for cinemas first, infuriating theatre owners who for decades have relied on the once sacrosanct model of big screen exclusivity for months on end to make their finances work.

Big Hollywood studios such as Warner Bros, Disney and Universal have taken this unprecedented opportunity to test not only how well the films do financially – without a cut going to cinemas, a digital release is much more profitable – but also their ability to drive new subscribers to their streaming services.

Analysts agree that for most films the strategy has not been a great success. Mulan, Soul, and Raya and the Last Dragon all delivered muted performances, but that did not stop Disney announcing last week that it is pulling Pixar’s upcoming Luca from cinemas to be its next exclusive.

David Hancock, film analyst at Omdia, says more than 160 films were originally scheduled for release in 2020 and 2021 and he reckons cinema screenings are still the best way for moviemakers to create value. “We have seen a few pushed into streaming mainly because cinema is taking a long time to reopen. Theatrical release is still the best way to create value and make money for feature films, especially the more blockbuster films.”

A new deal on exclusivity appeared to have emerged last week when Cineworld announced a breakthrough multiyear agreement with Warner Bros. The deal is for cinemas to get a 31-day exclusivity window in the US and UK, extending to 45 days in the UK if certain major films hit box office targets.

“I think the Cineworld/Warner Bros deal is a very elegant solution, a middle ground that shouldn’t affect cinema box office take,” says Hancock. “I genuinely think film studios understand that the best way to maximise value is to start with launching most of their films in theatrical release first.”

However, on the same day that deal was done Disney announced that its eagerly anticipated Marvel film Black Widow – which many cinemas had been banking on to help spark a revival as one of the biggest films of the summer – will debut simultaneously in theatres and on Disney+.

Earlier this month, Disney+ passed 100m subscribers in just 16 months – a feat that took Netflix a decade – and it has upped its goal to 260m by 2024. Its biggest hits to date are The Mandalorian and The Falcon and the Winter Soldier, both small screen spin-offs of its Star Wars and Marvel big screen franchises.

The world’s biggest entertainment company may be laser-focused on building a streaming empire to match Netflix, particularly so while cinemas remain closed, but as the most successful studio in history at the box office it is unlikely to close the door to theatre owners. Global box office takings hit a record $42.5bn in 2019, led by the success of Avengers: Endgame, the culmination of a decade-long big screen strategy that has made tens of billions for Disney.

Hancock said: “When it settles down Disney+ is the one that will keep with theatrical windows of some sort, its films are made for the big screen. Disney+ know that; they won’t put everything on Disney+.

“One thing I can tell you is that in China and Japan cinemas are now running at normal profitability and occupancy. People will go back to cinemas.”