Amid an unprecedented shutdown of movie theaters and entertainment production, major players are experimenting with new business models as digital platforms ascend and artists take up a DIY ethos: “You have to adapt.”
Huw Samuel had planned to take his girlfriend to see Universal’s The Invisible Man in a theater near his home south of London. Then the coronavirus crisis changed his plans, as it has for people around the globe in ways both dramatic and mundane.
Like those in America, U.K. cinema chains were forced to close in mid-March, so Samuel, 29, did the next best thing for a date night — he brewed a pot of tea, turned off the lights in his apartment and rented Invisible Man on Amazon Prime for £16, or about $18.
“I thought it was a pretty reasonable price — about what we would have paid for tickets,” says Samuel, an actor and director whose work on a commercial and a feature have been delayed by the pandemic. “It was only corona that put me off going to the cinema … but this has opened my eyes to more streaming possibilities.”
Long before a public health crisis closed exhibitors’ doors, the audience’s retreat from the theater to home video had driven both anxiety and opportunity at entertainment companies. But COVID-19 represents a watershed moment in the business, one that is accelerating current trends in media consumption and forcing Hollywood to embrace its digital future.
Desperation has driven studios to shrink the once sacrosanct 90-day theatrical window, a move some have been contemplating for more than a decade. At the same time, new streaming video services are drawing heavy investment, and though no company wants to be perceived as profiting from the disaster, streaming usage will be up 60 percent overall during the crisis, according to Nielsen. Gaming will spike 75 percent, according to Verizon. Internet demand is already so high in Europe that government officials there have asked Netflix, Amazon, Apple and Disney to reduce the video quality of their streams to lessen the burden on the continent’s networks.
“COVID-19 will expand the gaps between those lagging and leading in the transition to digital distributions and business models,” says venture capitalist Matthew Ball, former head of strategy at Amazon Studios. “OTT video services will surge, while pay TV loses its most valuable content — sports — and sees an accelerated decline in subscriptions and ad revenue. Parks and movie theaters are ground to a halt, while gaming companies hit new highs in usage.”
The virus disaster, which has shut down production at virtually every entertainment company, also has exposed weaknesses, especially in those that carry a heavy debt burden, like ViacomCBS, Endeavor and theater chain AMC Entertainment, or those that rely on travel to theme parks and cruise ships, like Disney. Cowen analyst Doug Creutz has cut his earnings estimates for all the entertainment companies he tracks through 2022, slashing his price target for Disney from $159 to $101 and for ViacomCBS from $25 to $17.
Widespread layoffs are expected in an industry that had expanded to meet the demands of the streaming content bubble, with agencies including Endeavor and Paradigm already cutting staff and with UTA slashing employee salaries. The question for many in entertainment is how permanent these changes will be — will the industry rebound once the pandemic has passed and come to resemble its former self or will this crisis cement a new normal in Hollywood?
When Universal executives called Blumhouse CEO Jason Blum to discuss plans to make The Invisible Man available for home rental just three weeks into its theatrical run, along with another Blumhouse movie in theaters, The Hunt, “I was supportive of their decision,” Blum says. “It was a very tough decision. In a time of crisis … you have to look forward. You have to adapt.”
Universal had released Invisible Man wide in theaters Feb. 28 and made it available to rent March 20 at a cost of $19.99 in the U.S., narrowing the theatrical window to just 21 days. The $9 million movie, which had grossed $123.6 million worldwide before theaters closed, was the top movie on Fandango’s VOD service over the weekend of March 20-22. Blum says Universal execs assured him their strategy is a temporary response to the crisis while making it clear that the Comcast-owned studio will be using the unplanned experiment as a way to learn what consumers will tolerate.
“Is the audience going to see it as, instead of going to the theater and all the costs associated with that, getting there, parking, popcorn, a babysitter if you have kids. … Are they going to say, ‘Wow, this is a real bargain compared to that?’ ” Blum says. “Or are they going to say, ‘What a rip-off. Netflix is $12 a month. I could watch a hundred movies.’ No one knows the answer to that.”
Universal’s groundbreaking decision was followed quickly by Disney, Sony and Warner Bros. making similar moves, albeit offering their films for purchase, rather than rental, and by Paramount sending its April romantic comedy The Lovebirds to Netflix. Though the shifts were a response to a singular catastrophe, this change may reverberate long after the crisis has passed, as consumers, who can now watch fresh-from-the-theaters releases like Disney’s Onward, Sony’s Bloodshot and Warner Bros.’ The Way Back at home, may come to expect such convenience.
So may audiences who watched Oprah Winfrey’s interview with Idris Elba about his coronavirus diagnosis via the Apple TV+ app on their iPhones rather than the linear TV sources they used to rely upon for such newsworthy moments. And households that are ditching their $100-plus cable bills without the lure of live sports may not return when the pandemic passes, especially under the financial pressures of a recession.
Some insiders counter that consumer routines are more resilient than any single crisis. “People will still want to go to events, games, concerts, movies,” says billionaire and Dallas Mavericks owner Mark Cuban, who sold his stake in the Landmark Theatres chain in 2018 and has been an advocate for shortening theatrical windows for more than a decade. Cuban does not believe the shorter windows will inspire people to stay home when theaters reopen. “People will forever get cabin fever, and ‘Netflix and chill’ is not a long-term solution for 16-year-olds who are dating, at least not in my house. People will return to their old habits once they trust their environments to be safe. We have had tragedies in entertainment venues before, yet people have returned. I don’t expect this to be different.”
Sony Pictures chairman Tom Rothman says the eventual end of the pandemic will unleash pent-up demand for entertainment outside the home. “There will be a great surge of emotional appreciation for collective experiences,” Rothman says. “That’s who we are, as human beings, and that’s who we have always been since telling stories around the fire in prehistoric times, and I think it’s primal. I think it’s going to remind people how much they love what they’ve missed.”
Still, the closure of theaters because of COVID-19 has provided an opportunity for studios to learn something about consumer behavior that they’ve been wanting to explore for years. In 2011, Universal attempted an experiment with its movie Tower Heist, proposing a plan to make the Eddie Murphy comedy available for home viewing three weeks after its theatrical debut at the rental cost of $59.99 to 500,000 people in Atlanta and Portland via Comcast’s VOD system. Theater chains rebelled, threatening to boycott the movie, and Universal abandoned the plan. Now a crisis has inspired a similar test, in a moment when exhibitors have scant leverage.
National Association of Theatre Owners chief John Fithian told in a fiery interview March 20 that “exhibitors will not forget” what Universal in particular did during this crisis. While other studios delayed their tentpole releases rather than dropping them online — MGM pushed its James Bond movie No Time to Die, Paramount delayed A Quiet Place Part II, Warners rescheduled Wonder Woman 1984 and Disney postponed Mulan and Black Widow — Universal decided to release its DreamWorks Animation sequel Trolls World Tour, scheduled to arrive in theaters April 10, direct to home entertainment.
“Every other studio has demonstrated true partnership and belief in the theatrical model during this time of crisis,” Fithian said. Universal did not respond to a request for an explanation of what drove the decision, but one person with knowledge of the studio’s deliberations says much of the marketing money for Trolls World Tour had been spent and there were no appealing available dates on the calendar. “When is a good weekend?” says the industry source. “It’s a clusterfuck. And it’s obviously precedent-setting.”
Tellingly, Universal is sticking with theatrical for the pricey tentpole sequels F9 and Minions: The Rise of Gru, both of which were delayed (the previous installments of both franchises made more than $1 billion in theaters). But the $90 million price tag on Trolls World Tour makes it an unusually costly film to premiere on demand. “Movies that are extremely expensive are released in theaters worldwide for a reason because that’s the only way you can make that money back,” says Paul Dergarabedian of Comscore. “Look at Avengers: Endgame. How would you ever earn $2.7 billion on demand?”
As the industry adapts to a quarantined world, innovations are afoot. With film and TV production almost entirely shut down, key sectors of the business are finding new ways to work, with late night TV shows like The Daily Show and The Tonight Show offering programs shot from their hosts’ homes, and with scripted TV shows convening their writers rooms via video conferencing.
Hollywood’s shift to WFH where possible has accelerated the already growing trend of productions relying on cloud and other remote services for key postproduction processes like editing and visual effects work. And there can be rewards for smaller players in the industry that had already set themselves up for remote work by necessity, like tiny Imepilt Studios, a 30-person animation company based in Estonia at work on a feature written by the screenwriters of Disney’s Mulan.
“It takes just a little bit of sweat and ingenuity for an animation production to continue without a hitch,” says Almondi Esco, CEO of Imepilt. “When your writers and producers are in L.A., your sales agents in the U.K., your head of immersive experiences is in New York, etc., you need a system that can withstand a massive amount of information given and received across different continents and time zones. Thanks to the pipeline and remote tools already in use, the preliminary adjustment to a full-on remote work mode took us a week. I feel it is safe to say that the lessons learned this week made our production pipeline about three times more efficient.”
Even the way Hollywood promotes itself, with costly parties at far-flung events, has changed in ways that may concretize, with major industry gatherings like South by Southwest, the fall TV upfronts and the Cannes Film Festival canceled or delayed. “We’ve seen things like that in business in general all the time,” says ICM partner and managing director of talent and branding Adam Schweitzer. “You’re forced into doing something that’s not the regular practice. It ends up saving dollars, it ends up yielding a similar result, and then people go, ‘Oh my God, why weren’t we doing this before?’ ”
Artists are also seizing the moment with a DIY ethos. Musicians like Chris Martin and John Legend have begun streaming concerts for their fans at home, DJs like D-Nice are hosting celebrity-packed house parties on Instagram Live, and creators like married writers Kumail Nanjiani and Emily Gordon, who launched a podcast, and former daytime TV host Rosie O’Donnell, who hosted a Broadway-themed benefit for the Actors Fund from her basement, are inventing new microbudget programming specific to the catastrophe.
Blum believes the most lasting impact may be in the nature of the content itself. “Every artist is going to be touched by this event,” says Blum. “And storytelling will shift. You’ll see that in scripted and unscripted and television and movies. Everything that we’ve done pre-[COVID-19] will seem dated much more quickly than it would have in an ordinary time.”