Box Office Crisis: Movie Theaters Try to Dig Out From Dismal Season

Exhibition Movie Theater Attendance Placeholder
Justin Metz for Variety

When “It,” the adaptation of Stephen King’s best-selling novel about a child-eating clown, debuted earlier this month, B&B Theatres pulled out all the stops. It had ticket takers greet customers in yellow raincoats while handing out red balloons, both images that are featured prominently in the film’s poster. The cinema also offered a special “It”-themed drink, dubbed the Pennywise, a reference to the movie’s villain, made with vodka, rum and peach schnapps.

“It’s showmanship,” says Brock Bagby, vice president of programming and business development at B&B. “It’s about selling tickets. You have to make it an event.”

People turned out in droves, powering the horror hit to a massive $123.4 million opening weekend at the domestic box office. But the movie’s success is an anomaly. Audiences have been largely AWOL for much of the year, sending summer ticket sales to their lowest levels in two decades and raising alarms about the health of the exhibition business. As flops such as “King Arthur: Legend of the Sword” and “Baywatch” mounted, Wall Street lost confidence in the country’s biggest theater chains. Over the summer, AMC’s shares plummeted nearly 60%, while Regal’s stock fell 36% amid an industry-wide selloff.

“I understand why people look in the rearview mirror,” says Adam Aron, AMC’s CEO. “But when you drive a car, you look through the front windshield. You don’t look through the rearview mirror. And when we look at the year in total, we see a very good year. Some, more shortsighted people pounded movie theater stocks over the summer. But you watch: They’re going to rise in the fourth quarter.”

Aron and others blame the downturn on the movies themselves. The culprit was too many sequels to franchises that had grown long in the tooth, they claim. Well, that, and an August that was devoid of blockbusters, as none of the films that debuted that month topped $100 million. In contrast, the end of the summer of 2016 hosted “Suicide Squad,” the comic-book smash that grossed $325.1 million stateside.

“If in real estate it’s location, location, location,” says Tearlach Hutcheson, senior director of film for Studio Movie Grill in Dallas, then “for the film business it’s product, product, product.”

While it’s true that sequels to “Transformers” and “Alien” weren’t what audiences wanted, it’s not clear that the movies are the only things going wrong in the exhibition space. There are those who believe there’s a larger, systemic problem: The fact is that fewer people are going to cinemas.

The success of “It” (left), along with upcoming films “Kingsman 2” (top right) and “The Lego Ninjago Movie,” is expected to boost the September box office.

Last year the box office hit its highest levels in history in terms of grosses, but record ticket prices helped fuel those revenues. Attendance has been on a downward trajectory since 2002, when 1.57 billion consumers lined up at ticket booths. In 2016, that number had fallen to 1.31 billion admissions. Dive deeper into the data, and the trend grows more worrisome, particularly among younger viewers. In the past six years, the number of frequent moviegoers in the millennial age group fell nearly 20%, according to data compiled by the Motion Picture Assn. of America.

“Movies aren’t the only choice anymore,” says Jeff Bock, a box office analyst at Exhibitor Relations. “Now there are other options with Netflix and HBO and video games. That’s taken a toll.”

Unless the studios find a way to make movies that engage younger viewers, Bock warns, their entire business model risks collapsing.

“In any industry, if you don’t have your hooks in the current generation, you could lose your entire business eventually,” he cautions. “Hollywood has to make things that resonate with this demographic or they won’t just lose them — they’ll lose the generation after that and the one after that.”

As content distribution shifts outside the film business, studios are still adjusting to the idea that they are competing not only against other movies during the summer but against the plethora of new programming on digital platforms as well.

“It used to be that all new sitcoms and dramas came out in September, and summer was sacrosanct for movies,” says Universal distribution chief Nick Carpou. “Everything now — including the way that movies are dated — is spreading out.”

Yet, the ways that companies are proposing to reinvigorate the theater space are themselves a source of controversy. Every major studio, with the exception of Disney, has spent more than a year trying to reach a compromise with theater owners that would allow them to release movies on-demand for between $30 to $50 a rental within weeks of their theatrical debuts. To sweeten the deal, studios are willing to cut exhibitors in on a percentage of their digital revenues. Currently, most major movies don’t hit home entertainment platforms until nearly three months after they debut in theaters. In return for agreeing to the shorter, premium window, theater owners are pushing for studios to keep the same 90-day period in place for selling films and renting them at lower prices. They want a multi-year commitment on that point.

Talks are ongoing, but 21st Century Fox executive chairman Lachlan Murdoch says he expects a deal will come “sooner rather than later,” with Lionsgate CEO Jon Feltheimer predicting tests would begin within 12 months.

Not everyone is convinced it’s a good idea. Privately, theater owners maintain that shortening the time they have films exclusively on their screens would encourage customers to skip the multiplexes and wait a few weeks to see movies when they bow on home entertainment platforms. Publicly, exhibitors say they’re willing to talk.

“Our CEO has said a couple of times that if there’s an arrangement that grows the pie and provides us with long-term financial gain, we’re open to it,” says Ken Thewes, Regal’s chief marketing officer. “But we’re not losing any sleep over it or dwelling on it. We continue to work with studios on a day-to-day basis to provide great films to our customers.”

Some studio executives are also skeptical about the plan. In an interview with Variety at the Toronto Film Festival, Tom Bernard, Sony Pictures Classics co-president, said the plan was “half-baked” and a “disaster.”

“I think that it destroys the ecosystem of what is right now theatrical, and the various windows that go on down the road. And if that happens, it’s going to be the death of theatrical exhibition,” he said, adding, “It’s a shortsighted idea. They need to make better movies and people will go.”

Some analysts aren’t sure that the market for premium on-demand content is large enough to significantly benefit studios or justify any major change.

“Do you really want to mess with the golden goose?” says Eric Handler, co-director of research at MKM partners. “Exhibitors are an $11 billion window. I understand that the studios are trying to find some type of alternative, but I’m not sure they’re going to get that from [premium video-on-demand].”

Then there’s MoviePass, a subscription-based service that aims to be a Netflix for theatergoers. The service has been kicking around for years without gaining much traction, but its popularity soared last summer when it announced new pricing that enables users to see a movie a day for $9.99 a month. That’s roughly the cost of a single ticket. The company’s subscriber base surged from 20,000 to more than 400,000 in a matter of weeks.

“Movie lovers absolutely want to go more often; they’re just looking for a different way to do it,” says Movie­Pass CEO Mitch Lowe. “We want to partner with theaters to get more people into their seats.”

“We haven’t had a period of extended negative reception to films like this in recent memory. That gets people to wonder: Is anybody ever going to see a movie again? Then you get a couple of hits and the attitude changes.”
Researcher James Goss

Some exhibitors aren’t happy about forming an alliance. AMC, for instance, says it’s weighing legal action and argues that the MoviePass model is doomed to fail. Lowe says MoviePass pays full price for the tickets it buys on its customers’ behalf, and argues AMC has no case. He acknowledges that MoviePass is subsidizing its customers’ ticket purchases and is operating at a significant loss, but believes that the data he gathers will be so valuable that the company will figure out a way to monetize the information. The response to MoviePass has been heated, but Lowe is shrugging it off. He compares it to the way Blockbuster treated new entrants such as Redbox and Netflix before it surrendered its top dog status.

“The No. 1 player in any industry thinks more about protecting their assets than about keeping on top of things,” he says. “When executives are up in their ivory tower and they lose touch with their customers and how their tastes are evolving, their business is at risk.”

For their part, studios argue that they’ve learned from the mistakes of the summer box office meltdown.

“You can’t push out a stale story, a stale franchise, a concept that hasn’t been teased out to its fullest,” says Jeff Goldstein, Warner Bros. head of distribution. “You have to lean into good content.”

There’s also a growing sense that “It” will spark a box office resurgence. The film shattered records for a September debut, and combined with upcoming releases like “The Lego Ninjago Movie” and “Kingsman: The Golden Circle,” is expected to power the month to new highs.

“Everyone’s been apprehensive,” says James Goss, managing director of research media and entertainment at Barrington Research. “We haven’t had a period of extended negative reception to films like this in recent memory. That gets people to wonder: Is anybody ever going to see a movie again? Then you get a couple of hits, and the attitude changes.”

Looking further ahead, there are a number of other promising titles, such as “Thor: Ragnarok,” Pixar’s “Coco” and “Star Wars: The Last Jedi.” Some prognosticators think that by the end of 2017, revenues will be nearly on par with last year’s record-breaking results.

“The industry box office did turn soft in May and July and August,” Aron says. “That’s just a fact. … As we listened to all the doom and gloom talk, we kept on saying to ourselves, we can’t wait for the stories in November and December, when people start writing about the miraculous recovery of the theaters.”

While companies like Netflix generate headlines for disrupting the way people watch movies and shows, exhibitors maintain that they, too, have been invested in innovation. Regal and AMC have upgraded locations with recliner seats and are enhancing their menus with snazzier snacks and alcoholic beverages. Both companies say the new features have resulted in more foot traffic and concession sales.

“If you look at any business, the bar keeps getting raised and expectations keep going up,” Thewes says. “People have a lot of choices about where to spend their disposable income, so we need to keep raising our game.”

B&B Theatres’ Bagby says he’s convinced audiences will keep returning, provided exhibitors come up with novel ways to lure them out of their homes. He notes that his company has outfitted locations with a play area, as well as a 4D auditorium with seats that spray, mist and move along with the on-screen action. The business, which has 400 screens in seven states, has been in Bagby’s family for four generations. He wants to keep it around for several more.

“My grandfather always said that everyone has a kitchen, but they still go out to eat,” Bagby says. “They’ve got to get out of the house. I believe in this business. I think the future is bright.”