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Survival Mode: Movie Theaters Brace for Desolate Winter

Movie theater executives don’t usually quote Winston Churchill on earnings calls.

But during his company’s most recent quarterly report to analysts, AMC chief Adam Aron dusted off one of the prime minister’s most famous speeches to describe the financial cataclysm engulfing the exhibition industry and the resilient spirit he hopes will rise up to meet the challenge.

“We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills,” Aron said.

A touch melodramatic? Perhaps, but Aron is correct in noting that cinemas have never faced a threat as grave as COVID-19. In 2020, theatrical box office revenue will plummet 65.6% to an estimated $15.5 billion, the worst result in decades.

But then, on Nov. 9, there was something of a deus ex machina. News broke that Pfizer had developed a promising vaccine that was 90% effective in the trial phase, an announcement that sent theater stocks surging on the prospect that the world could be returning to some sort of normal within months. Moderna followed a week later with news that preliminary results showed its vaccine was 94.5% effective.

“It’s a huge game changer,” says Alejandro Ramírez Magaña, CEO of Cinepolis, the biggest chain in Latin America and one of the largest in the world. “It was going to be difficult for movie theaters to recover to pre-pandemic levels without an effective vaccine or treatment. We’re seeing light at the end of the tunnel finally.”

That said, a majority of theaters in small and midsize towns across America face going bankrupt or closing before a vaccine ever arrives.

“It’s life or death for many, many, many theater companies,” says John Fithian, chairman of the National Assn. of Theatre Owners, an exhibition industry trade group. “You don’t flip a switch and go from this current bad, pandemic-era business to where we used to be in 2019. It’s going to be a slow ramp-up.”

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Movie theaters are holding out hope for a vaccine while struggling to keep the marquee lights on. ©Raymond Depardon / Magnum Photo

A revival may be a long time coming. Coronavirus cases are surging in Europe, forcing countries like the U.K. and Italy to close theaters back down, and public health experts predict that the U.S. is being battered by another spike in infections. Also, cinemas in major domestic markets such as New York City and Los Angeles still are shuttered. It’s hard to see studios releasing major movies in this kind of atmosphere, particularly with a possible coronavirus vaccine on the horizon. That’s bad news for exhibitors who were hoping that the Christmas release of ”Wonder Woman 1984” would give them a shot in the arm.

“We need ‘Wonder Woman 1984’ to open to give us another boost,” says Eric Kuiper, chief creative officer of Celebration Cinema, a regional theater chain based in Michigan. “When studios put out a major release, they’re doing major marketing. They’re not doing major marketing for these smaller releases. When there’s a major marketing campaign, it sends a message that movie theaters are open.”

Box office analysts are skeptical that Warner Bros., the studio behind the superhero movie, will move forward this year with it. The studio released Christopher Nolan’s “Tenet” at the end of summer, when many theaters were closed, only to see the film flail at the box office.

“Warner Bros. is not about to throw out another huge blockbuster before any other studio does,” says Jeff Bock, an analyst with Exhibitor Relations. “They gave that a try once, and it was a disaster. They’re not going to do it again.”

As of this writing, Warner Bros. had not announced plans to move “Wonder Woman 1984” into next year.

But movie theaters aren’t solely relying on the superhero’s golden lasso to provide a lifeline. They’re joining with concert venues and Broadway theaters in lobbying Congress to enact Save Our Stages, a $15 billion federal grant program that backers say could prevent as many as 70% of cinemas in smaller markets from going bankrupt. NATO has enlisted filmmakers such as Steven Spielberg and James Cameron to pen an open letter pushing for federal relief, and the group has also successfully solicited half a million letters of support from average citizens.

The problem, though, is that any kind of legislation must pass as part of a larger stimulus package, and that relief will need to be approved during the lame duck session of Congress, when Donald Trump is still in the Oval Office. Given Trump’s refusal to concede the presidential election, a bipartisan bailout seems unlikely.

In the interim, theaters are hustling to make money and stay solvent. Some, such as Cinemark, are scaling back operating hours, opening only on the weekend while looking for alternate sources of revenue.

“We’re making enough money to keep our theaters open and basically pay for operating costs,” says Mark Zoradi, CEO of Cinemark. “We’re treading water to get to brand-new first-run product.”

The chain is one of many theater companies to launch “private watch parties,” which allow customers to rent an auditorium for up to 20 guests to view older movies like “Toy Story” or “Elf” for $99. So far, Cinemark has sold 50,000 of these private screenings. The company sees the efforts as a stopgap until Hollywood starts releasing big movies again.

AMC has seen similar demand for its private theater rentals, something the chain takes as a sign that audiences remain eager to go to the movies. So far, AMC has received 110,000 inquiries about theater rentals. That’s more than four times the amount of theater rental requests they fielded in all of 2019.

“Returning to movie theaters before the pandemic is over requires consumers to be comfortable that moviegoing is a low risk activity with respect to the virus,” said Elizabeth Frank, AMC’s chief content officer and executive VP of worldwide moviegoing. “Some consumers tell us they feel more comfortable seeing a movie only with close personal contacts, while others value the opportunity to host friends or family in a space where they can spread out — and not have to clean up their living room.”

AMC, with its 620 U.S. theaters, and Cinemark, with its 525 theaters, have certain advantages that other cinemas lack, such as relationships with major institutional investors and a size and scale that can help it better weather the downturn. Independent chains report that they are, in many cases, weeks away from shutting down.

“I do not think we will survive much longer unless we receive federal funds from some sort of bailout,” says Christian Meoli, found- er and CEO of Arena Cinelounge in Hollywood.

But Meoli isn’t just waiting for government support that may never come. Instead, he’s selling specialty popcorn and shipping it around the country (flavors include truffle, sweet chili lime and Australian BBQ). Since Los Angeles hasn’t given the greenlight for indoor cinemas to reopen, Meoli is developing a workaround. He’s petitioning the city to let him turn the area around his theater into a makeshift drive-in.

“I’m trying to make lemons out of lemonade,” says Meoli. “I’m in survival mode. I’m being flexible and doing everything in my power to stay in business.”

Like Meoli, Christian Grass runs a theater that’s been dark since the pandemic swept across the country in March. As CEO of Metrograph, an independent two-screen cinema on New York’s Lower East Side, he hasn’t been allowed to show movies and isn’t sure when public health restrictions will lift. To bring in revenue, Grass has gone digital. Metrograph is offering on-demand screenings of films like “Phantom Thread” and “Raising Victor Vargas” and pairing them with discussions among cast members, filmmakers and critics. Costs range between $8 for members of the theater’s “screening club” and $12 for non-members.

“It’s a difficult situation no doubt, but I see our digital strategy as a supplement to what we were doing in the physical space,” says Grass.

With studios releasing fewer comic book movies and franchise films, some theaters are relaxing their biases about streaming services and opting to showcase movies from Netflix and Amazon Prime Video, companies that previously ran afoul with exhibitors because they refused to honor traditional release windows. They’ve also been leaning into the smaller, indie fare that is still cropping up in theaters. Alamo Drafthouse, for instance, has put a lot of energy into hyping “Freaky,” a low-budget horror comedy that has been an unexpected hit for the chain.

“We’ve always played blockbusters and indies; the ratios are just shifting,” says Tim League, founder of Alamo Drafthouse.

Still, League estimates that his revenues are only a quarter of what they usually are, and the idea of operating at a profit feels like a distant dream.

“We’re still in trouble because we have accumulating rents from our leases, and we’re going into debt,” says League. “We’ve been accumulating debt for six months; is it going to be another six months?”

Other exhibitors have opted to call it quits until there is a more regular flow of potential blockbusters to highlight. Cineworld, the world’s second-largest exhibition chain, shuttered its U.K. venues and the U.S. theaters it operates via its Regal arm in October, citing the lack of movies available to screen. The company isn’t sure when it will turn the marquee lights back on. But even if “Wonder Woman 1984” stays put in December, Cineworld CEO Mooky Greidinger suggests that won’t be enough of an incentive to resume business.

“We can’t open the cinemas just for one movie, as big as ‘Wonder Woman 1984’ will be,” Greidinger says. “Once there is a clear lineup, we will reopen. … We should do it when we know we are moving on solid ground. We’re bleeding much less when we are closed than when we are open.”

Theater operators that reopened in September to welcome “Tenet,” hoping a steady stream of buzzy movies would follow, were left in the lurch after the sci-fi epic starring John David Washington and Robert Pattinson sold hardly any tickets in the U.S. Studios then pushed nearly every upcoming release into next year. Yet entertainment industry analysts are optimistic because only a few major movies, the kind expected to gross more than $100 million, opted to bypass theatrical entirely in favor of streaming services.

“The encouraging part is studios, by and large, haven’t gone to premium video on demand; they’ve gone to 2021 or 2022,” says James C. Goss, vice president and senior research analyst at Barrington Research. “There is an importance to getting these movies in the theaters. Even if there was a big streaming platform that could cover production costs, why bother taking that risk if all you’re going to do is recover the cost?”

Exhibitors may be thrilled by the prospect of a coronavirus vaccine, but there are several hurdles before the country and the world is inoculated. For one thing, both Pfizer and Moderna vaccines involves two shots, which must be kept at below-freezing temperatures. That means that distributing it could be a logistical nightmare. Moreover, vaccination is intended to go in waves, with essential workers expected to be vaccinated before the rest of the public. Theater owners had hoped that a vaccine would be widely available by April, when the James Bond sequel ”No Time to Die” is slated to open. But experts such as John Lednicky, a virologist and research professor at the University of Florida’s Department of Environmental and Global Health, says, “that’s wishful thinking.”

“There are many levels of complexities,” adds Lednicky. ”This is going to be a major learning process for everyone.”

And yet, for theaters, which have suffered through a financial calamity, the possibility of a vaccine and the prospect that their auditoriums could eventually be filled with film lovers — excited to see the next ”Avengers” movie or ”Fast and Furious” flick — has provided a rare feeling of hope.

“The news has been so bad recently that I didn’t really expect something so dramatic to happen,” says Rich Gelfond, CEO of Imax. “Of course, nothing is certain. But it does seem like things could go back to normal significantly sooner than we thought last week. And that’s unqualified good news.”