By Larry Schweikart

Op-Ed

For decades, the business model of the motion picture industry (the studios) has been simple: Make your costs back in the first two weeks (later drastically condensed to the first weekend), then make your profits on all subsequent weeks, followed by television rights, DVD sales and so on. As the costs of making blockbuster, massively high-budget pictures rose, so too did the pressure to perform right out of the gate. Hence, American movies were increasingly tailored to foreign (especially Chinese) audiences so that “pre-opening day” sales would buttress the American release.

Then came the China Virus.

At first, many thought the closure of theaters would be temporary and the industry could ride it out. The emphasis on streaming was already occurring, but theater closures accelerated this transition. Some studios continued shooting but delayed their 2020 releases until 2021. (Apple-1, Disney-13, Lionsgate-4, MGM-4, Paramount-6, Sony-8, Universal-7, Warner Bros.-7.) Warner Bros. tried a novel approach by releasing “Wonder Woman 1984” on streaming platforms the same day it was released in American theaters. The new plan represented a change of strategy by the major studios that were “confronted with a reality [they’ve] been choosing to wish away,” according to the Hollywood Reporter. That may be an understatement: The 2020 domestic box office will be down a whopping 80 percent to $2.3 billion from 2019. The theaters know this. Cineplex, a Canadian chain, raised $90 million in new cash to repay debt related to the recent shutdowns. As “Batman” writer/director Christopher Nolan told the Hollywood Reporter, “The long-term future of theatrical movies depends exclusively on people’s desire to share stories together.”

Indeed, while there are many wonderful things to be said for watching a movie in your own home, without a noisy crowd and at a fraction of the cost of a theater ticket (especially for a family), there are nevertheless shared laughs, screams and tears that still are best experienced together. Despite what the ads say, we ain’t in “this” together. And while Nolan may be right for the long term, the question Hollywood is faced with now is, what about tomorrow?

Streaming may be viable, temporarily. Disney, for example, just saw its stock price target boosted from $182 to $210. Others, however, think the long-term impact of streaming will be more problematic. Veteran actor Nick Searcy said that a lesson could be found in the direct-to-streaming movie, “The Irishman,” which tanked. While Searcy thought that in the long run, independent films—the “indies” might do better, he said streaming-only would “take all the money out of movies,” meaning that the $100-million blockbuster is a thing of the past. The half-billion-dollar “Avengers: Endgame?” No chance. Searcy observed that one immediate effect would be to drive production out of Hollywood and California: “more non-union will be used, especially with the current China Virus restrictions, which Searcy called “Unsustainable.” Hollywood would “disintegrate,” he noted, and production would be spread throughout the country.

Theaters, of course, would likely be gone. As long-time director, Charles Carner matter of factly stated, “No business can survive being shut down for two years.” What about Prohibition? “With Prohibition,” he said, “we were looking at a temporary disruption in a product that had been around for all of human history. Movie theaters have been here for just 100 years.” It doesn’t help that both AMC Theaters and the much smaller Starplex Cinemas are largely owned by the Chinese. The backlash alone is likely to help seal their doom. Keep in mind, however, that it’s not American theaters that were closed, but European and Chinese theaters as well. Go back to the original Hollywood model: the companies needed to make back all costs on opening weekend—but they had cheated on that formula by releasing to foreign audiences first. Now that avenue is removed as well.

Screenwriter and producer Tom Vaughn doesn’t think the theaters will die, but instead, he claimed we would be almost “back to normal” in a year. But from his perspective with mostly smaller films, “U.S. theatrical distribution has never been a given . . . so the loss of U.S. theatrical will mostly affect the BIG STUDIO films which is really just a different business model…” Vaughn views the transition as almost a reset: “In some ways, it would be returning Hollywood to where it was before every film had to be a huge blockbuster. People made plenty of money then, too.” The film business has been “moving away from smaller/medium films and to television for the last 10 years anyway,” he noted. He finds the biggest threat from a development standpoint the over-reliance on preexisting intellectual property, which he sees as a bigger threat than the China Virus.

Ted Mundorff, president of Arclight Cinemas/Pacific Theaters has a slightly different take. He insisted that the smaller “indie” movies, once financed by studio specialty labels, such as Disney’s Fox Searchlight, will suffer badly as studios push to prioritize streaming. In such a case, he said, “the theaters playing indie titles will not be able to keep playing them for multiple weeks,” and given that for such movies, word-of-mouth is key, “indies may be the first financial casualties of broken theater windows.” Mundorff notes that the smaller films were “the same ones that are already blamed for the decline of broadcast ratings for the Academy Awards” because they have no big stars—a shockingly naive view, given that large numbers of Americans boycott both movies and award shows because of their hateful political views and anti-Americanism. As Mundorff pointed out that a few years ago, the marketing model was to open a film in between 800-1,400 theaters, count on opening weekend, and then expect the numbers to drop between 40% to 70% after that. (“The Joker,” for example, fell 43% after the opening weekend). But with indies, it’s the exact opposite: “Parasite,’ a big indie hit, rose 13% after the opening weekend. Perhaps unrealistically, Mundorff hopes the studios will “carve-out” selected independent features and allow them a traditional theatrical run.

Fat chance. Carner pointed out the elephant in the room when it came to film profitability: “Hollywood is not a business. It is a propaganda operation. Amazon and Netflix—are they actually profitable? No way of knowing. Studios always played hide the salami with their accounting.” This dynamic—propagandizing movies (as well as television and music)—was already a major factor eating away audiences prior to the China Virus. Studios explained away the great disappearance of theatrical audiences by pointing to demographic trends where younger people do not go out on dates as much (true), or the prevalence of iPads and devices (also true). But that ignores the fact that there are real, genuine audiences who will pay money to view what is considered wholesome films in theaters. One need look no further than the incredible performance of Christian movies:

            *“Facing the Giants” (2006: budget $100,000, box office $10.1 million)

            *”Fireproof” (2008; budget $500,000, box office $33.4 million)

            *”God’s Not Dead” (2014: budget: $2 million, box office $64.6 million)

            *”War Room” (2015; budget $3 million, box office $67.7 million)

            *”Miracles from Heaven” (2016, budget $13 million, box office $61.7 million)

            *”Let There Be Light” (2017, budget $3 million, box office $7.2 million)

            *”I Can Only Imagine” (2018; budget $17 million, box office $83.4 million)

Admittedly, these are only a few. Many others flopped. But the potential was clearly demonstrated and, more importantly, despite rising production costs—“Facing the Giants” was made for a mere $100,000—they all were profitable many times over. Consider for a moment that Donald Trump in 2020 received at least 74 million votes and that a good 50% of those voters would not attend a so-called Christian film, but well might attend a non-Christian secular movie with family values and patriotism, it is an understatement to say that Hollywood and its theaters are leaving a lot on the table when it comes to indie/smaller films

Can the industry sustain on streaming along? “I don’t know,” replied Carner. “In (the) short term, it’s working.” Vaughn pointed out that “Hollywood has been shifting and changing for as long as it’s been in business. It’s adjusted to sound, television, cable, home video, streaming, etc. It continues to lose revenue streams and gain revenue streams. It adjusts as is needed.” But one of the lingering problems is that even before COVID, the studios were not adapting. Indeed, Hollywood sought a $15 billion aid package in the December 2020 Coronavirus “Relief” package that was about to go into law. And while independent movie theaters could apply for grants, the big national chains such as AMC, Cinemark, and Regal Cinemas could not.

That still did not address the underlying weakness of content. Films were becoming even more propagandistic with LGBT themes, anti-Christian rants, and politically correct diversity that was destroying storylines. One anonymous acquaintance—who had already had a hit children’s television series, approached Amazon with a new project and was told “We don’t accept anything from white males.” (For obvious reasons, he didn’t want his name used). Vaughn argued that “this year struck Hollywood because they didn’t see it coming. Everyone will adjust and figure it out like any other industry when they’re hit hard.” In fact, however, while Hollywood did not see the China Virus coming, the steady and significant erosion of middle-class viewers from theaters has been apparent for years (as well as it’s market potential), and Hollywood most certainly did see that coming.

 

Larry Schweikart is the co-author with Michael Allen of the #1 New York Times bestseller, A Patriot’s History of the United States, author of Reagan: the American President, producer of the documentary “Rockin’ the Wall” (which appeared on PBS), and founder of the Wild World of History, a history curriculum website with full courses in US and World History that include teacher guides, student workbooks, tests, maps/images, and video lessons accompanying every unit (www.wildworldofhistory.com).