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Why cinema survived the coronavirus pandemic

According to experts, almost certainly. Fans – and this is most of us – have an emotional and sentimental attachment to cinema that started in childhood and will return to cinema as soon as it is deemed safe to do so.

In the meantime, the uncertainty theaters face as long as COVID-19 prevents people from gathering indoors in large numbers means a long period of upheaval. And there will be losses.

"Theaters are facing an all-out Mad Max-style war that is causing them dangerous financial pain," said Eric Schiffer, executive director and chairman of the Patriarch Organization and Reputation Management Consultants.

According to PricewaterhouseCoopers, theatrical sales are expected to see the sharpest decline in at least 21 years. At that time, the company released its first annual outlook for the entertainment and media sectors.

"The cinema has had a huge hit this year, and we don't expect revenue to recover to pre-pandemic levels until after 2024," PwC chief executive CJ Bangah told MarketWatch. "The big theatrical experience, early access to blockbuster movies, and nostalgia all played a role in getting us to the right place, but that doesn't mean cinema isn't facing new competition [from] in-home entertainment options Innovations like AR and VR, as well as the strong performance of some published direct-to-consumer films, has challenged the general perception of how and when to engage with theatrical content. "

Much is at stake. PwC estimates the global entertainment and media business is a $ 2.1 trillion industry that will shrink 5.6%, or $ 117.6 billion, in 2020 alone. With no signs of a vaccine in sight, the decline in sales is expected to continue through 2021.

Companies that have had to endure theaters closed for months are feeling the crisis. AMC Entertainment Inc.
AMC,
-6.34%,
AMC, the world's largest cinema operator, warned in a recent filing for approval that it may run out of money by the end of the year or early 2021. Too big to qualify for bailout loans such as those available under the Paycheck Protection Program, AMC has tapped capital markets, reorganized its debt, and turned to investor groups to help boost cash and stay afloat.

Then there is Cineworld
CINE,
+ 9.86%

CNNWF,
+ 1.76%,
The owner of the shelf chain and the second largest cinema company in the world, which temporarily closed all cinemas in the UK and US in early October, putting 45,000 jobs at risk.

Cinemex Holdings USA, the operator of CMX Cinemas in Miami, filed for bankruptcy in April.

And Tim Richards, director of cinema chain Vue International, said demand was still there, but no major films were being released for consumers to see after the latest James Bond film, No Time to Die, a second time was delayed. "Our problem right now is that we don't have any films and that was a huge blow to us," he told BBC Radio.

A rescue operation? Fuhgeddaboudit

As in other industries, cinema groups have asked Congress for bailouts. The Directors Guild of America, the National Association of Theater Owners, and the Motion Picture Association warned in a joint letter to congressional leaders that "our country's beloved cinemas" could die without help.

"If the status quo continues, 69% of small and medium-sized cinema companies will be forced to file for bankruptcy or close permanently, and 66% of theater jobs will be lost," the letter said. "Our country cannot afford to lose the social, economic and cultural value that theaters offer."

The letter is optimistic that Congress divert unallocated funds from the CARES Act relief bill into theaters or pass new guidelines such as the RESTART Act, a loan program that extends PPP loans longer to give time to the hardest hit businesses give yourself qualifying lending.

"That won't happen," said Schiffer. “It would be devastatingly inappropriate to save theaters. Instead, they will face the death rattle and must pick up the pieces. It won't be the last act of cinema, but it will be brutal. "

Steve Spitzer, managing director of restructuring firm AlixPartners, agreed that a bailout is a long way, but said there are ways that movie theaters can generate a regular flow of money.

"Theaters could turn their model into a subscription service and ask their customers on short notice to help them fill the financial gap," he said. “You could get consumers to spend today to make sure they are there tomorrow. It could be that the customer is not getting the benefit now, but the certainty that the service will be available in the future and they will receive a discount. "

Smaller, privately owned movie theaters in New York City have done just that with some success, according to a report in the New York Times. Others have made movies available for streaming on their websites as a way of keeping in touch with customers. Some survived by cobbling together a mix of bank loans, emergency grants, deferred mortgage payments, landlord concessions, and donations.

“Basically, I think people believe the cinema model works, which is why after the shutdown, AMC thinks it can go on the market and raise money. Investors believe that the model is not broken, just disrupted, ”said Spitzer.

Still, not all theaters will avoid bankruptcy. That doesn't necessarily mean they will go out of business. "Bankruptcy is a tool that could help theater owners to restructure their business so that their capital structure is reset and more effective," said Spitzer.

Another possibility is for a deeply pocketed investor to find troubled theaters, which could lead to new studio owners. In September, a federal judge in the southern borough of New York overturned Paramount's approval ordinances as part of a Justice Department review of antitrust judgments. This law went into effect in the 1940s and forbade studios from owning the theaters where their films were shown in order to block anti-competitive practices.

"I could imagine Disney buying a chain to offer their own content, not just for the big tentpole films," said Spitzer. It can also be TV shows or sporting events that fans like to see on a big screen as part of an audience.

Amazon.com Inc.
AMZN,
-5.44%
could be a competitor too, given its financial clout and the fact that it is already funding movies and TV shows for its own streaming service.

Over-service tech companies can afford to innovate in the cinema experience, PwC's Bangah said, and are "potential buyers of older cinema chains."

Back to the Future

In many ways, the pandemic has only accelerated changes in the industry as movie theater chains competed for consumer attention with streaming services and popular video games such as Fortnite.

The growing popularity of Netflix Inc.
NFLX,
-5.64%,
and his opposition to watching the "theater window," the era when films were only available in stationary cinemas, was already putting pressure on the sector and angering Hollywood executives. The studios had become more risk averse to the types of films, relying more heavily on blockbusters and franchises, as well as the youthful audiences they flock to.

"Even before COVID, theaters had so many business model challenges and industry people believed they had to bend in significant ways," said Marc Simon, a former filmmaker who is now a partner at Fox Rothschild and chairman of the department for Law firm maintenance law. "Cinemas can introduce an experience component that you don't get when streaming, especially in subway areas that aren't enough to hold it up."

Theatrical revenues declined slightly in 2019, with box office revenues falling 4.1% from 2018 to just under USD 10.4 billion. Visitor numbers also fell by around 4.6%, although the decline was offset by higher ticket prices. Still, "the general downward trend in attendance must be a problem for movie theater owners," PwC said. Box office receipts fell off a cliff in March after rising in January and February. Only three major films were released in 2020 before the March lockdown.

The market has also become increasingly concentrated. Walt Disney Co.
DIS,
-0.23%
Thanks to the list of Marvel films and ownership of the "Star Wars" franchise, the company had sales of $ 3.8 billion in 2019, more than double the amount of second-place studio AT&T Inc.
T,
+ 0.97%
Warner Bros. with $ 1.6 billion.

Even before the pandemic, smaller, independent films were increasingly being funded and shown on streaming services, and this trend is expected to continue.

"Do we need to see a 100-foot-tall Jennifer Aniston chasing a 100-foot-tall Gerard Butler?" asked Anthony Palomba, Assistant Professor of Business Administration at the Darden School of Business at the University of Virginia. "What's the relationship between genre and platform? We've seen a lot more horror films debuting through streaming services. Maybe they won't have to be shown on the big screen in the future. It's less expensive to make. But if you're making a superhero film , everyone has to come. Marketing is the biggest cost factor for a film. "

What can cinemas do to increase visitor numbers? Palomba says they can be much more adventurous in the content on offer, improve their menus and drink offerings, and make sitting more comfortable.

"Binge TV is like binge TV for long films – why not offer the opportunity to watch the TV series with pauses and pauses on the big screen?" he asked. "Imagine paying $ 20 for the chance to watch a favorite show in plush seats with lunch breaks."

Cinemas could rent out their locations so people can gather to watch major sporting events, he said. They could broadcast popular plays or operas in real time, as some already do. They could encourage greater audience participation – activities that made iconic films like The Rocky Horror Picture Show a hit and a mainstay of the night for years.

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"Businesses must increasingly focus on mastering the intricacies of the consumer experience," the PwC report said. “Providers must constantly figure out how to excite consumers so they are ready to pay for content and service delivery, and create differentiated experiences if they want to increase subscription fees over time. In many ways, the post-COVID-19 world is already here for [the entertainment and media industries]. The future was brought forward. It's time to take it. "

Still, not everyone expects the world to be so different after the pandemic.

Fox Rothschild’s Simon expects the underlying business to remain unchanged after the pandemic. Writers will show their films at festivals where they may find theaters ready to exhibit them. The studios will continue to make major "event" films. And the remaining mid-budget films, rom-coms, dramas, and family fare, will naturally attract streamers.

“Once the world is back to normal, things will move on, but the problems that existed before the pandemic will increase – things like the position of streamers in the ecosystem that will change the viewing habits we are used to at home. Will it come back as a more expensive event that is community based and more like live theater?

“It could. But people have long been the death knell for cinema, and cinema always survived. The shared experience of walking into a dark room with a big screen and the smell of popcorn with friends and loved ones is too powerful to be to die. "

Additional reporting from Lina Saigol.

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