2022 is proving to be a year of upheaval for the entertainment industry. We have already seen volatility in the streaming landscape as Netflix, Disney, newly merged Warner/Discovery, Walmart, and even Roku try to adjust to changing market conditions.
However, that isn’t all. Even though there have been several theatrical box office hits, including the huge box office numbers for Top Gun Maverick, it looks like movie theaters still haven’t recovered from the effects of COVID.
As a result, there is an overall trend of fewer moviegoers and also fewer theatrical film releases.
Trouble at Cineworld and Regal Cinemas
Due to the combination of factors outlined above, Cineworld, the second largest movie theater chain in the world, and owners of Regal Cinemas in the U.S. has decided to file for bankruptcy. Below are the timeline and details so far.
UPDATE 9/7/2022: Cineworld Formally Files for Bankruptcy
UPDATE 10/4/2022: Regal Cinemas Close 12 locations as a result of Cineworld Bankruptcy.
UPDATE 1/20/2023: Cineworld/Regal Cinemas Closes 39 More Locations – See The List
More Details on What Led Cineworld To This Point
Cineworld posted a $708.3 million loss before tax for the full year ending Dec. 31, 2021. Although better than the $3 billion loss in 2020, the company’s debt increased by $492.7 million from $4.33 billion to $4.84 billion.
According to Cineworld: “Despite a gradual recovery of demand since re-opening in April 2021, recent admission levels have been below expectations. These lower levels of admissions are due to a limited film slate that is anticipated to continue until November 2022 and are expected to negatively impact trading and the group’s liquidity position in the near term…”
Cineworld further explains that they are “taking proactive steps to ensure it has the balance sheet strength and flexibility to adapt to market conditions. This includes significant previously disclosed operational and financial initiatives to manage costs and enhance liquidity. The group believes these steps are required to optimize its ability to maximize enterprise value as part of the recovery in the cinema industry.”
One immediate effect of Cineworld’s announcement is that stock prices plunged not only for them but also for AMC, which is the largest movie theater chain. Although AMC is a separate company, its stock price reflects how investors feel about the stability of the movie theater landscape.
The four largest movie theater chains worldwide are (location and screen numbers may vary):
Bad News for Movie Theaters and Studios
This is definitely not good for the movie theater industry. We have previously written on the plight of the movie theaters as a result of COVID-19, but even without the pandemic, there were signs that moviegoers weren’t necessarily satisfied with the moviegoing experience. Of course, big studio blockbusters were filling the seats, but medium and low-budget studio and independent films were not filling as many seats as they used to. Also, increased demand for blockbusters has pushed those films out of the multiplexes.
It also didn’t help that during COVID, casual moviegoers have not returned to local cinemas, as they are not used to streaming movies at home, even though streaming does have its own issues.
Streaming vs Theatrical
Although movie theaters are now having trouble filling seats, streaming hasn’t necessarily worked for the studios either. One of the worst decisions made by a studio, Warner Bros released all of their movies, including potential blockbusters, such as Dune and Godzilla vs Kong in both movie theaters and streaming at the same time. The lesson: Once you spend 100 to 200 million dollars making and promoting a movie, releasing it on streaming just doesn’t bring in the revenue as does selling movie tickets.
One example is that Top Gun: Maverick was completed just before the pandemic and there was a lot of pressure put on Tom Cruise to allow a combined theater/streaming or streaming-only release during COVID. However, Cruise insisted that the movie be held until theaters opened back up so that it have an exclusive theatrical release. As result, after two years of waiting, Top Gun: Maverick was released theatrically only and has become one of the largest-grossing movies of all time, both domestically and worldwide.
Other movies attracting big office numbers with theatrical-only releases post-pandemic include Jurassic World: Dominion, Dr. Strange and the Multiverse of Madness, The Batman, and Spider-Man No Way Home.
What this indicates is that if there are movies people want to see, they will go to a movie theater to see them.
Also, moviegoers are filling IMAX, Dolby Cinema, 4DX, Cinemark XD, PRIME, RPX, and other premium screen format auditoriums, which indicates that if moviegoers can get an experience that is not available in a home setting or in smaller multiplex venues, they are willing to fork out the money. A growing number of consumers have home theater setups that, for all practical purposes, provide as good or better movie viewing experience than many small multiplex auditoriums, especially when you consider noisy patrons and high concession prices.
Lingering Recovery Problems
A bigger problem is that movie theaters that were sitting idle throughout the pandemic now owe about two years of back rent or lease expenses, so even if those big blockbuster movies are able to fill those seats now, that revenue doesn’t cover all those past expenses even taking into account any local or national covid relief funds that may have provided some assistance, or additional tax breaks that may come into play.
In the case of Cineworld, bankruptcy may be the only way to recover. They may have to dispose of assets, such as selling off locations to smaller local or regional chains (such as Alamo Drafthouse and Landmark Cinemas) that may be more profitable, closing locations, or reducing/consolidating the available number of screens in some locations.
Also, there is currently a labor shortage in many locations which means that to attract new staff, the costs of higher wages and/or salaries may come into play with very little extra revenue to pay for this added expense.
In addition, with no big blockbuster movies, as well as fewer movies overall, slated for August and September 2022, there isn’t a big incentive for moviegoers to spend money, as they are willing to wait for the big movies coming out starting mid-October (Black Adam) and going in the 2022 Holiday season (Black Panther: Wakanda, Forever, Avatar: The Way of the Water).
Movie Theater Viability – A Least for the Near Future
It is unlikely that movie theaters will disappear completely, but as how we access and consume media changes, so will the role of movie theaters. The current trend appears to be that movie theaters will be the home of big blockbuster movies, with lower-budget and independent films being relegated to the streaming environment. Also, you may see more emphasis on local and regional theater chains than current global chains with thousands of screens.
However, the movie studios will have to release movies that people will actually want to see, and theaters will not only have to provide a viewing experience not obtainable at home and also provide a clean environment with amenities that are worth the high ticket prices.
NOTE: This is a continuing story, as more information becomes available the article will be updated or follow-up articles as needed.