What’s Next For Theaters After the Pandemic? We Asked an Expert

Movie theaters are taking a huge hit in 2020, but one of the reasons that they are being so devastated by the pandemic and its resulting shutdown is that many of the companies that own and operate them are already deep in debt. Before the pandemic even hit, for instance, AMC was in dire financial straits, so much so that early in the pandemic, there were questions about whether they could survive the 3-month shutdown that was being optimistically projected at the time. J. Christopher Hamilton, professor of television, radio and film at Syracuse University’s Newhouse School, has been sounding the alarm for a while now.

Hamilton, who worked for Disney, WarnerMedia, and Viacom during his long career in Hollywood, has since turned to academics. One of the things he has been teaching is that the theatrical business model — where, he notes, you can pay as much for a large Pepsi as you do for a full meal at some fast-food chains — is likely unsustainable as it currently exists.

Syracuse, where Hamilton teaches, has sometimes been used as a test market, since its demographics are similar to those of the United States at large. It’s perhaps telling, then, that two of the area’s chain theaters closed down last month, leaving just one major cinema and a few smaller, non-corporate theaters.

Hamilton has compared the way theater chains are digging in their heels and crossing their arms to the kind of short-sighted theatrics Blockbuster Video engaged in when they refused to acknowledge the oncoming train that was the burgeoning streaming market until after they were already fully under its wheels.

We recently spoke with Hamilton about what he sees as the challenges and opportunities that are staring down theaters and Hollywood in the world after COVID.

You’ve said that part of what’s dangerous for cinemas right now, is the way their management is mirroring the behavior of the video rental industry before its collapse.

Yeah. These companies, it’s sad. Because, there’s so many opportunities so you can really be changers, be innovators. Really do some good with all of their power, influence, and capital. But, they just act like greedy old men. You know what I mean? They don’t want to let go of the shiny object. Because, they don’t trust that the other thing that’s on the horizon is going to be just as shiny and pretty.

Regal is driving a lot of this — but how do you read the way that they’re kind of responding to the crisis, which seems to be very protectionist in a lot of ways?

To be honest, it makes no sense. Regal’s has been emphatic about not being willing to reevaluate the theatrical window. They’re attempting to triage the losses by closing the theaters, and just kind of maintain their business the best they can. But, the reality is the entire industry needs restructuring, including their business model. And they’re hemorrhaging capital. They’re over leveraged… All of them are in debt tremendously. I mean, AMC was able to write down some of their debts, but AMC, Regal, Cinemark…they’re all in billions of dollars of debt.

And they’re not recognizing that a new day has come, the business is changing — that Generation Z’ers are not going to be going to the theaters in mass droves, no matter how many installments of Avengers you create. It’s one of these things where the writing’s on the wall, but what they… I’ll exclude AMC from this for now, but with the exception of AMC, most of the big distributors aren’t willing to reevaluate, pivot, and really offer something that would really enhance the experience for the consumer, so paying $20 for a box of popcorn can somehow make sense for them.

As a consumer, as an avid moviegoer, as an academic in this field, and also as a lawyer — and I still do business in the business — even when I was working as an executive at theses companies, I was always amazed at the media conglomerates’ resistance to shift and change with the shift and change in the marketplace. And it was always rooted in the same issue. Which was, “Well, if we do that, isn’t that going to ruin our home video sales? Isn’t that going to really impact our domestic TV distribution business?”

Yeah, it definitely is going to have an impact, but if you watch consumer consumption patterns, and if you watch how the business is changing, it’s inevitable anyway. Right? So, DVDs are going away. We’re going to have to embrace streaming on a larger scale. Because, at some point in time they will be out of manufacture. We’re not there yet, obviously, but that business is only going to be solvent for so long.

To be fair to them, I get it. All of them, for the most part, have to report to the investors, and report to the stockholders, right? And anything that’s going to erode or diminish returns that isn’t a sure footing, or a surefire business opportunity that’s going to scale quickly, is going get looked at in a questionable manner, and then the people who made the decisions, their job’s on the line. That’s how Hollywood’s run, and probably most business. At most companies, executives work from the same mindset. Which is, “I’m doing to do whatever I can to preserve my job. Anything that’s going to jeopardize that, even if it’s for the best of the business, I’m not going to do.”

So, fear is infectious, and it permeates a lot of business, which is why innovation comes from small startups in Silicon Valley and not from media conglomerates in Hollywood.

Is there anything about the pandemic, do you think, that represents opportunity for the industry rather than just challenges?

During the Spanish Flu epidemic, there was obviously a lockdown on business. The economy was suffering, just like now. But, coming out of that is when there was this huge wave of conglomeratization and acquisition, and that’s when the studios started buying up a lot of the exhibitors before the Paramount Consent Decree.

I think in terms of going back on the theme of re-imagining and restructuring the exposition business, I think coming out of this pandemic, it’s a great opportunity for the companies that have the capital reserves like the largest tech companies. Apple, Google, Amazon, the ones that are over a trillion dollars — it’s a perfect opportunity for them to say, “Hey, you know what? The pandemic is over, just like the Spanish Flu opportunity, we see that the theaters are pretty much shut down, or almost shut down. We’ve got the signal from government that they like the idea of more consolidation. So, why don’t we go and scoop up these distressed assets? Or take major equity stakes in these assets in the exhibition space?”

If I’m Amazon, I’m all about building my business around consumption patterns, and user experience. And this is data analytics that we can get, that we can’t get now. Having someone physically in the theater, but engaged in a new dimension of experience. So, maybe it’s virtual reality, maybe it’s augmented reality, maybe there’s some other element of interaction happening. And if I’m Amazon, I can use that information like Google does. To build a new business model, a new product offering, a new supply chain. Same thing with Apple, same thing with Google. So, I can’t imagine these companies not thinking about that, and seeing opportunities on the horizon for them.

Now, one thing that struck me as we were talking, is that DVD as a market is drying up, but there are a couple of companies that are doing pretty well, and it’s largely things like Criterion and Shout Factory who are repackaging stuff that is perceived as a guaranteed sale, with a better user experience. Do you think that, that’s something that the theaters can look to?

I think what you described is accurate criteria. But, the reality is this. No matter how effective a business strategy like that is, it is slowly going to die. Right? Because, the consumer in 15 years, 10 years, and the young people coming behind them, won’t even know what a DVD is. So, for the older consumers for sure, until those people either pass on, or the technology that undergirds DVD’s becomes more and more attenuated and less available.

You have an Apple, I’m sure. They don’t even make them with drives anymore. The new PlayStation doesn’t come standard with one. So, you don’t even have the support of infrastructure of technology to support the business model. So, make as much as you can, but make sure you take some of those earnings and invest it in a streaming platform or some other business model.

I think if I’m in the DVD market, and I really want to maintain a foothold, I would really be pushing my consumers into the streaming space by offering them very simple and easy ways to transition. Most of the titles, I forget what company does it, but you can take a QR code, scan it, and if you own the DVD, and automatically has book rights, you have the digital copy of the DVD in your library.

That seems to be a business that’s thinking future forward while maintaining its foothold in present day. And I think that’s what all these businesses should be thinking about.

You kind of sidestepped AMC, because they’re doing things a little bit differently. After they had that skirmish with Universal, they were the only ones that went to the bargaining table and got a concession. Do you think that they are handling it better than most people because of that approach?

Yeah. I mean I think they were acting very dramatic, obviously. There were some theatrics there. “We’re never going to run any Universal movies. How dare you bypass…” And they kicked and screamed, and at the end of the day they made a deal. So, they couldn’t have been that offended, right?

Money’s always going to determine the outcome of any business relationship. So, I think AMC was smart to take that path. But, end of the day, what they really did, was be willing to revisit the model, and figure out a cooperative, productive relationship from a sharing of revenue. Right? So, I don’t know the numbers, but my suspicion is they said, “Look. This is how much we’re going to lose, and these are your projections of how much you’re going to make on PVOD, cut us in to this portion to make up for the losses we’d make on missing out on X amount of weeks, and we can be in business.”

And that’s really what we all need to see in business. Which is a willingness to just reimagine what the relationship looks like, and how the profit sharing looks like, so we can all benefit from the experience, and the consumer isn’t always the one carrying the bag.

So, I think AMC was forward thinking in that approach which Universal. And I do think it was a big signal. Even though Regal is obstinate in saying they’re not going to engage in that. But, I do think it’s a matter of time. Because, clearly this model can work. If it can work for AMC, a version of that can work for other exhibitors. So, now it’s going to be, “Okay, so now how do we continue to build on this?” 17 days is extremely short. But, it isn’t for all titles, right? It’s only for certain titles that would be in that 17 day window.

But again, we know now that the door’s open, now there’s a wedge in the door, it will likely get wider, and wider, and more films will fit into that window. But, it doesn’t matter, becuase if the studios are saying, “Hey, look. We recognize the impact on your business. We recognize we need your business to really, really promote and build momentum around our titles, so take this bag of money that you’re not getting from box office, but you’re going to get in the months that we want to support what you’re trying to do. We appreciate the flexibility,” I think that in and of itself, is what we need to see across the board.