The North American movie theater box office just had its worst weekend in 20 years. Tickets sales totaled just $55.3 million, dropping 45% from the week before as consumers practiced social distancing.
Several studios have postponed big tentpole releases as even the biggest movie fans stay home.
Theater owners have responded as well. Regal Entertainment closed all 543 theaters indefinitely on the Monday following the dismal weekend of ticket sales. AMC Entertainment (NYSE:AMC) followed suit on Tuesday after the federal government recommended people only gather in groups of 10 or fewer.
With theaters closed (and concerts and sports events cancelled), more consumers will look to video entertainment at home. And at least one studio, Comcast's (NASDAQ:CMCSA) Universal Pictures, is breaking the standard 90-day theatrical window and releasing several titles to video-on-demand platforms. Meanwhile, streaming video services such as Netflix (NASDAQ:NFLX) stand to benefit as consumers look to alternative forms of entertainment.
However, the impact of current events could carry over for theater owners long after the threat of coronavirus dissipates. Not only will closures test theater owners' financial fortitude to survive during a period with no revenue, it'll also give media companies an opportunity to try a more direct-to-consumer approach while the conditions are favorable.
Accelerating the direct-to-consumer shift
While box-office receipts have steadily climbed over the last 20 years, that's been driven by an increase in average ticket prices. Actual attendance has declined considerably.
Since Netflix first introduced its streaming video service in 2007, theater attendance has declined over 12%. More and more consumers are finding at-home offerings just as appealing, if not more so, than going out.
Now with theaters closing their doors for at least a few weeks and consumers asked to confine themselves to their homes, direct-to-consumer options are even more attractive. "The behavior was already shifting, but this hits the accelerator pedal," analyst Rich Greenfield said. "Now studios are going to think more and more about why they are relying on third parties to distribute their content."
Indeed, big media companies, including Disney (NYSE:DIS), AT&T's (NYSE:T) WarnerMedia, and Comcast's NBCUniversal, are all offering direct-to-consumer streaming services similar to Netflix. In fact, the timing for the launch of AT&T's new service HBO Max and Comcast's Peacock couldn't be more fortuitous. Both will launch over the next couple months into a market hungry for new home entertainment.
Universal Pictures is releasing several titles currently available in theaters through on-demand services this week. It'll charge a high price for the early releases: $20 per rental. Considering it has no other means of recouping the cost of its productions, the move is necessary, and other companies may follow suit with their smaller releases.
Universal's move also opens the door, once again, to see how consumers respond to home releases at the same time films are in theaters. It'll release Trolls World Tour on demand on April 10, the same day it's supposed to start showing in theaters.
If the response is better than expected, it could prompt media companies to start offering more of their films directly to consumers either as on-demand rentals or as part of their streaming services. Disney has already moved some projects meant for theaters to Disney+, and the fallout of coronavirus could lead to releasing even more titles on the platform, especially as it expands the service globally, which could ease piracy concerns in international markets.
Can theaters even survive?
Greenfield isn't optimistic about the finances of theater chains. "I think most of the global exhibition business will be in bankruptcy by the end of the year," he said, even before the big theater owners closed their doors.
During AMC's fourth-quarter earnings call, CEO Adam Aron admitted, "If the coronavirus were in the United States in a huge way, that would be a problem for us." He also noted the company doesn't hold a business interruption insurance policy that covers coronavirus.
As a result, AMC and many other theaters will feel a financial crunch as revenue stops coming in. Building leases won't go away, and other fixed and operational expenses aren't changing either. Meanwhile, AMC ended the year with just $265 million in cash. Management had already planned to sell off some assets to shore up cash and retire debt this year; that may become more of a necessity now.
And if more media companies test the market for direct-to-consumer options like Universal Pictures has done, it could cause even more pain for AMC and other theaters long term.