Movie theater owners are frustrated about streaming, but their survival depends on studios

A lot has changed in the entertainment industry in 2020. With the surge in coronavirus cases has come an increased uneasiness from audiences, truncated theatrical windows and a stronger focus on streaming than ever before.

But, there’s one thing that has remained the same: the symbiotic relationship between studios and movie theaters.

“Studios and exhibition have always had a lovely but contentious relationship,” one movie theater operator with locations in the southern part of the U.S. said on condition of anonymity. “Exhibition is basically a business that has blank screens and empty seats and we can’t do what we do without the studios.”

In spite of massive disruption in the industry, cinema owners and distributors are doing what they can to keep things professional during a time of high stress and emotion.

Cinema owners who spoke to CNBC said that they understood why studios have had to postpone major films and place some of those movies on streaming services or on-demand platforms.

“Whether we agree with what their solutions are is a totally different story,” the movie theater operator said.

For decades theater owners have been resistant to change, particularly when it comes to the length of time that movies should play in cinemas before being permitted to go to premium video on-demand, home video or streaming services.

Up until this year, blockbuster films had to be shown in theaters for at least 90 days before they could be launched anywhere else. That window typically included around 74 days of exclusive theatrical showings, two weeks of availability on digital release and then the inclusion of home video sales.

These windows were created by studios decades ago in an effort “to get multiple bites out of the same apple,” another movie theater operator said.

In the months leading up to the pandemic, some studios were actually already in talks with theaters to slightly alter these windows. The result would have kept bigger franchise films and blockbusters in cinemas longer and permitted smaller budget films to head to direct-to-consumer channels faster.

However, when the pandemic hit and theaters were forced to shutter for nearly six months, desperation compelled cinema operators to agree to new, and starkly shorter, release strategies to get through the pandemic. After all, bankruptcy concerns have been raised by cinemas chains big and small over the last nine months.

Not to mention, cinemas have seen their number of locations shrink in recent months. As of last weekend only around 35% of the theaters in North America were open. Many of these closures are due to local restrictions, but some larger chains have opted to shut locations because they are losing too much money being open with such limited amounts of product.

“Most of the studios experimented with alternative distribution when they found themselves unable to distribute films in normal windows,” said Michael Pachter, analyst at Wedbush. ”Universal tried premium after a 17 day window, Disney tried premium exclusively at a very high price, and Warner tried day and date streaming and theatrical.”

“The streaming window was always the last resort,” he said.

While larger chains like AMC and Cinemark were able to make deals with studios like Universal for a cut of on-demand profits once movies flipped to streaming, smaller theater chains have less bargaining power.

“I would say our relationships are pretty much the same as before,” said a movie theater owner from the Midwest, who requested anonymity. “I’m dealing with presidents of distribution. In so many cases, these decisions are above them. The HBO Max decision was way above the head of distribution. It’s no good to get in a fight with the distribution teams, they are afraid for their jobs, too.”

“I’m mad at AT&T, I’m mad at Comcast,” he said. “I’m not necessarily mad at Warner Bros. distribution.”

For these smaller circuits, decisions like AT&T’s to release its full slate of 2021 Warner Bros. movies on the same day in theaters and streaming are costly. Having these titles available at home decreases the incentive for customers to come out to the theater.

Still, there are worse alternatives.

“We’re not happy with day and date,” the Midwest operator said. “But, I’d rather have product day and date than have zero product at all.”

While many movie theater operators are frustrated with the sudden surge of titles headed to streaming platforms, it should be noted that studios have made similar decisions about direct-to-consumer content for decades in different forms. Before streaming there were films from major studios that went directly to VHS or DVD, skipping cinemas entirely.

“The idea that studios make important content for direct-to-home is not a unique concept,” said a worldwide operator with a large national footprint, who spoke on condition of anonymity. “What tech has now done is allow more of that. Content is king. Content was king before the virus and content will be king after the virus. Content is where it begins and ends. That hasn’t changed.”

As vaccination rates increase and cases decrease, there will likely be more alterations to the theatrical release model, but one thing is clear: the movie theater is not dead.

“What we learned during the pandemic is that it is not easy to replace all that lost theatrical window revenue,” said Eric Handler, media and entertainment analyst at MKM Partners. “That feeds a lot of downstream revenue opportunities. There will be changes to the model, but I still think theatrical is something that will remain.”

Earlier this month Disney CEO Bob Chapek acknowledged that his company garnered around $13 billion at the global box office in 2019, calling that success “not something to sneeze at.” In fact, Disney had seven films tally more than $1 billion that year.

While Disney will release the animated feature “Raya and the Last Dragon” on premium video on demand through Disney+ and in theaters at the same time in March, it doesn’t plan on making this a permanent box-office strategy. Disney executives said that they will remain flexible about future releases, but made sure to reiterate that titles like “Black Widow” and “Jungle Cruise” will head to theaters as planned.

In 2019, the global box office topped $42 billion, the highest haul of all time. Already in markets like Japan, China and Australia, where coronavirus cases have dropped significantly, analysts and operators are seeing box offices recover and thrive.

“At the end of the day I think theatrical will be back,” said Handler.

Representatives from Disney, AT&T and Comcast, which owns NBCUniversal, did not immediately respond to CNBC’s request for comment.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC.