Hollywood during a global pandemic

The Covid-19 pandemic has disrupted the world’s economy with entire nations undergoing quarantines and mass business closures. For Hollywood this means no one setting foot in a movie theatre or on a film set, likely for months. So, if the box office, which makes up roughly 42% of the entire entertainment industry’s yearly revenue, is closed, how can Hollywood survive? 

On average, in the last five years, the box office has pulled in nearly $2.5 billion in revenue from March through May, which means the industry is losing out on billions with these closures and delays. 

U.S. film studios faced with no theatres to premier films in, were forced to postpone nearly all major releases, but will postponing premiers mean that studios will make the same amount of money later in the year? For starters there are only so many weekends in the year for films to claim and as the box office becomes more crowded with each delay there's less likelihood for every single film to make back the money it would have made earlier in the year.  

For films that have already completed production or are ready for distribution, another strategy might be releasing films directly to streaming or video on demand. 

“Streaming could rescue a lot of the business, but a lot of those streaming products are already in the pipeline, so it may very well mean that some movies, scheduled for release, would be assigned to a streaming platform so that everyone waiting at home has continual product.”  

Jason Squire, Professor in the USC Scholl of Cinematic Arts 

 In a bold move, Universal opted to skip its theatrical release for "Trolls World Tour" and went straight to video on demand. And films like "Birds Of Prey" and "Invisible Man" which already had box office releases are getting released early on demand for the same price as “Trolls” at 19.99$ only with a huge head start in earnings. So how many times will "Trolls World Tour" need to be purchased for Universal to break even? At a download price of $19.99 and a budget of roughly $100 million for the film, "Trolls World Tour" would have to be downloaded around five million times and that's not factoring in the 10's of millions spent in marketing costs and the estimated 20% cut that VOD services take out of each sale. But this is all based solely on people paying a premium of 19.99, not including rentals or discounts down the line.  

 The reason why movie theatres are so worried about any movie skipping its theatrical release is really simple, theatre revenues are based solely on people going to brick and mortar locations to watch movies. A theatre only takes 40% of the ticket price for a movie, the rest of their income is from concessions. 

"Trolls World Tour" while not a "Fast 9" or a "No Time to Die" level film in terms of profitability, would have still likely made a nice chunk of change for theatres thanks to its family appeal. So, studios skipping theatrical releases entirely, rather than delaying them, means these are profits theatres will never see. On the other hand, with school facing mandatory closures and children stuck in their homes it's kind of the perfect situation for Universal to release the movie directly to its core audience. 

Video on demand and streaming services enable studios to distribute their films without theatres, especially during a global pandemic. 

The industry was moving toward digital distribution already, last year it accounted for $48.7 billion and was actually the first year it overtook total revenues from theatrical releases. This year it's safe to assume digital will make up a monstrous portion of the overall industries revenues, this would include renting or purchasing titles digitally, but also monthly subscription fees to various services. 

Which leads us to Netflix. The streaming company made $20 billion last year and with the business model entirely based on people sitting in front of their TVs, computers or phones at home, they're perhaps the most equipped to deal with the pandemic. But even Netflix can't escape that many productions across the globe have been put on hold, thereby reducing any content that could be readily distributed to a consumer. The impact on stalled sets means those who work in production, many on a per project or freelance basis, may be without an income for months. 

In the long run major studios like Disney, NBCUniversal or Paramount will likely be fine as they have the cash in the bank to float a movies box office debut before they have to recoup their losses, multiple revenue streams allow these companies to not split the box office business as much. 

Disney for example owns major broadcast TV networks including ESPN and ABC, as well as streaming service Disney+ which all bring in their own revenues.   

During economic upheavals that affect the entertainment industry its mostly been theatres, small independent studios and production workers that are hit the hardest. This time will likely be no different.  

So, if COVID-19 could have one major lasting effect on Hollywood it may be rethinking how movies are distributed entirely and upending what a traditional theatrical window looks like. 

Its forcing evolution in an already quickly evolving industry, under some extraordinary circumstances.