Entertainment

Why Hollywood is sticking with movie theaters and only a few films are heading to streaming

Key Points
  • Studios are being forced to make tough decisions about which movies will be delayed and which will be sent to streaming and on-demand platforms.
  • Only a handful of releases that were intended for theaters have opted to depart a theatrical release entirely.
  • The majority of Hollywood films have pushed to late 2020 or found a new home in 2021, still seeking a piece of the $42.5 billion global film industry.
Shaggy and Scooby-Doo eat nachos in a movie theater in Warner Bros. "Scoob!"
Warner Bros.

With more people stuck at home during the coronavirus pandemic, streaming services like Netflix are seeing massive growth.

On Tuesday, Netflix said it added 15 million new subscribers to its platform in the first quarter, bringing its total number of global customers to 183 million. Tens of millions of these viewers watched Netflix original movies like "Spenser Confidential" and the hit documentary series "Tiger King," leading many to question why studios aren't releasing films that were meant for cinemas on the small screen.

After all, movie theaters are expected to be closed until at least mid-June.

But, it's not that simple. Streams aren't the same thing as movie tickets.

For $15 a month, Netflix customers can watch whatever they want on the platform. They don't have to pay per view. So, if a studio releases a movie straight to a streaming service, whether it be Netflix, Disney+, Amazon or Hulu, it's not going to make money on that specific title. It only makes money on the subscription fee.

It's why movies like "Trolls World Tour," which skipped its theatrical release in the wake of Covid-19, are being sold on demand. Here studios can at least get paid for someone to purchase the movie or for someone to rent it for 24 hours. But this method still isn't as lucrative as opening a blockbuster at a movie theater.

With the closure of theaters across the country, studios are being forced to make tough decisions about which movies will be delayed and which will be sent to streaming and on-demand platforms.

However, only a handful of releases that were intended for theaters have opted to depart a theatrical release entirely. The majority of Hollywood films have pushed to late 2020 or found a new home in 2021, still seeking a piece of the $42.5 billion global film industry.

Anna Kendrick and Justin Timberlake star in "Trolls World Tour."
Universal | Dreamworks

"What we are seeing in terms of the films that people are watching at home is that they are family movies," Erik Davis, managing editor at Fandango, said. "It's the dominant genre right now. A lot of families are home so that's why you are seeing titles like "Trolls World Tour," "Scoob!" and "Artemis Fowl" choosing to go home during this time."

These kinds of movies are in high demand with parents, but also, for "Trolls" in particular, had merchandise and toy deals tied to the films. Many of those items, which include dolls, plush and even apparel, were already shipped to retailers and are either on shelves or ready to be placed on shelves. 

"[Animated films] have a very long shelf life and exhibition is a much smaller percentage of the mix," Michael Pachter, analyst at Wedbush, told CNBC via email. "I'm sure that that merchandising has a lot to do with animated films skipping the window."

Merchandise is a key piece for family film releases. Not having the toys align with the movie release could mean a massive loss in sales.

Representatives for Hasbro, which has the master toy license for the Trolls brand, declined to comment. 

Patience means profit

Additionally, the movies that have gone to video on demand or plan to were low- to mid-tier budget films that weren't forecast for a massive box office.

"We haven't seen a movie go to streaming that was expected to be a blockbuster," Shawn Robbins, chief analyst at BoxOffice.com, said. 

Take "Trolls World Tour," for example. The film has an estimated budget of $90 million to $110 million. The first "Trolls" film had $344 million in global ticket sales — around $150 million of which was garnered domestically — and, typically, animated sequels do not do as well as the first film. (Obviously, there are exceptions: "Frozen II" made more than "Frozen.")

For comparison, "Black Widow" likely cost $150 million to $200 million to produce, and it could haul in anywhere from $750 million to more than $1 billion at the global box office. Then it would go on to make more once it was available on home video and on demand. So, pushing it straight to home video would mean Disney would make less money.

Scarlett Johansson stars as Natasha Romanoff, AKA Black Widow, in Marvel's "Black Widow."
Disney | Marvel

Disney has a proven track record at the box office with its Marvel films. "Avengers: Endgame" currently holds the record for the highest-grossing film of all time and the studio saw success with another female superhero flick "Captain Marvel," which tallied $1.13 billion in ticket sales globally in 2019.

"It's vitally important for the majority of big budget, high-profile films to await the return of movie theaters around the world and that's why we are seeing so many films pushing their release dates down the road," Paul Dergarabedian, senior media analyst at Comscore, said.

Universal's "F9," the next installment in the "Fast and Furious" franchise, moved to 2021 so that it could have a global theatrical release. "Furious 7," which was released in 2015, hauled in more than $1.5 billion globally, and "Fate of the Furious," released in 2017, had $1.24 billion in ticket sales.

Even Universal's "Minions: The Rise of Gru," an animated family film, which was delayed because its production schedule was interrupted due to the coronavirus social distancing restrictions shutting down its French studio location, is still seeking a theatrical debut once it is able to be completed.

"Minions" hauled in $1.16 billion globally and 2017's "Despicable Me 3" garnered $1.03 billion in total.

Disney's "Mulan," Sony's "Ghostbusters: Afterlife," MGM's "No Time to Die," Paramount Pictures' "Top Gun: Maverick" and more have all found new release dates. These high-budget blockbusters won't be able to recoup their production and marketing spending if they don't go to theaters.

For comparison, "The Love Birds," an R-rated comedy that has skipped theaters and will arrive on Netflix at the end of May, had an estimated production budget of $16 million. R-rated comedy's have struggled at the box office in recent years and the film may not have been able to draw crowds back to theaters, even if it was able to find a new release date this year.

"It's just economics," Wedbush's Pachter said. "If a movie costs $100 million to make, the rule of thumb is that it needs at least that much in domestic box office, plus all the other windows (international, DVD sales, VOD, premium channels, SVOD) to break even."

"Films are budgeted to make a profit," he said.

It's not just about money

Another reason studios are sticking to theatrical releases instead of swapping over to on-demand streaming is the Academy Awards. 

The academy requires a film be released in a commercial theater in Los Angeles County for at least seven days and be shown three times a day in order to be eligible for a nomination. 

It's unclear if the Academy Awards will be impacted this year because of the coronavirus pandemic. Typically, "Oscar bait" films, those seeking a nomination at the prestigious awards show, arrive in theaters in November and December.

Earlier this week, Warner Bros. pushed "King Richard," a biopic starring Will Smith as Venus and Serena Williams' father, to November 2021 from November 2020.

It's possible that the movie hit a production snag in the wake of Covid-19, but it's very likely the film is looking to be an Oscar contender and wanted to position itself in a prime calendar spot before more films shuffle their releases.

"Theater Closed" signs are posted in front of the AMC
Frederic J. Brown | AFP | Getty Images

For some studios and filmmakers, sticking with theaters is less about money and prestige and more about the communal experience of watching a movie together in a big group.

Davis pointed to "In the Heights," the film adaptation of Lin-Manuel Miranda's Tony Award-winning musical and John Krasinski's "A Quiet Place 2" as examples of films that have been pushed from their initial release dates that would be best experienced with a crowd.

When "A Quiet Place 2" was delayed in March, Krasinski said he was going to wait to release the film until the public could see it together.

His directorial debut, "A Quiet Place," had a budget of only $17 million, but went on to make a whopping $340 million at the global box office, as moviegoers flocked to cinemas to experience the thrilling film on the big screen and in large groups.

"The consensus across the board is that theaters are going to come back," Davis said.

Read all of CNBC's coronavirus coverage here.

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

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