Is Netflix Killing the Movie Theater? Not so Fast
By Steven Zeitchik
The Washington Post
This Christmas, Hollywood’s major film releases are competing for Americans’ entertainment time with a slew of new shows on Netflix -- and all those television series that slipped through the cracks during the year.
Yet many of those films -- “Aquaman,” “Bumblebee,” “Mary Poppins Returns” -- are projected to do big business in theaters, with “Aquaman” already winning the weekend with a strong $68 million opening through Sunday. Their success will cap a record-breaking year at the box office, upending the conventional wisdom that movie theaters’ relevance is fading.
Movie-ticket revenue in the United States has risen 8 percent in 2018. That puts the industry on track for the largest year-to-year increase of the domestic box office in nearly a decade -- and suggests that, surprisingly, theaters can more than hold their own in the age of widespread at-home entertainment.
But the news also comes with significant dark clouds. Industry experts say that a future for the movie theater -- a venue that Americans have for the past century pridefully counted as both an economic engine and cultural gathering spot -- may be far from assured.
Those clouds include the fact that fewer movies are powering the box-office returns: Well over a third of revenue for 2018 comes from just 10 films, out of the more than 700 released during the year. And it’s primarily just two categories -- superhero adventures and animated films -- keeping the numbers afloat.
Some industry insiders even suspect some of the gains were driven by MoviePass, the beleaguered subscription service that essentially provided heavy subsidies to millions of filmgoers in the first half of 2018, when box office particularly overperformed.
“We’ve certainly had a strong year at the box office,” said Bruce Nash, a longtime expert on box-office returns who runs an industry site called the Numbers. “But there are a lot of signs this can’t continue. I think we’re going to regress to the mean very soon.”
The box office is an unusual economic indicator. It only partly reveals the financial health of film studios, as it fails to take into account production and marketing costs, both of which have been rising in recent years.
But it offers a window onto something perhaps more important: whether those studios understand the entertainment that Americans wish to consume. And, lately, whether Americans still value the country’s 41,000 movie theater screens, period.
In 2017, the numbers were stark. Box-office dollars went down, by 2 percent, a historically troubling sign given that ticket prices and the U.S. population grow every year. Admissions -- the industry term for the number of tickets sold -- dropped 6 percent to 1.24 billion, the lowest in 23 years.
This all coincided with an 11 percent spike in the number of Netflix subscribers in the United States, a gain that put the streaming service’s tally of U.S. consumers above the 50 million mark for the first time. And Netflix, of course, is opposed to playing movies in a large amount of theaters.
The die seemed cast: Theaters were losing ground to streaming services, and fast.
But in February, the Marvel movie “Black Panther” opened. And suddenly, the tide seemed to turn.
The politically minded superhero release would gross $700 million in the United States, the third most of all time.
It was followed two months later by another Marvel Studios production, “Avengers: Infinity War.” That film would gross $679 million -- the fourth most of all time in the United States.
The domestic box office has just set a new record. On Sunday revenue for the year hit $111.38 billion, topping 2016′s total of $11.37 billion, which previously was the highest ever not adjusting for inflation. And the eight percent rise over 2017, if it holds, will be the largest since 2009, when revenue climbed ten percent over the previous year.
“People looked at the grosses at the beginning of 2018, and there was a lot of pessimism. They thought there was a deep structural change happening,” said John Fithian, head of the National Association of Theatre Owners, or NATO, the trade and lobbying group for the country’s movie theater business. “But look at where we are now at the end of 2018: We have a significant record-breaking year in terms of box-office grosses.”
There is no way to know exactly what led to the rebound this year. It could be a fluke, related more to the quality of and anticipation around a few Marvel films more than any broad adaptation. MoviePass’s aggressive marketing -- it saw subscriber totals double to 3 million in the first six months of the year -- also probably played a role, experts say. And that won’t continue: The service has since retrenched and is no longer as willing to pay the cost of a ticket for any subscriber who wants to see a film.
Whether the gains are in fact the result of one-off factors or a more fundamental shift will tell a lot about where the movie theater is headed in the streaming age.
Theater owners say it is decidedly the latter and that competition between streaming and theaters may not be as zero-sum as it seems.
Far from Netflix cannibalizing sales, its popularity is positively associated with theatrical moviegoing, according to Fithian. A study commissioned by his group released this week said that people who watch a lot of streaming also see a lot of movies, while limited streaming viewing is correlated with lower theater attendance. (It found, for instance, that 57 percent of respondents who watched at least 15 hours of streaming each week also went to the movie theater at least six times every year.)
The theory is that people who are fans of film are either inspired by the variety of choice at home to come out to theaters or at least are unaffected by it. Although past entertainment innovations, such as television in the 1950s, decidedly ate into box office, the theater industry says streaming is a neutral or even favorable development.
“Movie theater attendance and streaming consumption are positively related -- those who attend movies in theatres more frequently also tend to consume streaming content more frequently,” the study said.
Not everyone is convinced. Some in the industry argue that Netflix and its ilk may still represent a substantial threat to theaters for all but the most epically scaled films, which require top-of-the-line sound and very large screens.
“I don’t think anyone who looks at the challenges movies face in a crowded landscape could argue Netflix is helping theatrical box office,” a film executive said, noting the historic lows for admissions last year. The reason, the executive said, speaking on the condition of anonymity so as not to upset theater owners, is the vast amount of choice streaming services offer, as well as the convenience. For most screen content, they noted, the experience at home isn’t that different from the one in a theater.
Even more troubling to some in traditional Hollywood is where the box-office growth is coming from.
The upper tier of the chart, they say, is carrying a growing amount of the load. Although overall box office is up 8 percent compared with last year, the revenue for the top five grossing movies is up double that, which means that all the other movies on average are well down.
Similarly, in 2009, the top 10 films constituted 30 percent of overall box office. In 2018, that number has risen to 36 percent. This indicates a kind of wealth gap, in which only a very small number of movies generate significant revenue.
What’s more, that top tier is made up of very few genres. In 2009, the top 10 movies were distributed among science fiction, vampire, fantasy, action-adventure, animated adventure, football drama and raunchy comedies. “The Blind Side” was on the list. So were “Avatar,” “Sherlock Holmes” and “Twilight.” And “The Hangover.” Disney had one movie.
But seven of the 10 highest-grossing movies in 2018 are either films with Marvel or animated characters, the industry’s seemingly only reliable pillars. An eighth is a Star Wars film. The remaining two are a Mission: Impossible and a Jurassic Park sequel. Half of the films come from Disney.
The fear, close watchers of the industry say, is what happens if -- or when -- the bottom falls out of the superhero boom. Without diversification, it could bring disaster.
“I’m not convinced that these franchises like Star Wars and Marvel can sustain for a long time. How many times can you save the world from a really bad person?” said Russell Roberts, a professor of economics at George Mason University. “And if it does, there’s no guarantee anything takes its place.
“I don’t think it’s a stretch to say that the movie theater business could one day contract or even disappear,” he added. Roberts offered the analogy of bookselling, which saw a great contraction with the arrival of online sales and, though it still exists, has realigned itself as a far more niche business.
Even the holiday release window, despite not seeing a Star Wars movie for the first time since 2014, does not exactly scream multiple genres with its three most promise-laden releases. “Mary Poppins Returns” is Disney family entertainment. “Bumblebee” is major intergalactic spectacle that is a superhero movie in all but name. “Aquaman” is -- of course -- a superhero movie. One other recently released film, “Spider-Man: Into the Spider-Verse” -- which as an animated superhero movie combines both trends -- is also flourishing.
Two studio executives, who asked not to be identified because they were not authorized to speak to the press, say these movies are made because the public wants them and that the studios would shift course if the market dried up. (Roberts noted that superhero films are “the symptom, not the cause -- what people are willing to pay $20 in a theater for is much narrower than it used to be.”)
Besides, the executives point out, there’s room for smaller films to break through, noting the success of the transpacific romantic comedy “Crazy Rich Asians” and the high-concept science-fiction-horror “A Quiet Place” earlier this year.
But others say those are more exception than rule.
“You have occasional more-niche hits, but there doesn’t seem to be much room for them,” said Nash, the box-office expert. “The money,” he added, “all comes from the top.”