The third quarter in the movie business began on Friday, 7/2 and ended on Thursday, 9/30. We witnessed a number of significant developments during this 13-week period, with lasting impact on the industry. Next week we will offer up our preview of the 4th quarter. In this quarterly review, we will address the following topics:
(1) Progress on the Road to Recovery during the quarter
(2) The influence of the COVID-19 Delta Variant
(3) Shifting release schedules
(4) Studio policies regarding streaming and theatrical windows
THE ROAD TO RECOVERY – Q3 RESULTS
As the quarter began, momentum had been building from the disastrous beginning to the year, with Q1 2021 producing only 11% of the revenue generated during the same quarter in 2019, and Q2 2021 producing only 25% of Q2 2019. Taken together, the first half of 2021 stood at 19% of 2019 results, leaving both studios and theatre circuits in a precarious state. Despite this underperformance, Q3 began with some optimism that the factors that had held back moviegoing were diminishing and that a sustainable recovery was beginning to take hold.
In the U.S., nearly 80% of theatres had re-opened and the even Canada has begun to welcome back moviegoers. Virtually every week, studios were launching a significant new title, giving long-suffering fans a reason to return to the cinema. Vaccinations were proceeding at historic rates, and cities across the continent were dropping the COVID safety measures that had been enacted at the onset of the pandemic. Week to week comparisons with 2019 results would rise to 75% and higher, and theatres were well down the road to profitability. Happy Days are Here Again!
Weekly Industry Performance 2021 vs. 2019
Alas, this early optimism was a bit premature. The quarter opened with a disappointing July 4th holiday weekend that produced a disappointing 41% comp to the same week in 2019. BLACK WIDOW’s long-awaited and much-anticipated opening on 7/9 produced $109M in its first week, a new record during the pandemic era. The weekly total for all films rose to 83% of the same week in 2019. We are back! No! On July 16th, SPACE JAM: A NEW LEGACY opened to $42M for the week and BLACK WIDOW dropped a massive 67% from its debut, leaving the overall weekly comp at 34% of 2019 figures.
Weeks 30, 31 and 32 all hovered near 50% of 2019 as OLD, JUNGLE CRUISE, and THE SUICIDE SQUAD were released but didn’t produce the box office draw that was expected. All three films opened below expectations, and dropped steeply in their second weeks, down by 56%, 53% and 70% respectively. Week 33 on August 20th, saw the opening of FREE GUY, which overperformed expectations with $40M for the week. The weekly comp climbed back to 60%. Weeks 34 and 35 were sustained by FREE GUY falling only 36% in its second week and CANDYMAN opening better than expected at $29M.
Week 36 on 9/3 saw SHANG-CHI AND THE LEGEND OF THE TEN RINGS blow away all industry projections, setting a new pandemic record with $110M for the week. Most impressively, SHANG-CHI was up against a very tough comp in 2019 based on the $113M opening of IT CHAPTER 2. Despite the competition, week 36 of 2021 rose up to 90% of the same week in 2019, also a pandemic-best performance. Weeks 37, 38 and 39 closed out the quarter on a soft note, with the openings of MALIGNANT, CRY MACHO, COPSHOP and DEAR EVAN HANSEN all producing ho-hum results. Despite two strong weeks during the quarter – with an 83% comp for week 28 and a 90% comp for week 36 – the comp for the quarter overall came in at only 51%.
With so much momentum and promise during the early part of the quarter why did it not continue throughout the quarter. Three potential reasons are: the continued threat of the COVID Delta Variant, studio policies regarding streaming and theatrical windows and ever-changing release schedules. We will discuss each factor and its possible impact on the 3rd Quarter’s results.
THE COVID DELTA VARIANT
At the outset of the 3rd Quarter, many had expected to see a steady recovery at the box office, fueled by the widespread rollout of vaccinations and pent-up demand to resume “normal” life. On July 1st, 47.6% of U.S. adults had been fully vaccinated. While the percentage rose each week, it did not climb at the rate that officials had hoped for, as some vaccination hold-outs became increasingly dug in and vocal. By September 30th, the total number of U.S. adults fully vaccinated had only increased to 57%.
During the summer, the Delta Variant became the dominant strain of COVID-19 circulating in the U.S. The 7-day average of new COVID cases reported surged from 12,705 as measured on 7/1 to 149,747 as measured on 9/21, an 11-fold increase in the span of 12 weeks. The polling firm Morning Consult has conducted regular surveys during the pandemic to track the comfort level of consumers with participating in various out-of-home entertainment activities. A poll in early July indicated that 55% of U.S. adults felt comfortable going back to movie theatres. Within a few weeks in July, that number had dropped down to the mid-40’s and has remained at that level throughout the rest of the quarter.
Even vaccinations have been unable to slow Delta’s spread, with 77% of new cases occurring in those who had already been vaccinated. Thankfully, these “breakthrough” cases have had much less severe health consequences for the infected, with the COVID death rate dropping by more than half over the period, down from 1.8% as of July 1st to 0.8% as of September 21st. This significant drop in the effective death rate from COVID appears to have emboldened people to resume their pre-pandemic activities, including moviegoing.
One could argue persuasively that the Delta Variant slowed down what otherwise would have been a very robust recovery at the box office during the quarter. In fact, by reaching 51% of the same period in 2019, Q3’s results were a significant achievement, demonstrating the resiliency of exhibition and the loosening grip of COVID.
THE SHIFTING RELEASE SCHEDULES
One of the most destabilizing factors on moviegoing during the pandemic has been the impact of studios making constant changes to their release schedules. A poster child for shifting release dates is the curious case of TOP GUN: MAVERICK. This Paramount release has at one time had all of these release dates: 7/12/19, 6/26/20, 6/24/20, 12/23/20, 7/2/21, 11/19/21, and, as of now, 5/27/22. These seven release dates demonstrate the degree of uncertainty in the marketplace over the last two years. With literally hundreds of millions of dollars at stake, Paramount is trying to select the best possible environment for its most important pictures. Some speculate that frustration over this search for a perfect release date led to a change in leadership for the studio.
While TOP GUN: MAVERICK may be the most extreme example, may key titles have cycled through three or four schedule changes. These false starts waste marketing resources and create uncertainty with the public, and may ultimately lead to a decline in the gross potential for these movies. At the very least, they delay revenues for exhibition, both in ticket sales as well as concessions. By pushing TOP GUN: MAVERICK back from a summer 2021 launch, Paramount took hundreds of millions of dollars off the plate for hungry exhibitors.
|Lost Attendance||Concession Per Person||Lost Concession Revenue||Combined|
|Top Gun: Maverick||$200,000,000||$9||22,222,222||$6||$133,333,333||$333,333,333|
The counter argument is that Paramount’s reset will benefit exhibitors in the end, by bringing in more money later when more people are ready to return to the movies. However, most exhibitors would prefer to bank some money this year, when they most need it, rather than waiting for a little more money next year.
Most Significant Release Date Changes with Impact to the 3rd Quarter
|4/9/21||Top Gun: Maverick (Paramount)||7/2/21||11/19/21 *|
|4/9/21||Jackass Forever (Paramount)||9/3/21||10/22/21 *|
|6/18/21||Hotel Transylvania: Transformania (Sony)||7/23/21||REMOVED|
|6/25/21||The Many Saints of Newark (Warner Bros.)||9/24/21||10/01/21|
|7/7/21||The Comeback Trail (Cloud Base)||7/23/21||REMOVED|
|7/31/21||Clifford the Big Red Dog (Paramount)||9/21/21||REMOVED|
|8/12/21||Venom: Let There Be Carnage (Sony)||9/24/21||10/15/21*|
|* Film has made additional release date changes since this announcement.|
There were 15 release date changes to wide releases during the quarter, resulting in as much as a half a billion dollars of lost or delayed revenues for exhibitors. By contrast, not a single release date change was made to a wide release film during the peaceful and prosperous times of the third quarter of 2019.
3rd QUARTER TOP 10 – 2019 VS. 2021
Despite exhibitors’ frustrations, the studios are clearly motivated to do whatever they can at all times to maximize the profitability of the intellectual property under their control. When COVID forced exhibition to shut down in March of 2020, the studios were forced to find other ways to generate income from their inventory of completed movies. Warner Bros. had HBO MAX to fall back on, and announced their intention to make their entire 2021 slate of films to be released day & date on HBO Max.
Disney/Fox and Paramount were also fortunate to be in the early launch stages of their own in-house streaming services. Universal would get into the game soon thereafter with Peacock. Lacking their own platform, Sony pursued opportunities to sell off their movies to established streamers, such as Netflix.
A look at the Top 10 pictures from third quarter 2019 vs. 2021 shows that the grosses for all pictures in 2021 was just over 50% of films from the same period in 2019. This accounts for 73% of the entire quarter’s shortfall compared to 2021.
STUDIO POLICIES REGARDING STREAMING AND WINDOWS
Perhaps the most important influence on the box office performance for a movie during the third quarter was whether it
was also available day & date to viewers at home. When we compare 2021 to 2019, this was not even a factor. During 2019, the “90-day” window was holding firm and virtually all studios adhered to this industry standard. Only Netflix and Amazon were releasing movies simultaneously in theatres and on their streaming platforms. Very few exhibitors chose to break ranks and play those films. Over the past 18 months, studios have experimented with almost every conceivable approach, from a traditional theatrical exclusive, to simultaneous releasing to theatres and on-line, to streaming exclusive without any theatrical release. However, even the traditional 90-day theatrical exclusive release may not be entirely dead.
After experimenting with nearly every conceivable approach, the major studios appear to be settling back into a theatrical release for their major titles but using a much shorter exclusive window lasting between 17 and 45 days. The box office successes of Disney’s FREE GUY and SHANG-CHI have gone a long way towards reassuring studios that they can still make plenty by leading with theatres. On September 13th, Disney announced that all their movies for the remainder of 2021 would be theatrical exclusives with a 45-day window, with the sole exception of ENCANTO which would have a 30day exclusive between Thanksgiving and Christmas. This matches the strategy Warner Bros. had previously announced for their 2022 theatrical slate. Having the top two Hollywood studios agree on theatrical exclusives has reassured exhibitors that a return to some degree of “normalcy” is imminent. However, the past 18 months have proven that plans for the future are always subject to change. The following chart gives the release strategy of every major as of September 29, 2021.
|Distributor||Theatrical Window||Streaming Platform||Cost|
|Universal||17-31 days if opening weekend does $50M+||Peacock||Per title decision|
|Warner Bros.||2021 – None|
2022 – 45 days
|HBO Max||Free with subscription|
|Disney||None through 8/19/2021|
45 days after
|Disney+||$29.95 prior to 8/19/21|
|20th Century||None through 8/19/2021|
45 days after
|Disney+||SAME AS DISNEY|
|Paramount||45 days||Paramount +||Per title decision|
|Sony||Traditional||Netflix||Per title decision|
|Lionsgate||Traditional||Starz||Per title decision|
It is very difficult to measure the direct financial impact of day & date releasing on ticket sales in theatres. While theatrical grosses are reported on a daily basis by Comscore, studios are loathe to provide specific figures on streaming results for specific titles. In a few cases, studios have reported some figures indicating the on-line audience specific movies have drawn, but often these are self-reported statistics that come out weeks or months after the fact, and not produced by an independent third party. Therefore, it is virtually impossible to draw conclusions about the success of any specific film online, and how much that may have taken away from its potential box office returns.
The presumption is that theatre ticket sales will be LOWER when a movie is also available for at-home viewing. It is also safe to say that any movie will see HIGHER ticket sales when it is available in theatres exclusively. Any conclusion about which approach produces better results for studios is far from settled. Of the three hurdles, the streaming windows protection given to theatres is the one that is still very much up in the air and the one that will have the most profound effect on their bottom lines.
After dealing with the triple threat of the Delta Variant, studio release changes and increased competition from streaming, exhibitors should be pleased to have earned in Q3 2021 53% of amount that they earned during the same period in 2019. The big question that remains is how much higher does revenue need to climb to bring exhibitors back to profitability? The view at SCREENDOLLARS is that exhibitors many exhibitors will break even once they bring in 75% of the revenue that they did in 2019. While exhibitors of all sizes are still losing money, the rate of loss is declining and the arrows are definitely pointed in the right direction. The fourth quarter has begun with some encouraging signs on the road to recovery, and should show marked improvement over the 11%, 25% and 53% comparables witnessed during the first three quarters of the year. We will be back in early January with a review of what happened to close out the year.