The evidence is mounting as Imax, Warner Bros. Discovery and Cinemark report their numbers: Theatrical exhibition is roaring back and is key to streaming success, too
Warner Bros. Discovery’s David Zaslav noted in his company’s Thursday earnings call that direct-to-HBO Max movies provided “no value” to Warner Bros. He said he would push Warner’s future slate, including films like “The Flash” and the just-announced “Lord of the Rings” franchise relaunch, to theatrical with “real windows to optimize those products.”
A day before, Imax’s Richard Gelfond touted his company’s $98 million in fourth-quarter revenue, up 44% from the prior quarter, and $850 million at the global box office over the last year. And on Friday, Cinemark reported fourth-quarter revenue that exceeded analyst expectations, albeit with a larger loss, and saw its stock rise further. CEO Sean Gamble struck an upbeat tone about the number of movies coming to screen in 2023 — not just from traditional studios, but from streaming-first outfits like Amazon Studios and Apple Original Films hoping to capture some box office magic.
“The pendulum is swinging back to some sense of normalcy and balance as market watchers see theatrical box office returns from major releases [like “Avatar: The Way of Water” and “Top Gun: Maverick”] in the post-pandemic era,” Boxoffice Pro senior analyst Shawn Robbins told TheWrap.
Banking on box office
Wall Street is taking notice, and increasingly backing companies on the strength of box office expectations. Lionsgate stock recently surged on account of a promising 2023 theatrical slate, and investors seemed to cheer Disney CEO Bob Iger’s plans for sequels to popular movie franchises.
Netflix is the main holdout. Though it has placed movies in theaters starting in 2018 with Alfonso Cuaron’s “Roma,” it has largely held them back to limited releases. Some observers are urging co-CEOs Ted Sarandos and Greg Peters to rewrite co-founder Reed Hastings’ playbook and experiment with wider theatrical releases.
Since merging Discovery with WarnerMedia, Zaslav has made no secret of his skepticism of a streaming-only future for televised entertainment. At Disney, Iger has sold theatrical windows as part of a return to normalcy. And Imax and Cinemark’s leaders have touted premium formats and event movies as key to bringing big audiences back.
“Imax is our top theater pick for 2023,” said Macquarie senior analyst Chad Beynon, calling it an “insulated technology company.” Gelfond is hedging his bets, having acquired a streaming video tech firm last year, but he signaled confidence in the global box office in the coming year on a Wednesday call with analysts. And as studios reprioritize theatrical revenue over streaming subscriptions, the kind of films favored by studios and moviegoers are those that tend to play best for Imax.
Cinemark is betting on premium formats — both its own XD as well as Imax screens — but thinks there’s a role for non-tentpole movies as well. CEO Sean Gamble pointed out that the flexibility to shift movies from theaters to streaming if they’re not performing well at the box office may actually prompt studios to take more risks with “mid-tier films that were starting to disappear prior to the pandemic.”
The movie industry’s recovery from COVID is far from complete. Analysts predict box office of around $29 billion in 2023, which is 25% below the average for 2017-2019. Imax, however, said Wednesday it expected to achieve around $1.1 billion in total worldwide theatrical revenue for 2023, on par with its last pre-COVID figure.
That confidence is, noted Robbins, “well-founded.” It also “underscores the strength of premium format cinemas and their ability to rebound from pandemic impact relatively fast.”
Tentpoles have been pretty much back to pre-COVID box office since “Godzilla vs. Kong” grossed $469 million worldwide in March 2021, and they increasingly dominate the movies drawing viewers. In 2018, 26% of the domestic box office went to the top six earners. In 2022, that rose to 40%. Bollywood and the Chinese film industry are producing their own blockbusters, like “Pathaan” and “The Wandering Earth 2,” respectively.
Competing theories of the theatrical comeback
Three years of COVID-caused delays, as well as an industry-wide push to streaming, further normalized the notion of watching smaller-scale, mid-to-low-budget movies from the comfort of home. The people who came back to cinemas starting with “Tenet,” “Wonder Woman 1984” and eventually “Godzilla vs. Kong” in 2020 and 2021 have generally chosen the kind of film that benefited from a premium, large-format showing. They were also the sort of moviegoers more likely to opt for a more expensive, ostensibly premium experience.
That’s the Imax theory of what will draw people back to theaters: big movies on big screens with big sound. And Gelfond thinks he has the edge there: “There’s Imax, and there are copycats,” he told TheWrap.
Warner Bros. Discovery’s Zaslav put forward an arguably more refined vision Thursday on his call with analysts. “Perceived value of content increases when there’s a great expectancy and excitement,” he said. “People want to be part of something. And when you tell them a great story and they get to experience it with others … it really is magic.” Putting movies in theaters around the world is also part of the conversation with talent, he added.
This is a phenomenon the industry has seen before, Cinemark’s Gamble pointed out, with wide theatrical releases boosting follow-on revenue streams like DVD and VOD before streaming came along. Audiences “experiencing films in a shared cinematic environment develop stronger emotional bonds with stories and characters that helps build bigger brands, franchises and cultural moments,” he said Friday on his company’s earnings call.
“It also satisfies the desires of filmmakers and talent who aspire to see their films on the big screen,” he added, echoing Zaslav’s remarks.
These theories aren’t necessarily in tension. The financial motivations for putting movies on screens can mesh with the artistic ones, and different audiences may come to different kinds of theaters for different experiences. But they all add up to a compelling argument for movies returning to theaters, and staying there for extended runs.
“This is what a matured, proven, century-old industry does,” said Robbins, pointing to the durability of the conventional theatrical marketplace. “It weathers the storm and comes back with a sense of adaptation and evolution.”
Streaming has changed the calculus, but the math for theaters, investors are increasingly concluding, still works.