"The Door Is Open" Why Theaters Reach Out to Netflix [Next.Jjin]

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The world's largest online video service (OTT), Netflix, announced a decline in subscribers for the first time in 11 years. Less than ten days after this announcement, from the 25th to the 28th of last month (local time), a film festival was held in Las Vegas, USA, the heart of the American film industry and Hollywood. This event, called 'CinemaCon,' is hosted by the National Association of Theatre Owners (NATO). According to AFP, the atmosphere was noticeably brighter compared to August of last year, less than a year ago.

During the event, local media reported that John Fithian, NATO chairman, declared that the business model of simultaneously releasing films in theaters and on streaming services is 'dead,' which was widely covered by foreign media. He stated, "This comment came amid discussions among many film studio partners about how to release movies," emphasizing that major studios are moving back toward exclusive theatrical releases. It was as if they had gained the upper hand in competition with streaming services.

Interestingly, Chairman Fithian also made remarks that seemed to reach out to Netflix. According to AFP, Fithian said, "Theaters have opened their doors to Netflix films for years," and that he has had many discussions with Ted Sarandos, Netflix CEO. He emphasized that even streaming companies can earn more money if they premiere films first in theaters, and that films shown in theaters before moving to streaming services will stand out more.

Inevitable Coexistence with Streaming... A Cry Born from Desperation

On the 25th of last month (local time), a participant is walking at the 'CinemaCon 2022' event held in Las Vegas, USA. [Image source=AP Yonhap News]

The theater industry was hit hard by COVID-19. Especially as global OTT services, including Netflix, filled the void left by social distancing in theaters, doubts arose about whether theaters could recover. The pandemic tipped the scales in favor of streaming services, which were already competing with theaters. The anxiety in the theater industry intensified when Amazon, the world's largest e-commerce company, acquired MGM, famous for producing the 007 film series.

In this situation, theaters reaching out to Netflix with "the door is open" reflects the recognition that coexistence with the streaming industry is inevitable. As social distancing measures ease worldwide, audiences are returning to theaters. In the U.S., ticket sales from January to April this year have increased significantly compared to last year but remain over 40% lower than pre-pandemic levels in 2019. Full recovery has not yet been achieved.

According to Bloomberg, Adam Aron, chairman of AMC, the world's largest cinema chain, appeared at CinemaCon and said, "It will be difficult for U.S. movie ticket sales to fully recover to pre-COVID-19 levels by 2025," adding, "We are now in the third year of the pandemic, and the third to fifth years will be critical for AMC." He emphasized that 'flexibility' is crucial for survival.

The theater industry is moving toward coexistence with streaming. First, the exclusive theatrical window for films that premiere in theaters has been shortened from the previous 75-90 days to 45 days. Both sides have taken a step back to find ways to work together. Aron also revealed that discussions are underway about streaming companies like Netflix, Apple, and Amazon releasing their content in theaters first, like traditional films.

"Leverage the Uniqueness of the Space" Seeking Differentiation Strategies

[Image source=Reuters Yonhap News]

At the same time, theaters are attracting many films that are best enjoyed on the big screen. For blockbusters like Top Gun and Avatar, there is demand from audiences who prefer to watch them in theaters with large screens and immersive sound rather than on home TVs. Considering this, theaters are focusing more on spectacular films rather than quiet dramas. AMC plans to accelerate its digital transition by installing about 3,500 laser projectors in its U.S. theaters by 2026.

Alongside this, theaters are exploring differentiated business models that emphasize the uniqueness of the theater space. IMAX, a major U.S. theater chain, is growing its business of hosting large live events such as concerts. According to The New York Times (NYT), last December, IMAX live-streamed Kanye West’s charity concert in real time, allowing audiences in 35 IMAX theaters across the U.S. to enjoy it. Theaters have also transformed into spaces where stars and filmmakers can hold live Q&A sessions.

The theater industry in Korea is also reviving. It is actively pursuing various initiatives as much as overseas theaters do. From preparing blockbusters like Doctor Strange 2 to Jurassic World 3 to experimenting with space-related businesses, theaters are diversifying. Popcorn is once again allowed inside screening rooms. Thinking back to before COVID-19, 'watching movies in theaters' might have been a national pastime. We will watch with interest what changes theaters will bring about as they overcome the challenges posed by COVID-19.

Editor's Note [Next.Jjin] is a column that conveys news about major companies’ preparations for the future, meaning 'looking ahead to the real next of business.' We will uncover and explain both major visible issues and small but important hidden issues in an easy-to-understand way.