Desperate for Profits and Souring on Streaming, Hollywood Falls Back in Love With Movie Theaters

Jeff Logan is feeling relieved.

For the first time since COVID shuttered movie theaters, business is booming, with audiences flocking to see John Wick: Chapter 4, Scream VI and, just last weekend, The Super Mario Bros. Movie. And Logan, who owns Logan Luxury Theatres in rural South Dakota, is back in the black after enduring two years where profits vanished while studios failed to furnish enough big movies to play.

Its nice, he says. We dont have to reassure our bankers every time we meet for coffee.

Logans theaters arent the only ones experiencing a dramatic change of fortunes. Overall, the domestic box office stands at $2.3 billion, up 36.8% from the same period last year and an astounding 589.5% improvement over 2021, according to Comscore. The exhibition industry is finally looking like its pre-pandemic self again. Thats partly attributable to studios releasing new installments of successful franchises, but it is also linked to a shift in attitude among the major media companies when assessing the value of a theatrical release.

In recent years, Hollywood had a serious case of Netflix envy, with studios opting to launch their own streaming services. To do that, they amassed a lot of red ink building splashy streaming shows and shrunk the amount of time that movies screened exclusively in cinemas as a way of generating enthusiasm for the likes of Disney+, Paramount+ and HBO Max. But lately, Wall Street has soured on the economics of streaming, believing that the media conglomerates that run these services need to be as focused on making money as they are on attracting subscribers. Investors are not too thrilled about all the debt thats been built up, either. Thats made box office revenues an increasingly vital part of their overall financial health.

Studios have found religion, says Eric Handler, an analyst at Roth Capital Partners. Theyve come to recognize that having an exclusive theatrical window is the best way to maximize profits instead of releasing everything simultaneously on demand. Theres a lot of marketing value in having your movie in cinemas.

For now, Netflix is largely holding firm to its model of releasing nearly all its movies directly on its platform, with only a handful of awards contenders enjoying in-theater runs. But streaming companies like Amazon and Apple are moving in a different direction. Last weekend, even as Mario dominated the box office, Amazon scored a modest hit with Air, a drama about Nikes courtship of Michael Jordan that stars Matt Damon and Ben Affleck. The film was released on more than 3,000 screens, the widest debut ever for a movie from a streaming service, and benefited from a $40 million marketing campaign. As The Super Mario Bros. Movie generated a massive $204 million in its first five days of domestic re- lease, Air racked up north of $20 million impressive for a movie aimed at adults.

Amazon is taking a swing, says Kevin Wilson, MGM and Amazon Studios theatrical distribution executive. But I dont think you can replace what Air has gotten this weekend in terms of publicity, word-of-mouth and marketing from going to theaters.

Amazon isnt overly concerned if Air loses money at the box office. To be profitable in cinemas, where studios split revenue with exhibitors, movies must double their production and marketing budgets, meaning the Affleck-Damon film would need to gross at least $260 million. However, opening Air in wide release means it will hit the companys Prime Video streaming service with more buzz. More importantly, it creates additional revenue streams, such as on-demand rentals and other licensing opportunities, that arent possible by going directly to streaming. Thats partly why Amazon expects to release a dozen movies in theaters annually, while Apple is preparing to debut Ridley Scotts Napoleon and Martin Scorseses Killers of the Flower Moon exclusively on the big screen before bringing them to Apple TV+. That leaves theaters with a greater selection of movies to screen. And its critically important because the number of major releases is still down 20% from pre-COVID levels.

Thats not to say that the future is bright for the big screen. Many companies in the sector are struggling. CineWorld, the second-largest theater chain, is bankrupt and had to drop its plans to sell its U.S. and U.K. businesses after failing to find a buyer. It will instead raise funding to keep its operations in those countries going. And AMC, the biggest cinema company, has nearly $5 billion in debt on its balance sheet. Its been kept alive because it improbably became a meme stock during the pandemic, with investors fueling its rise based on sentiment instead of fundamentals. That seems to be ending. After AMCs stock was boosted to a high of more than $72 a share in 2021, it has plunged back to Earth and now trades at around $5.

Although the pandemic didnt lead to the decimation of theaters, with the number of screens falling by roughly 5%, a few prominent locations may have dimmed their marquees forever. The Arclight chain of high-end theaters is defunct, Hollywoods iconic Cinerama Dome remains shuttered, and Regal Union Square in New York, once the highest-grossing cinema in the country, plans to close.

Privately, movie studios long griped that exhibitors didnt do enough to make their theaters destinations, that they threw movies up on their screens without attending to the niceties of customer service (theyre probably right). But theyve also come to realize that consumers arent going to sign up for Netflix and all its challengers. If they want their movies to be seen, they need a different model.

There are only so many people who will subscribe to your streaming service, so if you want to attract eyeballs to your movies, theatrical becomes a much more efficient option, says Eric Wold, an analyst with B. Riley Securities.

As for Jeff Logan, hes pleased that studios, after behaving like movie theaters needed them more than they needed cinemas, are changing their tune.

Theaters want to say a big I told you so, he says.

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