Mask Controversy Shows How Treacherous Theater Reopening Will Be
The popcorn was popped, the seats were wide and luxurious, the cocktails were flowing, and the pictures were sharper than ever. At the start of 2020, cinema-chain owners and executives stood ready to cash in on years of expensive renovations meant to draw movie lovers away from Netflix and into the theater.
The plan now is to survive the year, by any means possible.
As movie-theater chains reopen in the U.S. and Europe, they face one of the industry’s biggest marketing tests ever: convincing consumers that it’s safe to sit in a room with strangers for two hours during a pandemic. It’s already not going well. AMC Entertainment Holdings Inc. drew outcry when it said it wouldn’t require masks, calling it a “political” issue, and the company was forced to quickly change its policy.
Things may only get get more difficult from here. If an increasingly likely second wave of coronavirus shuts theaters again this year, even the largest companies face insolvency by 2021. And if they stay open -- but audiences are too scared to attend in large numbers -- they’ll struggle to repay the debt they took on to survive months without revenue. On top of that, there’s the age-old challenge: getting a supply of new movies people will pay money to see.
So theater chains across the U.S. and Europe are opening slowly, carefully and creatively.
“It’s going to have a build-back, and part of that is content building up, and the second part of that is confidence in the consumer to feel safe and secure to come back,” said Mark Zoradi, chief executive officer of Cinemark Holdings Inc. “We’re really taking this extremely seriously.”
Cinemas have already spent hundreds of millions of dollars improving food service, ticket-buying technology and seating, as part of their pre-coronavirus strategy to beat the streamers. At the end of 2018, AMC alone had accumulated almost $5 billion in debt to cover improvements, more than double what it had at the beginning of the decade. It’s net debt has now reached more than $10 billion, partly spurred by pandemic-related borrowings.
A crowded release calendar at the end of 2020 and throughout 2021, which includes a “James Bond” film, and new Marvel and DC Comics movies, will be key to reducing that debt.
But all of the hard work of bringing customers back into the fold falls apart if they can’t trust they won’t get sick. Though theaters in some states were able to open as early as May 1, they held back. The majority of U.S. chains won’t open until July, to ensure locations are sanitary -- and to await new releases -- and they’ll have to keep up to 75% of seats empty as part of social-distancing rules.
The issue of safety is global. Cinemas in France, the largest European moviegoing market, will initially apply physical-distancing rules, keeping theaters at half-capacity, and making sure different screenings don’t all start at once so as to avoid creating human traffic jams. Wearing masks in hallways and common areas will be mandatory, but it will only be recommended during screenings. Every other seat between moviegoers or a group of moviegoers will be left empty.
Getting it wrong, or even appearing too casual, is risky. When AMC head Adam Aron appeared too lax by not requiring masks on customers, the backlash was fierce. AMC, Cineworld Group Plc’s Regal and Alamo Drafthouse are now all requiring masks, but other chains are still leaving it up to local health authorities.
Even the theaters that do require masks may struggle to enforce the policy -- especially during long movie showings (“Tenet” is expected to run more than three hours) -- and it forces hourly workers to be at the front lines of confronting mask haters.
“Asking a 17-year-old to do this? You’re going to see word-of-mouth be not so much about movies anymore but how theaters are operating during these times,” said Jeff Bock, senior box-office analyst at Exhibitor Relations Co. “You’re going to see a lot of things on social media.”
Aron is far from the only cinema executive to wade into reopening controversies.
In China, where new Covid-19 cases had slowed dramatically, about 500 theaters tried to resume operations in March, before schools there were allowed to reopen. That led to a backlash on social media, and the country postponed a phased theater reopening until June 10, according to Imax Corp. CEO Rich Gelfond.
Limits on capacity will be one of the toughest challenges. Though AMC’s cinemas on average were 17% full in 2019, it relies on busy weekend showings to make up for the slow times. Now it will always be a relatively slow day. AMC, the No. 1 chain in the U.S., issued a going-concern warning in early June that raised the risk it will become insolvent if it can’t generate cash flow.
Nathanael Karmitz, chairman of MK2 cinema chain in Paris, said the end of lockdown also means the end of government support there, which helped theaters pay furloughed workers and limited losses.
“The real source of worry is about the end of lockdown,” Karmitz said. “It’s more difficult to reopen with capacity limits than shut down entirely.”
Even without the safety concerns, exhibitors were in a tough business. People have been falling out of love with the old-school cinema. Though the international box office continues to grow, reaching a record $42 billion in 2019, audiences in the U.S. have been gravitating away from theaters for years.
After the pandemic hit, the threat from streaming services only rose. Trapped by their own sunk marketing costs, studios felt forced to release some movies intended for theaters to home audiences instead. And the results gave the industry pause. Comcast Corp.’s Universal Pictures bragged that it made as much money releasing “Trolls World Tour” on demand as it did releasing previous “Trolls” pictures at the box office. An executive suggested the studio would skip the cinema more often, prompting a furious response from AMC’s Aron, who declared he would sever ties with Universal. (The two companies are now in “a dialogue,” he said in an interview.)
That sort of threat to AMC and other theaters is existential. On May 20, a survey from Performance Research, in partnership with Full Circle Research Co., showed that out of 1,000 people polled, 70% would rather watch first-run movies at home. Netflix Inc. was so successful during lockdown, it temporarily surpassed box-office giant Walt Disney Co. as the biggest entertainment company in the world.
Even quirky, smaller theaters urgently need big-budget releases, and need them quickly. Alamo Drafthouse, the Texas chain that serves customers craft beers while they’re watching the movie, makes about 75% of its revenue from large studio fare, such as Marvel films, according to founder and Executive Chairman Tim League. The National Association of Theatre Owners said most chains held back on reopening in May, when many were technically allowed to, because small-budget or old films don’t generate enough sales to cover the cost of having the theater open.
Studios are far larger and better-funded than exhibitors, and will hold back releases if the public decides going to the movies is unsafe. Or they can make the same move as Universal and release films on streaming platforms, where they get a bigger share of customer purchases. Neither Zoradi nor Aron was confident that “Mulan” will stick to its July 24 premiere date. But AMC especially needs to start generating cash flow now, according to Bock.
“For AMC, they can’t wait until the fall, or the holiday season to open,” he said. “Or they won’t be around.”
©2020 Bloomberg L.P.