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A few months ago, I wrote an article about the how medium budgeted theatrical releases were impacted by streaming services such as Netflix. It’s a pretty dated article and leaves out a lot of factors that have happened since then. In this article, I want to talk about how streaming services will eventually usher in a new era of filmmaking. I know for a portion of readers, you’re pretty aware of all of this, but I think it’s still worth taking a look at.
Recently, it seems as though a lot of big companies are attempting to make their own streaming services to rival Netflix, Hulu, and Amazon. Both Disney and Apple announced platforms, and Warner Bros already jumped in with their new DC Universe streaming service designed specifically for DC Comics related products. As companies launch their own subscription services, cord cutting becomes more inevitable. According to the Video Advertising Bureau in a 2018 report, the number of cord cutters has tripled in the last five years. The VAB defines the term OTT (Over-The-Top) as “premium long form video content that is streamed over the internet through an app or device onto a TV (or PC, Tablet, or Smartphone) without requiring users to subscribe to a wired cable, telco or satellite TV service.” Currently, 71% of internet users use an OTT service according to the document, and 14.1 million homes in America have cut the cord.
I don’t know if the streaming services intended to end cable TV, but there’s a good reason why people are saying goodbye. It seems that every year, these premium OTT formats are producing more quality content than cable provides. This year, the Emmy nominations were led by Netflix followed by HBO. The nominees for Best Drama Series are “The Handmaid’s Tale,” “Game of Thrones,” “This is Us,” “The Crown,” “The Americans,” “Stranger Things,” and “Westworld.” Out of that, only “This is Us” and “The Americans” are cable shows (on NBC and FX respectively). Now let’s take a look at the nominees for Best Comedy Series: “Atlanta,” “Barry,” “Black-ish,” “Curb Your Enthusiasm,” “GLOW,” “The Marvelous Mrs. Maisel,” “Silicon Valley,” and “The Unbreakable Kimmy Schmidt.” Of those, “Atlanta” (FX) and “Black-ish” (ABC) were the cable shows. Netflix has dedicated $7 billion towards original content in 2018, an unprecedented number that hints at a larger picture I’ll get into soon. Moreover, premium channels and streaming services have become increasingly focused on producing original movies with Netflix producing 80 original films in 2018 and Amazon even taking home some Academy Awards last year with “Manchester by the Sea.”
The original content alone can make an OTT platform sell, but then a lot of these aggregators add in all these other shows and movies that they licensed from cable networks and suddenly subscribers have an endless amount of content. However, according to a recent study by 7Park Data these licensed shows generate 80% of Netflix’s US viewing, which means that people are mainly going to a subscription like Netflix probably to binge a show like “Breaking Bad” (AMC). It’s even more for Hulu, which has 97% of its viewers from licensed content.
The licensed content could be a problem for streaming services when you consider the new players that will enter the game. For example, the Disney service will undoubtedly take back all Marvel and Star Wars content from Netflix for their own platform, giving incentive for fans to join the new platform. Moreover, the Disney/Fox merger would mean that Disney also takes all the Fox content from the various other streaming services. While people might not be enticed at first to join Warner Bros’ all new DC Universe streaming service for the relatively wide catalog of shows and movies (many of which will be taken back from current streaming platforms like Netflix), the service is including a digital copy of every DC comic book ever made so fans could easily catch on. For people who have Prime Video, other services like Twitch Prime are included with licensed and original content (soon with a billion dollar “Lord of the Rings” adaptation), prompting people to join that service. I’m sure when Apple makes their streaming service, they would steal some of the licenses from other streaming services and make exclusive deals (they are, after all, now a trillion dollar company).
When you take this upcoming licensing competition into consideration where you don’t know who’s going to take what content from who, original content becomes way more important as the lifeboat that would keep companies like Netflix and Hulu afloat. The 7Park Data analysis found 12% of Netflix’s streaming in 2016 was original content, but that number increased to 20% in 2017. People may start to increasingly watch Netflix for the original content as cable begins to diminish. This would work in the company’s favor when their licenses get taken away by shiny new services. Eventually, we might start seeing a lot of production companies create their own OTT platforms for their movies. This could potentially solve some of the issues I talked about in the previous article. For starters, certain medium-budgeted movies that would normally not do well in a theatrical release could act as drivers for the streaming services.
And this is where the fun begins (I’ve been seeing way too many prequel memes lately). We’re back to channels. It’s a little different this time since they’re in the form of OTT’s, but soon it’ll feel like these services meant to cut cords will become our new cords. I wouldn’t be all that surprised if the biggest media companies make power plays and group up some of these OTT’s. These would effectively become our new “cables.”
However, there’s another side to this story, one that goes hand in hand with streaming – movie theaters. The rise of subscription services saw a drop in theater attendance with 2017 hitting the lowest point of theater attendance in 25 years. Since 2002, the box office has generally been on the decline though ticket prices have increased (there were small upticks in 2009, 2012, and 2015 mostly due to blockbuster films such as “Avatar,” “The Avengers,” and “Star Wars: The Force Awakens”). The drop in attendance is probably attributed to the lowering of internet costs, which increased movie downloads. Video On-Demand became a must have, and in 2007, Netflix pivoted from its DVD-rental business to a streaming service after they saw the historic rise of YouTube. Since its streaming service launch, Netflix has become one of the biggest companies out there with over 125 million users as of now. With a wide assortment of content, people felt there isn’t much of a necessity for going to theaters since Netflix is way cheaper and you can stream from the comfort of your couch. As movie ticket prices increased, people just didn’t care for most movies unless they were big blockbusters that just required a big screen to watch. The movies that do well in theaters are always the ones that work best on the big screen, and those can often cost a lot of money to produce. If only there was a way for viewers to pay a monthly fee like Netflix and have access to theaters…
Enter Moviepass. The company was founded in 2011 with that exact premise. It was a risky gamble, but the team headed by CEO Mitch Lowe believed that they could pull it off. In August 2017, they made the wild decision to offer one movie a day for the low cost of $9.95. Like many other frequent moviegoers, this was a no-brainer deal for me, and I signed up instantly. Within days, I became a heavy user since the closest theater was only a 10 minute walk from my dorm room. It doesn’t really take a genius to figure out that it’s kind of a dumb business model. The average ticket at that theater was around $12.50 for a regular show and $5 more for 3D or IMAX. If I wanted a premium format, I would just have to pay $5 extra out of my pocket. Even if I just watched one movie a month, that would still mean I’ve gotten my money back. What exactly was Lowe, a former executive at Netflix none the less, thinking and how were they making money?
Apparently, the company’s owner, Helios and Mattheson, is a data analytics company, which means that Moviepass was essentially selling its users’ movie data to movie companies like Warner Bros. Though low $9.95 price point was just a front to reel users in so that HMNY could sell data, the company struggled to get anywhere close to breaking even as it kept pilling on debt. Early estimates as far back as April suggested six months of runway at the time, but it seems like Lowe continued to lie about how much money Moviepass actually had. I’ll give it to him, the man is great with marketing and knows how to spin information to his advantage. Lowe has stated in the past that the company’s business model requires the majority of moviegoers to use Moviepass. He stated that the model depends on the prospect that most users only see one or two movies a month. The model works like that of a gym in that a gym’s best customer is someone who barely goes. That works for a gym because working out takes a lot of physical work that some people don’t want to do all the time. However, free movies is something that everyone can get behind, and you bet that even the less frequent moviegoers are going to ramp up their watching habits as soon as they subscribe to Moviepass.
You don’t need to be a former executive at Netflix to understand that Moviepass’s business model is inefficient, and it wasn’t long before the company ran out of funds at the end of July when “Mission Impossible: Fallout” came out. To combat this, Moviepass started adding premium costs to all tickets, sometimes up to $8 more, meaning users weren’t able to get the experience they were paying for in the first place. There were some other missteps like how Moviepass tried to pull off a Netflix and produce their own films. The only problem is that while “American Animals” was pretty good, “Gotti” was arguably the worst movie of the year. To top that off, as Dan Murrel of Screen Junkies put it, the company spread fake user reviews of the film to fight off critics.
The stock crashed for the umpteenth time, and Moviepass seemed to die off completely. Now, Moviepass is “fighting” (by which I mean it’s getting its ass kicked) with its last limb by continuing to produce movies and reform its model to be more user friendly, but the damage has already been done. The company still exists, but it’s probably not going to stay for long because of one major game changer: AMC.
Right around the time Moviepass started to really fall in June and July, AMC released AMC Stubs A-List, a $19.95 monthly subscription that basically allows you to the exact same thing as Moviepass except you now get 3 movies a week, any premium format for no extra cost (so 3D and IMAX), and your own fast-lane type ticket experience where you basically skip the lines. At first, when this project rolled out, I wasn’t that excited since it’s $10 more, less movies on a weekly basis, and can only be used at AMC theaters, but then Moviepass got destroyed and suddenly everyone moved to A-List. Stubs A-List garnered 175 thousand members in its first five weeks, shifting all eyes to AMC. This was clearly a better deal even if it meant $10 more a month. Plus, AMC wasn’t a third party in this whole movie business – they were the real deal, the ones who strike deals with production companies. The irony of the whole thing is that AMC was a notable enemy of Moviepass, and in the end they took the novel idea and turned it into something sustainable… right?
That’s the question – how is AMC going to succeed where Moviepass failed? Here’s what I think: as we now know, attendance has generally been on the decline since 2002 (with upticks due to major blockbusters such as “Avatar,” “The Avengers,” and “The Force Awakens”) mainly because of rising ticket costs. With a low-cost monthly subscription service, people are naturally going to attend more movies, which ultimately benefits movie production companies, but hurts the subscription service since they have to buy the tickets to give to the users. This was detrimental to Moviepass since tickets were its bread and butter and more attendance actually hurts them. AMC on the other hand benefits from increased attendance because of concessions, which famously have insane markups. While I’m not really one to buy concessions since it’s not that hard to sneak in candy, people buy them all the time. With A-List, you get to skip concession lines, making you more likely to get into that special concession stand. Moreover, everything you spend in AMC gets you Stubs Rewards points, which can be used to redeem special offers. Moreover, the company is in a position as one of the largest theater chains to strike deals with big production companies for tickets sold through A-List, and A-List only makes them larger since it can only be used in AMC theaters. While there’s no way to tell for sure without watching user habits for the next few months, I think there’s little room for error here because it seems like it’s a win-win for AMC. If people go to theaters more, AMC makes more money off of concessions, and if people don’t go, AMC takes advantage of the gym model we talked about before.
This all makes sense, but what does this mean for movies? After all, we pay these services to gain access to the products. If movie theater attendance spikes, it could mean more opportunity for filmmakers to take risks and see what sticks. With subscription services, audiences are more likely to see a smaller indie movie they wouldn’t normally pay full ticket price for. However, there’s still the impending streaming war between Netflix, Amazon, Disney, Apple, Hulu, and whatever else I’m missing. These companies serve to replace cable, and their original movies serve to detract viewers from theaters. I’m not saying one is going to win over the other, I’m just saying that when the dust settles, we’re going to see a major industry change that will ripple across all of entertainment. It’s like when 3D happened, and it was this big shift or when the blockbuster became huge in the 70s.
When users change their watching habits, you can bet there will be a shift in industry standards. As for what that shift will be and where the industry goes in the next few years, there’s a lot of different outcomes. Disney could come out on top with a monopoly on both streaming and theaters, especially since they bought Fox. Theaters, for all we know, could go extinct because people just find it easier to watch movies at home. We might start seeing big budget blockbusters premiere on the small screen instead like we saw with some of Netflix’s originals. As these changes happen, we can start to see a rise in indie films through these platforms, which can ripple out to the Academy Awards changing their voting habits to recognize streaming services. There’s so much that can happen, and we can go on for days about the different effects, but one things for certain – we’re in the process of witnessing a big change in Hollywood, and in the end, it’ll boldly take the movie experience to a place we haven’t seen before.
Thanks so much for reading, everyone! This was an article I’ve been working on for a long time, and I’ve been sitting on it for a few weeks now so it feels pretty great that it’s finally out there. I’ll be editing this with any changes if I find this, and I think it would be cool to continue to talk about this sort of industry level topic.
What do you think? Do you think AMC Stubs can keep the theater going experience thriving? What are your thoughts on this streaming war? Please feel free to let me know in the comments section!
Also, if you liked this article, be sure to check out Heroic Weekly, a new weekly series I’ve started in which every Friday we take a look back at a superhero movie! It’s an interesting experiment I’m trying out for a few weeks to see how it goes. The first two episodes are currently up on the site, and you can click here to read the first one on the Sam Raimi’s 2002 “Spider-Man.” Thanks 🙂
Categories: Business, Entertainment, Movies
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