The Future of Theaters Is Experience. Not Content.
These days, film and television content has become almost indistinguishable from one another. And given the industry moving announcements from both Warner Media and Disney in the past several weeks, these indistinctions will only continue to grow.
For every major studio, their long-term destination has become clear: developing direct to consumer pipelines for their high-quality branded content, moving away from traditional theatrical distribution as the single destination for content of this caliber. While many pinpoint COVID-19 as having caused a seismic shift in the industry as a whole, it really just accelerated changes that were already on the horizon. While theatrical revenue has increased 11% over the past 10 years, ticket sales have seen a 4% decline in that same time frame*. The pandemic merely provided the necessary grounds for experimentation in business models, content distribution, and consumer choice that studios had been looking to attempt without major consequences from theatrical distributors.
And while movie theaters have certainly received the largest share of impact during this time of experimentation, their long-term decline is certainly not a foregone conclusion. For many creatives in the industry, the theatrical experience continues to be the pinnacle of movie watching – that feeling & excitement as the lights go down - what they pour their hearts into in the years it takes to complete a single project. Creatives are the lifeblood of the industry and those continued relationships are key to content success no matter what the channel. Studios also know that some of their most ambitious content – the mega franchise blockbusters that have increasingly filled yearly film slates – have their best chance of turning a profit only when first played in a movie theater. While the revenue longtail for this type of content is certainly viable when selling it across windows – the biggest bang for their buck is still in theaters.
Yet that has not stopped the world from dramatically shifting over the past 10 years. Netflix and the rise of streamers have increased consumer choice, bringing 100 years of movies and television into our homes and the palms of our hands. While movie theaters were once the only destination to access the type of high-quality content studios are known for – today they have the choice of what, when, and where to watch. Plus, take into account simplified access to home theater technology and decreasing costs of installation, and the movie theater experience seems increasingly commoditized to the average consumer who is just looking for a few hours of entertainment.
In the short-term, movie theaters should clearly focus on safely re-opening, and once open, communicating that safety and providing incentives for seeing films in theaters versus watching in the home. But, as they shift their focus to long-term strategic objectives, it is important to begin to think through ways of revolutionizing their own business against three value drivers: the experience they can independently provide for 1) consumers, 2) creatives, and 3) studios.
Looking at consumers, theaters should look to attract three diverse groups: fans, families, and foodies. For fans, retrofitting auditoriums across the board with the highest end technology such as IMAX and Dolby, as well as updating seating is key. Meeting comfort and technology shouldn’t be something kept to just a select number of auditoriums within each theater or only accessible by building an in-home theater system. Not only that but provide ticket value adds that might drive fan enthusiasm, such as physical products (figures & collectibles), or the opportunity to view streamer original content in theaters during key timeframes such as the leadup to a theatrical or television team up event.
For families, determine a way to increase the overall value of going to the movies while keeping costs low – giving a reason to go to the movies versus staying in. Provide a wider range of family or small group tickets that combine a ticket with additional concessions or experiences (valet, shopping discounts) that simplify the movie-going experience. Also, partner with major food chains, such as fast food and & quick service restaurants, to deliver an experience kids crave. And for foodies, move beyond traditional concession or bar food to elevate the theatrical experience. Work with chefs and personalities to create unique limited-edition menus to diversify the product offering while keeping costs low and bring in celebrities to curate their own menu combinations – just look at McDonalds recent offerings with Travis Scott and J. Balvin for example.
Theaters should look to bring creatives further into the fold of the theater going experience while also developing content around how filmmaker choices best resonant on the big screen. Banking exclusive interviews and behind the scenes content is great, but actively inviting filmmakers to more broadly participate in digital premieres, live Q&As, and watch-alongs with fans could bring a more heightened relationship between creatives and consumers.
And for studios, theaters must recognize their unique ability to act as a physical destination of studio content for consumers. Not only continue to explore showcasing props & memorabilia from films, but potentially retrofit auditoriums to act as large-scale physical installations as well; bringing in partners such as the Void or Amazon to create unique, limited edition, branded experiences that will help differentiate the movie-going experience. Theaters can also work to partner with streamers to help provide value add opportunities for their consumers – providing a limited number of free tickets with each subscription, or free opportunities to showcase streamer originals in theaters for a limited time so that their subscribers can continue to see all content in that format if they wish.
Whatever long-term changes theaters look to make, it is also far time to consider dynamic pricing as well. Continuing to build upon their ticket subscription businesses by providing multiple tiers that fit consumers viewing habits, and also tiers that allow for additional value drivers, such as concessions, discounts, and physical goods, as well. In addition, tiering individual tickets to include these types of value adds is ripe for experimentation.
For many in the industry, we look forward to getting back to the movies soon, and as a fan, I hope they have a long future ahead. 2020 was a time of great experimentation for the studios and I think now its time for theaters to have their chance as well.
