Lockdowns caused by the pandemic opened the door to streaming services at the expense of theaters. But with economies open again, there are indications that both theaters and streaming services are struggling, which leaves a murky future for film distribution as a whole.
Top Gun Maverick is the highest grossing film of 2022, so far. It has grossed more than $1.4 billion worldwide as of this writing. It is the second film post-pandemic to cross the $1 billion box office mark, the biggest box office gross of any Tom Cruise movie ever, and the film with the largest box office haul during Memorial weekend ever. It had its wide release back on May 27th, and is still in major theaters. It holds the record for the smallest drop-off of proceeds between week 1 and 2, and also remains as one of the highest-rated films of the year.
In all aspects, Maverick is a resounding and maybe unexpected success. In a world where delayed sequels/reboots are typically met with a shrug of the shoulders, audiences not only embraced this film, but cheered it on enthusiastically. It was a major win for movie theaters who had not seen this type of interest for more than two years. Part of this certainly has to do with the fact that this film doesn’t hit streaming services until today. In this post-pandemic era, that’s not just an anomaly, it feels like a calculated risk.
Maverick’s success speaks of the possibility of continued audience interest in brick and mortar movie theaters. But is it a sign of a movie theater rebound, or an incredible stroke of luck? Last week, Cineworld announced its decision to declare bankruptcy. Cineworld is the 2nd largest theater chain in the world. This news doesn’t suggest success at theaters. But at the same time, the pandemic hurt theaters badly, and so we kind of expected there to be some sort of repercussion. Theaters had no choice but to try and ride it out for the last two years.
Consider that theaters have experienced low revenue for close to two years. 2019 was a banner year for ticket sales, and then things fell off a cliff. 2022 was supposed to be a rebound. It was supposed to be a time for audiences to return to theaters in strong numbers. Companies like Cineworld were relying on it. That didn’t happen. Movies like The Batman and Thor: Love and Thunder did not exceed expectations. These were the first films “post-pandemic” and were expected to draw larger-than-usual crowds. We were supposed to miss the experience of going out to see a movie in theaters.
Don’t get me wrong, The Batman and Thor: L&T still did well, but not well enough. Both of these films made more than $300m at the domestic box office (US & Canada). That’s pretty solid for a domestic release, and the production studios were certainly happy for those numbers. But compared to 2019, these numbers are low. Of the top 8 highest grossing films of 2019, all but Joker grossed more than $400 million domestically. Compare 2019’s 7 films above $400m with 2022 which only has 2 so far. Avatar 2 and Black Panther 2 will have significant domestic earnings, but have yet to release. That means domestic proceeds among the highest grossing films could be about 50% of what it was domestically in 2019.
Of course, you could point out the fact that most major movie releases make more money overseas than they do domestically. That is certainly the case, although the international market hasn’t been as prolific as late either. In 2022 the top 10 highest grossing films so far averaged about 37% of their proceeds coming from the domestic market. But this number is skewed because of the Chinese film Water Gate Bridge, which has high box office earnings but very low domestic contribution. Ignore that film and the remaining 9 have a 41.4% average. As of late most Hollywood releases have had about 40-50% proceeds come from the domestic market. Top Gun: Maverick is a bit of an exception, the split was high, at 48.7%.
Back in 2019, the average domestic split of the top ten box office earners was lower. The top 10 films of 2019 have an average of 36.21% domestic split. This means in 2022, movies are making a larger percentage of their earnings from domestic markets, but at the same time are making less money overall. This means the impact of international markets is not really helping the industry. This is especially the case for theater companies which are world-wide, like Cineworld.
The growth of the international market we saw towards the end of the last decade has not picked up again. This could be for any number of reasons; lack of new wide-appealing releases, continued pandemic uncertainty, shifts in culture away from theaters. Those same issues could be impacting domestic audiences as well. But lack of new releases and continued pandemic uncertainty are two reasons which may play hand in hand. As of late, studios have been more hesitant to release films into theaters because of pandemic uncertainty, but also people aren’t wanting to venture out as much as they did pre-pandemic BECAUSE of the lack of films. So, that leaves one possibility that could be causing this shift, and it is the one that theaters, and really the industry as a whole have to worry about the most…
The culture of watching movies has changed significantly over the last two years. Streaming services have become a major outlet of new feature film releases. The convenience, cost, and even the selection may appeal in ways which traditional theaters cannot compete with. We now have big-budget and high profile films which release exclusively on streaming platforms. Just this year we have seen movies like Prey, The Gray Man, Hustle, The Adam Project, and Jerry and Marge Go Large are examples of the types of films which streaming services have invested significant resources into, but haven’t been released in theaters.
This marks a significant shift in the industry. While we did foresee the impact streaming services and studios would have on traditional theaters, this change has more influence than theater proceeds alone. For one, it changes the game as far as filmmakers are concerned. In these cases the film is not necessarily judged by its profits, but by how many eyeballs it provides to the streaming service upon which it debuts. This shift could very well change the way we approach mainstream moviemaking. Instead of big-name filmmakers having to adhere to studio requirements in order to have the chance to work with big budgets, these types of films tend to give big budgets to major filmmakers with few strings attached.
However, in those cases where filmmakers have had significant freedoms with big budgets, the results have been mostly lackluster, to say the least. Certainly movies like Mank and The Irishman made headlines and won awards, but for each of those films you have a Bright or The Midnight Sky which utterly failed to live up to their lofty expectations. To date, Netflix’s slew of big-budget action films like Red Notice, The Gray Man, and 6 Underground have mostly disappointed. Meanwhile, animated features like The Mitchells vs. The Machines and Turning Red were critically acclaimed and have proven very popular as well.
So, perhaps this period of time is a matter of feeling out the streaming space to see what type of films work best in that medium. Prey is an interesting anomaly, and may have stumbled onto something. This is a film that has garnered lots of positive headlines, and yet it was not significantly budgeted or a completely original idea. Streaming studios have so far struggled to begin their own franchises, despite the amount of money they have spent on producing films. Perhaps the answer is to use the medium for the debut of films connected to existing franchises which may not be popular enough to compete with the tentpole franchises which dominate in theaters.
But there’s another, more dire issue streaming services are having to deal with; their long-term viability. Netflix has been shedding subscribers significantly, despite how much money the company has spent on original productions. Disney + has posted a significant operating loss, and as a result has to increase their subscription fee. Apple TV+ has been making deals with sports leagues to have exclusive rights to show games on their platform. This gives their service a unique advantage over others, but at the same time reduces the importance of original programming to the service’s long term success.
The other issue major studios may have to deal with is the fact that perhaps people are just not as excited to go to the movies as we once had been. The pandemic has shifted our perspective on a number of things, and it certainly has changed our relationship with how we consume our entertainment. Staying home and streaming is more convenient, and potentially more cost effective than going to the movies. Plus, now that lockdowns are over, people’s priorities may have changed as well.
Regardless, it doesn’t change the fact that the industry is having a tough time, despite the success of Top Gun: Maverick. Streaming services have not yet shown that they can be sustainable, and audiences aren’t showing up in theaters the way they used to. This situation may have to do more with the types of films available than it does the method of distribution. In both cases (streaming and theaters), audiences have shown considerable interest when there is a promising product available to them. The problem seems to be the infrequency of the appearance of that type of a product.
Maybe it is more of an issue with the types of films being released than it does with the way audiences are digesting their films. With a shift in the way we view our films, there may also be a shift in the types of films we want to consume. After basically having 2 years away from movies, our tastes have certainly changed. This delay also interrupted the momentum studios and major film franchises had established with their previous releases. If the public is still willing or able to consume film at the same level as in 2019, it may just take some time to ramp back up to that level. After all, studio release schedules of this year have not been as prolific as it had been in the past.
But whether that growth comes through traditional theaters or through streaming services is yet to be seen. With both areas of distribution facing growing uncertainties, there is reason to believe the industry could have a hard time achieving the growth it needs to get back to where it had been.
