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Writer's pictureFrank Rash

Three Years Post-Covid, Why Are Boxoffice Grosses Still Down?

Published Sep. 5, 2024


Well, the year was off to a bit of a wobbly start, but with a super slate of titles over the summer, thru Labor Day pulled to within 75% attainment of ’19…yes, some analysts question the relevance of continuing to benchmark against ’19 but I challenge that notion.  I find it very important and relevant for U.S. theatrical exhibition to continue comparing box office revenues to ‘19 because it serves as a solid benchmark for pre-pandemic performance, offering a clear measure of how the industry has recovered.  As ‘19 was the 2nd highest-grossing year in history, it represents the last peak of audience engagement and box office success.  By using ‘19 as a reference, exhibitors can assess trends, consumer behavior, and the long-term impacts of COVID-19 on theatrical attendance, helping to shape strategies for future growth and adaptation in a post-pandemic world.

 

Many of the key summer performance metrics are still being updated, so for purposes of trying to get our arms around a comprehensive insight as to where things stand, let’s use week 26 (end of Jun) as our reference point.   

 

What keeps me up at night

A worrisome issue that keeps nagging at me is WHY, now 3 years post-Covid, are boxoffice grosses still down -36% vs ’19… and down a disturbing -47% in raw attendance?  Four (4) possible culprits quickly come to mind…

  1. Rising admission prices

  2. Quantity, quality, and awareness of titles

  3. The release window

  4. Impact of streaming

 

So, leaning in on a good midwestern idiom, let’s see if we can “separate the wheat from the chaff…”

 

Let’s keep an eye on pricing but it’s likely not a significant contributor

A high-level look at the past 78 years results in admissions revenue growing an average of +2% per year and attendance shrinking at annual rate of -2%...the increase in revenue is entirely a result of average ticket price (“ATP”) rising an average of +4% per year.  Oh, and if you’re thinking rising prices have contributed to our current decline in attendance, consider this: as attractive as a $.42 ATP was in 1946, on an inflation adjusted basis that’s equivalent to $7.08 in 2024 dollars.  As a matter of fact, 1976’s $2.13 ATP is equivalent to $11.77 today, and 2019’s $9.16 ATP adjusts to $11.18…both more than our current estimated $11.00 ATP.  Pricing does not appear to be a significant factor.  As a matter of fact, much of the estimated +20% bump in average ticket price since ‘19 is due in a very large part to increased attendance in movies viewed on Premium Large Format (“PLF”) screens (IMAX, Dolby Cinema, XD, ScreenX, etc.), which can carry an additional pricing add-on of between $5.00 and $7.00 per ticket…which is strictly incremental discretionary consumer spending

 


Much of our set-back looks to be self-inflicted

Something self-inflicted is caused by our own actions, which is much better than an underlying secular trend, which is bad stuff that will continue in the same direction for the foreseeable future, but still damaging.  Thankfully, our self-inflicted problems look to be short-term, non-fatal, and within our control to correct.

 

First up, the shortage of content.  Through week 26, the number of wide release titles total the same as last year but are still down -24% vs ’19.  For the most part, the COVID related aftershocks in the production schedule are well behind us, so now we are working our way through last year’s strike-delayed impact on production

 


It’s noteworthy that Universal has been a workhorse the first half of the year, with its number of titles up +25% vs LY and +11% vs ‘19; surprisingly, Disney and Warner Bros are still playing catch up, with wide release titles down -56% vs ‘19.

 

Make no mistake, theatres need new titles like air, and the decline in the number of wide-release films this year, compared to ’19, has negatively impacted theatrical boxoffice and our ability to recover by reducing the overall volume of content available to attract diverse audiences. Fewer wide releases mean less variety in genres, star power, and big-budget productions, which traditionally drive ticket sales and foot traffic. This decrease limits theaters' ability to offer new and exciting content each week, making it harder to maintain consistent audience engagement and leading to lower cumulative box office revenues. Fewer films also create gaps in scheduling, leaving theaters with less to offer, especially during peak periods.  Hopefully, this self-inflicted struggle is behind us and production schedules will realign…I look for our current content shortage to correct itself in ’25.

 

Our next stumble is pointedly, poor awareness of the content that is available.  Just because the quantity of wide release titles is down, let’s not interpret that to mean the “quality” is less and content was just simply “better” in ’19.  If we use the Rotten Tomato Audience Score as a proxy for quality (or at minimum audience enjoyment), those 45 YTD wide release titles carry an average Audience Score of 78 vs an average of 65 for titles in ’19…+20% higher, so quality is not an issue

 

Sadly, this year’s advantage of having titles that moviegoers enjoy much more than in ’19 does us no good if they have no awareness the movie is being released and in theatres.  Focusing in on National Research Group (“NRG”) tracking of consumer Awareness, our YTD wide releases yield an average “awareness” of 61...titles in ‘19 averaged 70, +13% higher.  I’m definitely sensing the lack of moviegoer awareness of titles in the marketplace is playing a HUGE role in impacting today’s grosses. 

 


Case in point, YTD titles with an Audience Score of 90 or greater yielded an average Awareness of 58 and an opening weekend gross of $30M…in ’19, titles with an average Audience Score of 90+ carried an average Awareness of 85 and opened to $58M (+93% more)…that’s a HUGE disconnect!  Moviegoers that viewed films this year very much enjoyed them, just not enough of them knew the film had been released and in theatres.

 

This year’s Awareness numbers are frustrating, and I believe our biggest vulnerability.  I’m not necessarily convinced studios are cutting back on their advertising budgets, I believe the challenge may be more nuanced.  It could simply be their campaigns are not distinctive enough to stand out in a cluttered digital landscape or, because of growing fragmentation due to so many social media options, not finding their intended audience.  Either way, studio marketing may need to be more creative and tactically executed…and exhibitors are going to have to now pitch in and better leverage their social media assets to promote titles.

 

Our final self-triggered setback is the ever-present “windows” issue…the number of days between theatrical release and digital availability.  Why we still find ourselves wasting time and effort addressing this issue is a head-scratcher.  You would think this self-injury would be behind us, but here we are…again.

 

An exclusive theatrical release adds value and increases overall studio revenue for future digital release by building anticipation and maximizing audience engagement.  The exclusive theatrical window creates a sense of urgency to see the film in theatres and generates higher boxoffice returns. This theatrical success helps boost the film's visibility and cultural relevance, which, in turn, increases demand when it becomes available on digital platforms. Additionally, films that perform well in theaters tend to command higher pricing and stronger viewership during their pay-per-view and streaming debuts, enhancing long-term profitability across distribution channels.

 

Conversely, a shortening of the window between theatrical release and digital release negatively impacts theatrical exhibition revenue because it reduces the exclusivity of seeing a film in theaters, which has traditionally been a key driver of audience turnout. When moviegoers know they can access the same movie at home within a short time, some will opt to wait for the more convenient and often cheaper home viewing option, leading to lower box office attendance and revenues. This diminished exclusivity also undermines the perception of the theatrical experience as a special event, further eroding ticket sales.

 

The maddening fact with shortening the window is that there is NOT a consumer outcry demanding to watch a movie at home at the same time it’s in theatres; this is a studio driven initiative, which continues to be dispelled as not maximizing the value or the revenue of a film, and repeatedly places the balancing of the streaming model out of whack with traditional boxoffice revenues.

 

In 1997 the average length of the theatrical window was 172 days, which admittedly was piggish on the part of exhibition.  By 2010, this had dropped to 132 days, then 97 days by 2019.  Fast-forward to today, the average window for those 45 wide titles in the first half of the year, was only 35 days…equally as noteworthy as the uptick in releases from Universal is the fact they are also the worst windows offender, having dropped from 81 days in ’19 to only 29 days this year --- the 18-day window for Fall Guy was heartbreaking.

 

Streaming is a competitor but not a death knell

Given the explosion in consumer spending on streaming over the past 5 years (topping $22B in Q2'24), it’s awfully easy to point to the segment’s +129% revenue growth, resulting in streaming revenue jumping from 1.8x to 6.2x greater than the U.S. boxoffice, as the root of attendance decline.  Certainly in 2020-21, during the peak of the pandemic, when all theatres across the country were closed or had limited capacity, the convenience, cost-effectiveness, and “crowd avoidance” of streaming services made them attractive alternatives to theatres, especially when movies were being released directly on these platforms at the same time they were released in the handful of theatres that remained opened.



It would be naïve to believe that the hyper-growth in streaming has not had some impact on moviegoing attendance, it just can’t possibly account for the full -36% YTD boxoffice shortfall…blaming the entire decline on the popularity of streaming is a lazy answer.  Yes, it has had some “still-to-be-quantified” impact on moviegoing behavior, but there is also growing empirical evidence that suggests avid moviegoers are likely to consume more content both in theatres and at home, and that streaming can create a greater appetite for movies, leading to increased theatre attendance…a 2023 research study from the National Association of Theatre Owners (“NATO”) has shown that frequent moviegoers are also likely to be frequent streamers (streaming as much as 71% more movies than non-moviegoers), indicating that the two behaviors are not necessarily mutually exclusive.

 

Summary

Bottomline, the theatrical exhibition industry still have some internal cleanup ahead and remains in a state of flux as it navigates streaming, delayed production schedules, and works to get a better handle on leveraging the digital marketing landscape.

 

The relationship between streaming movies at home and movie theatre attendance is complex and multi-faceted. While streaming has undoubtedly provided a convenient alternative that may reduce some theatre visits, it can also stimulate interest in movies and drive theatre attendance…streaming has also reconfirmed that films with exclusive theatrical windows tend to perform better overall, including in subsequent streaming viewership​.

 

As to our self-inflicted struggles and getting out of our own way…

  • studio production schedules will fall back in line, and I look for the current content shortage to right itself in ’25

  • the windows issue --- which is unnecessary and avoidable --- looks to continue as an issue for a while longer, with the hope being that studios permanently recognize that to maximize their shareholder value, theatrical exhibition must play a meaningful role in the release of their content...which means the window needs to be at least 45 days

  • studio marketing teams are staffed with smart people who know what to do and, if their budgets aren’t cut, will do it…thoughtful and well-executed marketing strategies, and the resulting generation of moviegoer awareness for new releases, is mission critical and a key contributor to industry recovery 

  • exhibitors must continue their laser-focused unit-level operational execution and offering a differentiated moviegoing experience

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