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Dim projections: Outlook for cinemas worsens in 2021

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by Will Chapman
Jan 07 2021

Major threats are on the horizon for the Cinemas industry, despite an anticipated rebound in 2021 as the COVID-19 pandemic subsides. Last month, major movie studio Warner Bros announced an unprecedented approach to releasing its films. Under the new strategy, major productions such as the forthcoming sci-fi epic Dune will be available for online streaming on the same day they begin showing in cinemas.

If this approach were to become more widespread, it could represent a terminal threat for cinemas.

‘If people can enjoy major film releases from the comfort of their own homes, cinema ticket sales would likely decline significantly. Revenue across the Cinemas industry was expected to rise by 1.1% in 2020-21, but the Warner Bros announcement could spark further disruption of traditional distribution models, potentially limiting industry revenue,’ said IBISWorld Senior Industry Analyst Will Chapman.

Major films to be released under this new paradigm include Godzilla vs. Kong, the Matrix sequel and the recently released Wonder Women 1984. Previously, the theatre-exclusivity window for new releases would last three months. In July 2020, major US-based cinema operator AMC Theatres reached an agreement with Universal Pictures to reduce the exclusivity window to 17 days due to the COVID-19 pandemic. Greater flexibility in distribution models will likely negatively affect cinema operators as studios seek to recoup production costs through licensing agreements with streaming services or premium digital rentals.

In contrast, streaming services would be major beneficiaries of this change. The Pay Television and Internet Protocol Television Services industry, which includes heavyweights Foxtel and Netflix, is expected to grow by 3.3% in 2020-21, to $5.7 billion.

‘The closure of some cinemas due to the COVID-19 pandemic, the strong uptake of streaming services over the past 12 months, the popularity of ultra-high definition televisions and the recent Warner Bros announcement are all contributing to a challenging outlook for cinemas,’ said Mr Chapman.

While larger cinemas will likely continue to benefit from consumers that seek out the best possible viewing experience, smaller scale cinemas are anticipated to struggle as more consumers opt to wait for films to arrive on streaming services.

‘Cinemas that can advertise their unique viewing experience, such as massive screens with the latest projection technology, advanced sound systems or luxury cinema concepts, are forecast to remain in demand over the next five years. In contrast, smaller cinemas will increasingly be competing with streaming services, which are typically more affordable than cinema tickets,’ said Mr Chapman.

Some cinema operators have pressured the Federal Government to intervene by legislating a mandatory theatre-exclusivity window for new film releases. However, the effectiveness of such an approach is uncertain.

‘The approach taken by Warner Bros means that high-quality streams of new films, both legal and illegal, will be available online. Attempting to force consumers to go to the cinema or wait to view the latest films would likely drive an increase in piracy, rather than greater cinema ticket sales,’ said Mr Chapman.

A new viewing paradigm

As consumers increasingly view films on their own devices, rather than on the big screen, purchases of premium televisions and home-theatre systems are projected to rise.

‘Sales of televisions in the Domestic Appliance Retailing industry are expected to reach $3.1 billion in 2020-21. The desire to replicate the cinema experience at home has driven demand for larger 4K-capable televisions and high-quality sound systems,’ said Mr Chapman.

However, the risk of piracy may dissuade other film studios from following the unprecedented approach of Warner Bros. As high-definition streams of films are available immediately, people will become more likely to illegally download and share films.

‘Pirating of online entertainment in Australia has declined in recent years, primarily driven by low-cost and high-quality streaming services. However, the availability of pirated materials online will likely attract some consumers who would have otherwise paid to visit a film in the cinema or subscribe to a streaming service,’ said Mr Chapman.

In 2021, Australian cinemas, streaming services and film producers will be closely watching Warner Bros’ performance to gauge whether the direct-to-home release model will become the future of film entertainment.


IBISWorld reports used to develop this release:

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