What is the Future of Film and Television Distribution in a Post-Pandemic World?

The paradigm shift that we’re in the midst of is the kind that comes along once in a generation.  Many theater chains struggled to stay afloat even before a global pandemic.  Humbled by its effects, industry giant AMC staved off bankruptcy thanks to almost a billion dollar infusion of emergency investor cash.  Cinemark—owning a more modest market share—emerged as one of the more financially stable chains in the aftermath of COVID-19.

Cinemark recognized the rare opportunity and instigated distribution deals with multiple major studios in an effort to get the industry jump-started.  The process began in November 2020, when they finalized a deal with Universal Studios, which stipulated that films generating at least $50 million in opening weekend ticket sales must play exclusively in theaters for five weekends.  If that threshold isn’t met, Universal can put their new movies on premium video-on-demand platforms 17 days after theatrical debut.  Cinemark brokered custom agreements with Warner Bros. Picture Group, The Walt Disney Company, Paramount Pictures, and Sony Pictures Entertainment, each with uniquely-tailored deals benefitting both parties.

Arguably, Cinemark’s most significant agreement is the one negotiated with Netflix, the world’s largest streaming service, which struggled to get its foot in the door (outside of limited, platform releases) with theater chains prior to the pandemic.  In an unprecedented get for Netflix, Zack Synder’s zombie flick, ARMY OF THE DEAD, will premiere on 600 screens nationwide (250 of which will be Cinemark’s, the remaining sum split between Harkins, Landmark, Alamo, Marcus, Cinepolis, and iPic).  The deal suggests an ongoing collaboration, and Cinemark’s willingness to adapt to new realities; if Snyder’s film is a box office success, it’s reasonable to assume that Netflix will replicate the experiment with more original films on their slate.  The new ecosystem is fragile, and the industry will test multiple models to draw audience attention.

Cinemark CEO Mark Zoradi states, “We’re gonna see, how does it [Army of the Dead] do in that week? How does it do the week that it goes into Netflix? We’re going to learn a lot. We believe there will be several [more theatrical releases]… As studios make decisions to take things to their own unique platform, perhaps we’re going to find a way to get some things from the streaming services that we otherwise wouldn’t have gotten and give them an important theatrical window.”

In yet another victory, Netflix recently emerged triumphant in an almost two-year auction for the exclusive U.S. rights to stream Sony Pictures’ theatrical releases in the first pay TV window, beginning in 2022.  Also included in the deal is a first-look agreement that encompasses all of Sony’s original movies produced for the direct-to-streaming market.  Sony, caught flat-footed as one of the few major studios without its own streaming service, benefits from the partnership as well.

Currently, traditional studios and streaming platforms exist in a unique, liminal space with a dilating window of opportunity.  The race to determine who will emerge with the largest piece of the pie, and dictate the prevailing distribution model of the future, provides a rare opportunity for creative experimentation.  These circumstances are evocative of that brief period of American cinematic innovation (that went hand-in-hand with the industry’s evaporating profits) in 1968 and 1969.  Occurring on the cusp of what’s now seen as “New American Cinema”, or the “Hollywood Renaissance”, it produced unexpectedly subversive works such as MEDIUM COOL and MIDNIGHT COWBOY.  In retrospect, those years were the connective tissue between the old studio system and the modern, blockbuster era.

Like the music industry in the early 2000s, Hollywood stands on the precipice of a new revolution: a potential Streaming Renaissance.  Disney and Netflix, titans with 159 million and 208 million subscribers, respectively, recently failed to meet quarterly subscribership estimates, unable to replicate the last year’s pandemic-driven boom.  The third horse in the race is arguably Amazon Prime Video, which gauges its numbers by a different metric (175 million of their members streamed content within the last year).  Analysts currently predict that that Disney (including Hulu and ESPN+) will surpass Netflix by 2024, placing their projections of 300-360 million combined customers above Netflix’s 295-300 million.

Most experts believe that the three most crucial performance metrics for subscription services outside of baseline customer numbers are ARPU (average revenue per user), churn (number of customers canceling within a given time period), and total viewership hours.  Whomever can keep customers beyond their free trials wins the keys to the kingdom.  Netflix has a staggeringly low churn rate at 2.4%, almost half that of Disney+ (4.3%).  Both streamers hover around 3 hours of user viewership per day.  The competition to earn customer loyalty will most likely depend upon the two services’ respective strengths and weaknesses.

Disney’s strength lies in its long-established and ironclad “family friendly” branding.  Unlike almost any other major studio, viewers will consume a Disney product solely on the power of the brand’s reputation (nobody asks “Have you seen the latest Warner Brothers movie?”).  Its weakness is risk aversion.  With a “family friendly” brand comes safety and traditionalism; Disney steers too slowly to adapt to modern trends, leaving its sensibilities feeling remarkably dated.  Even its most dependable intellectual property, the Marvel Cinematic Universe, is creatively limited by a formula designed for the widest possible appeal, consistently reverting to the status quo.

It’s unclear how Disney plans to release its tentpole films going forward.  They’re currently testing two models: JUNGLE CRUISE, CRUELLA, and BLACK WIDOW will have simultaneous theatrical and Disney+ release as Premiere titles (a $30 per-film fee on top of the monthly subscription price).  SHANG-CHI, releasing in early September, will have an exclusive 45 day theatrical release window before going directly to Disney+ as a View On Demand title.

The Marvel Cinematic Universe is spread thin, filling Disney’s current void of original programming content.  Shows are structured in 6-8 episode increments, like a serialized progression of films, released on a weekly basis to sustain online chatter.  Executives are eliminating show-runners, repositioning them as “head writers” in a bid to centralize power and make it easier to control creative decisions for the sake of brand reputation.  It’s a dangerous precedent that’s likely to become the new normal for mega-IP, and other studios will undoubtedly follow suit if it means a more streamlined budget.

Disney invested $1 billion in original streaming content over the course of 2020, and expects that number to rise to $2.4 billion by 2024.  In stark comparison, Netflix spent $17 billion on original content in 2021, a risky gambit that pays off thanks to highly effective monetization.  This expenditure glut is a double-edged sword: Netflix may have a wealth of content to choose from, but the signal-to-noise ratio of their platform overwhelms many users.  Freedom of choice within an ocean of options can counterintuitively act as a deterrent.  A la carte programming empowers, but also exhausts.

This is an issue that Netflix actively attempts to address with use of more intelligent algorithms, thanks to the work of roughly 2,500 engineers stationed in Silicon Valley.  Their new feature, Play Something, is the result of years of research and months of testing.  Currently only available to a limited portion of their user base, it’s a specific viewing mode that utilizes an automatic shuffle feature designed to reduce decision fatigue.  The algorithm chooses something it thinks individual users like, based on viewing habits; if you don’t like the suggestion, you can quickly skip ahead to the next selection.

“It’s trying to take what is one of the best things about linear TV, which is immediate entertainment, but make it even better, because it’s personalized,” says Cameron Johnson, Netflix executive.  The corporation rejects the notion that diversity of choice is detrimental – what the audience needs is the right tools to find something tailored to their specific tastes.

Abundance of choice aside, Netflix’s pricing model is currently dependent entirely upon user subscriptions. Unlike Disney, there’s no equivalent of “Premiere Titles” that demand an additional flat fee.  Although this appeals to customers willing to pay the higher monthly subscription price, it also limits the diversity of Netflix’s income streams.  The unprecedented theatrical agreement with Cinemark involving their more high-profile original film titles suggests that they see the re-opening of cinemas as a way to widen their net.

In an effort to sustain interest, Netflix is unveiling original television episodes on a per-week basis.  It’s no secret that the major streamers sink a fair share of research and development into understanding human psychology, and with the ubiquity of social media platforms, word of mouth travels faster than ever before.  If content providers can harness and control internet “buzz” over an extended period, it serves as one more vehicle for then to drive the cultural zeitgeist.

It’s unsurprising that Netflix diversified its strategy, both in terms of audience access and the content itself.  With an abundance of choice comes less reliance upon playing it safe, following a formula, and appealing to the status quo.

“More and more content — it’s hard to describe it as anything but a good thing. I’m shocked when people don’t think it’s a good thing… it’s giving more gifted storytellers from more diverse backgrounds a chance to tell their stories. It’s giving the viewers more interesting things to choose from.”, says Todd Yellin, Netflix’s Vice-President of Product.

The quality of Netflix’s original programming may be the most consistently laudable among all the major streamers, unencumbered by a “family friendly” brand.  Although admirable, Netflix is also aware that there’s a ceiling to their subscribership; they’re currently in the process of beefing up their recognizable franchise IP, which co-CEO Ted Sarandos refers to as “big event content.”  With the Sony deal, Netflix acquired the streaming rights for Marvel property like VENOM, and gave Netflix access to Sony’s library and distribution slate to produce their own, original films.  They also paid Lionsgate a hefty $465 million dollars for the distribution rights for the sequels to KNIVES OUT.  Yet, Netflix’s spending growth rate on licensed content has been consistently trending lower since 2016 (from 41% to  20% in 2018), a clear indication of their shifting priorities.

Recently, Netflix announced a sequel to ENOLA HOLMES (one of their breakout original films of 2020), and greenlit additional seasons (and a prequel spin-off) for their smash-hit series, Bridgerton.  When Netflix first acquired the rights to distribute THE OLD GUARD, it specifically had its franchise potential in mind.  The Charlize Theron-led action flick is a rare beast in its genre, providing groundbreaking queer representation in addition to its racially diverse cast.  It was among the top 10 most-watched films of 2020, and the year’s 2nd most blogged-about movie on Tumblr (a social media site that functions as the internet’s barometer of fandom engagement, particularly within younger and more diverse demographics).  It feels inevitable that an announcement of multiple sequels—and perhaps even an adjacent series—is on the horizon.

As of this morning, AT&T and Discovery executives announced a mega-merger they hope will position them as leaders in the race, but the conglomerate’s strategy is still somewhat opaque.  They plan to invest even more heavily in content going forward; currently, they’re sinking $20 billion on films and shows—a number that rivals both Netflix and Disney.  Discovery CEO David Zazlav cites specific specific IP (Batman, Superman, Wonder Woman, Sex and the City, Entourage) as foundational in their competitive success going forward.

The lines between television and film continue to blur in the industry’s new ecosphere.  Studios are stepping up in-house production while scouting fewer independent projects for acquisition.  Which studios will drift further away from shopping for content from outside sources, and which will steer towards it?  The cinematic arms race is up in the air: where will the cards fall when the public begins to return to theaters?  A reshuffling of power is on the horizon.

Cinema’s uniquely communal experience suggests that it’ll never truly die out.  In all likelihood, major city theaters will continue as the domain of the “event” blockbuster—relatively high cost productions reliant on a safe, low-risk formula.  Smaller budget films and miniseries will begin to dominate streaming, emerging as the prominent prestige fare, and attracting the best industry talent on both sides of the camera.  Programs with multiple-season potential will lure subscribers away from linear TV, thanks to more budgetary freedom and the promise of a guaranteed audience via increasingly intuitive heuristic algorithms like Play Something.

The profound, lasting effects of the pandemic is another critical component to consider.  When the film industry experienced its state of flux in 1968-69, America was in the midst of the most tumultuous period in modern history.  Although it was a time of political unrest and widespread social malaise, the films that sprang forth from these conditions were grounded in reality, ideologically subversive, and gave creators an opportunity to critique norms in experimental ways.  The full sociological and economic fallout of 2020 remains to be seen: we’re a traumatized, enraged, and exhausted populace.  The income gap continues to widen, and more people have less disposable income for entertainment purposes.

The industry created the 90 day theatrical window—a direct result of  the landmark Supreme Court decision in Sony Corp. of America v. Universal City Studios, Inc.; more widely known as the “Betamax Case”—to prevent cross-cannibalization by other distribution channels for the same content.  This inexorably led to DVR, on-demand, and non-linear programming as a whole.  The implications go far beyond just competing platforms, to a vertical restructuring of the entire distribution model.