Hollywood Is Going Through Its Own Disaster Movie

April 29, 2020  •  David Pring-Mill

By David Pring-Mill

The entertainment industry has a history of turning disastrous and apocalyptic scenarios into global blockbusters. Now Hollywood is going through its own disaster movie as the result of a global pandemic.

A scene from the movie “Contagion.” Source: Contagion

In mid-March, comedic icon Mel Brooks and his son, Max Brooks, created a video for social media that concisely explained the situation. Max stood in front of a glass door, while Mel reacted and gesticulated on the other side.

“If I get the coronavirus, I’ll probably be okay,” said Max. “But if I give it to him, he could give it to Carl Reiner, who could give it to Dick Van Dyke, and before I know it, I’ve wiped out a whole generation of comedic legends. When it comes to coronavirus, I have to think about who I can infect, and so should you. So practice social distancing, avoid crowds, wash your hands, keep six feet away from people, and if you’ve got the option to stay home, just stay home.”

The Economic Impact

Social distancing is flattening the curve and saving lives but it has also become a divisive political issue, with critics of these measures suggesting that “we cannot let the cure be worse than the problem itself.”

At the time of this writing, 60,714 people in the United States have been killed by COVID-19. Given the lingering unknowns, there is no infallible calculation that would indicate how many people would have been killed without the social distancing practices and containment measures in place, but one model indicated that an unmitigated epidemic could claim the lives of 2.2 million people in the US. That model was created by a mathematical epidemiologist at Imperial College London, who tested positive for COVID-19 less than 36 hours after briefing officials.

With this being the case, the many assertions that the economic downturn is the result of our own deliberate quarantine measures, and not the result of the novel coronavirus, seem rather unsubstantiated. Strategic investments were deterred and US manufacturing contracted because of trade war uncertainty. And yet, some people still assert that the economy could be doing great, despite the looming uncertainty of senior executives dropping dead at random. It’s highly unlikely.

The World Trade Organization forecasts that global trade will significantly contract, with an estimated range between 13% and 32%. That wide range is intended to reflect the many unknowns. WTO Director-General Roberto Azevêdo commented, “These numbers are ugly – there is no getting around that. But a rapid, vigorous rebound is possible.”

Media Sector Impact

Many industries, including entertainment, are being forced to adapt. Hollywood had already been disrupted by over-the-top media plays, industry consolidations aimed at long-term synergies, and less successful attempts at technological disruption, such as co-opetition, third-party theatrical subscription, and AI-guided IP development.

With the pandemic ravaging humanity, media productions have been brought to a standstill and distribution plans have been altered or delayed. In addition to the affected crew and cast, the initial rounds of pandemic-related layoffs hit marketing and distribution departments.

Movie theaters and theme parks are closed indefinitely. The Service Trades Council Union announced that Disney will cover its furloughed employees’ insurance costs. The ability to reopen the parks may be dependent on advancements in coronavirus testing or the development of a vaccine.

IATSE, a union that has represented technicians, artisans, and craftspersons in the entertainment industry since the 1800s, revealed that 90-95% of its membership is out of work.

The entertainment industry recently announced a national board committee that will explore the particulars of resuming film and TV production, which will be headed by Steven Soderbergh, the director of a 2011 pandemic movie called “Contagion.” An additional committee will focus on the safe return to theatrical exhibition.

In an internal memo, WarnerMedia pledged US $100M to assist the people involved in its disrupted productions and alluded to technological and marketing adaptations involving its soon-to-launch streaming service, HBO Max.

The memo also mentioned that the company’s traditional, linear networks and videogame properties are experiencing increased usage.

Consumers will probably sign up for and maintain more streaming subscriptions right now than they ordinarily would. Netflix reported that an additional 15.77 million subscribers signed up for its service in Q1, vastly surpassing pre-pandemic expectations. Showtime’s streaming service also saw a considerable bump in activities, which included viewership, subscriber growth, and free trial subscriptions.

When Might These Trends Change?

We can try to apply an academic lens here but it can’t clarify things absolutely. The whole situation is unprecedented. Several streaming services launched recently, or will launch imminently. Terrible plagues have devastated human civilization in the past but those people didn’t have worldwide connectivity and the modern standard of living, which includes both remote work options and remote entertainment options that extend well beyond books or pianos.

Unfavorable economic conditions typically lead to a decrease in household incomes, which affects consumer spending. In an Auburn University paper on the topic, which addressed the recession caused in part by the subprime mortgage crisis, the authors wrote, “We notice that the level of entertainment expenditures has declined substantially in 2010 in both real and nominal terms.”

A separate study in the Journal of Travel Research confirmed what is perhaps intuitively known: “individuals and households make trade-offs when allocating their spending among various potential categories of discretionary expenditure.” 

Entertainment has been found to improve personal wellbeing and life satisfaction. It offers a form of escapism during times of crisis, which explains why consumers shift their expenditure but don’t simply cut back in absolute terms whenever their wallets are light. However, this situation is unique in the sense that people are widely quarantined and deprived of most normal forms of engagement.

In its first-quarter earnings report, AT&T included the line: “Due to the lack of visibility related to COVID-19 pandemic and recovery, the Company has withdrawn financial guidance at this time.”

Making and Releasing New Media Content During a Global Pandemic

Existing media properties are being explored more intensely. However, it’s exceedingly more difficult, and dangerous, to make new things. The consumption of already created content can’t go on indefinitely, unless streaming services pivot their business models to the licensing of classic or older content and consumers find that sufficiently compelling.

That may appeal to some consumers but not to all, given the significantly expedited pace of film cutting and the reduction in dialogue that has occurred over recent years and decades. This was likely the consequence of international box office, as well as shrinking attention spans: visual, cinematic spectacles require less literal and cultural translation for global audiences, so they became more desirable.

Some producers of unscripted content believe that there will soon be an increased demand for their specific type of programming. They are often capable of delivering quicker turnaround times than scripted productions and can come up with ideas that work under tight constraints.

Some producers of animated content have indicated that they have, thus far, been able to continue with their productions, with animators working from home.

Distributors are reportedly showing more interest in completed yet unsold independent films. Film festivals still play a critical role in the entertainment industry by sparking bidding wars and facilitating distribution deals. A virtual film market with online screenings and dedicated meeting spaces will act as an alternative to the Cannes Marché du Film. YouTube has arranged for a 10-day digital film festival, through which many canceled film festivals will be able to curate their own programming.

There is also competition to secure the streaming rights to bigger budgeted productions that had their theatrical release plans interrupted.

All Data Centers Are Now Essential

Currently, the global pandemic has placed additional pressures on internet bandwidth. Entire companies, across sectors, transitioned to remote work arrangements to help with social distancing and cooperate with governmental directives. 

But some people didn’t hunker down exclusively to work. They started streaming.

Analysis from Nielsen, a data measurement leader in media, reveals that quarantined consumers are logging more viewing hours. Over the first three weeks of March, streaming viewership amounted to 400 billion total estimated minutes, which is up 85% when compared with the three-week period from last year.

Image by tstokes from Pixabay

Netflix decided to remove its highest bandwidth streams, while still technically meeting the consumer expectations associated with different tiers of its service, and other media companies, including YouTube, responded similarly. These actions began with a direct request from the European Union.

As Netflix reduces its bitrates, other tech companies are aiming for more elastic infrastructure and implementing backup systems. Data centers serving all types of industries and use cases are being acknowledged for the major role that they play in this increasingly digital economy.

Governments with shelter in place directives have explicitly noted that commercial data centers can and should continue but they, along with other essential businesses, must scale down their operations to the essential components only and implement social distancing protocols wherever possible. Fortunately, many modern, advanced servers have powerful remote deployment capabilities, automated optimizations, and increased energy-efficiency.

These technical features will help to sustain entertainment technologies alongside much more critical digital services that support the healthcare sector and government response.

Server-side tech matters and companies with a mastery of other media technologies may also discover that they have a new form of relevance during these vast, digital adaptations.

George Lopez, SVP of Operations at The Switch, told Policy2050 that there are limitations to the standard remote webinar approach that is being widely adopted by businesses and organizations. He explained, “We are working with enterprises to ‘broadcast’ to their audiences, enabling a quality and reach that far exceeds basic virtual events.”

What this Means for Movie Theaters

The global pandemic is clearly having an impact on theatrical exhibition. The long-term fate of increasingly distressed movie theaters, particularly in light of the DOJ Antitrust Division’s prior actions involving the Paramount Consent Decrees, remains uncertain.

Among the exhibitors affected is Cineworld, a large cinema chain that recently acquired Regal Cinemas and was in the process of closing an acquisition of Canadian chain Cineplex Inc. Multiple analysts initially predicted that Cineworld would have enough liquidity to survive closures for the first half of 2020, provided it cancels dividends and growth capital expenditures and reduces or suspends other costs. On April 13th, Cinemark launched a US $250M debt sale, with the debt secured by a first-priority lien on its leases.

AMC Entertainment, its competitor, seemed poised to run out of cash and declare bankruptcy, though it could still reopen under Chapter 11. Then AMC unveiled its own plans to raise US $500M in new debt, an amount that might allow the company to withstand a global suspension of operations until a partial reopening ahead of Thanksgiving.

During the shutdown of the theatrical market, the cost of film rents will cease, as will the costs associated with concessions. Employees have been furloughed. But rent remains a fixed cost in the theatrical business. That being said, landlords might have an incentive to renegotiate terms, post-pandemic, because cinemas often act as anchor tenants that draw in foot traffic for malls and mixed-use developments. 

All of this disruption and loss is a startling contrast with last year — when the global entertainment market surpassed US $100B in revenue for the first time in history. A MPAA study found that young people are still showing up in movie theaters, despite the availability of streaming and mobile entertainment, and per capita attendance was actually highest among patrons between the ages of 12 and 17.

However, the divide between theatrical and nontheatrical revenue had been growing. New media options and screens appear to be winning over eyeballs. Last year, Americans spent more time on their phones, excluding voice activities, than they did watching television. Subscriptions to OTT services increased to 863.9 million in 2019, a 28 percent increase from 2018.

Complex Entanglements

We’re all interdependent in this global, digital economy.

People will travel less. Unemployed people will probably avoid making big purchases, like a new car. Companies in those categories won’t spend heavily on ad buys if consumers are unlikely to be persuaded into purchases.

Traditional TV is still dependent on ad revenue. A drop in purchases across these product categories means a steep drop in TV ad revenue, which means that some media companies might have to take on more debt or trim down their staff across departments. This applies to online media companies, too. Google noted “a significant slowdown” in its March ad revenues.

Some of these complex entanglements have driven innovation and value in the past. Today, they’re sometimes acting as vulnerabilities, as another unstable plank in this real-life disaster movie.

The disruptive and devastating scale of this global pandemic cannot be ignored. However, it’s worth noting, again, that there were already large changes afoot. 

Demographic trends are changing, screen time is increasing, attention is being bombarded, and technological innovation, coupled with creative content, has sometimes given rise to a paradox of choice and the personalization of quality.

No one in the entertainment industry is immune to disruption from technology or black swan events. Even established streaming services normally face risks on a wide variety of fronts, including piracy, patent disputes, technical scalability limitations, glitches, hacks, regulatory actions or inaction, shifting consumer preferences in an especially dynamic marketplace, overvalued properties or acquisitions, and content commitments with a long-term, fixed cost nature that restricts flexibility during times of rapid change.

This is the last piece in a 12-part series of articles about major disruptions in the technology, media, and telecom sector. You can read the other, related articles in Quick Insights and check the Whitepapers section for periodic, in-depth analyses. Subscribe for updates here.

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