This post continues my series looking at the implications on the film distribution and exhibition sector of the incredible changes brought about the war between Netflix and Amazon.
Last week I heard from two different sources about how the Australian film market had shrunk by 30%. One was from a high-level distribution source and one from the public domain via Sony who had been quoted noting the same observation. I then came across this article in Fortune and it seems that Sony is perhaps one of the first studios acknowledging the writing on the wall.
That 30% contraction is a big and rapid change and lot of money is suddenly being lost – or not being made. Here’s a nice little wrap from the EFM explaining just that.
Despite the contraction though there’s a sudden surge in the exhibition sector in the building of new screens across the country. While I’m guessing a significant number of those screens would be 100 or less capacity, that doesn’t suggest a contraction of the industry. Perth, Melbourne, Sydney and Adelaide are all about to see major expansion and new developments from several independent players – and my guess is there’s a lot more afoot yet to be announced.
So, we seem to have two oppositional forces at play…an expansion of the exhibition sector on the one hand and a contraction of the industry at large on the other – which makes for interesting speculation. Here you may speculate that this 30% downturn is largely due to the evaporation of the DVD market but I’m feeling it’s more than that – which is perhaps one reason for the number of very small capacity auditoriums – of which there is only a 16% average audience occupancy as recently reported by Karl Quinn in The Age and Sydney Morning Herald.
Running parallel with this is the market value of films currently – IndieWire recently reported films at this year’s Sundance were costing around 30% more than previous years. Forgive me if my logic is wrong but if we’re seeing a 30% contraction in the sector overall and a 30% increase in the cost of films, for distributors is this not a compounding 60% south-bound movement?
The money being paid by the likes of Amazon and Netflix at primarily English-speaking markets such as Toronto and Sundance is astonishing as Forbes reports but the brinksmanship between these major multinationals is even more interesting. Deals for independent films in the multi-millions with what was described to me by a high-level Aussie distributor as having no thought as to their actual viability is an important development.
For those titles who don’t receive the multi-million-dollar deal all is not lost as Amazon did offer an interesting alternative at Sundance this year with a significant upfront guarantee for exclusive international rights in a one-stop-shop for all narrative features premiering at the festival. The purpose here is clear.
So how are these oppositional forces of a contracting purchasing market against expanding exhibition development going to play out?
(Picture: The lovely foyer of the now deserted Liberty Cinema in Perth just for the fun of it. The main pic is the auditorium of the same cinema.)
Let me test my logic here and happy to hear where I may be going wrong:
- There is a war between the multinational entertainment giants of Netflix and Amazon. Here money is no object. Acquisitions like The Big Sick for $12.5million to Amazon and productions like Baz Lurman’s $120million Netflix show The Get Down are good examples of that.
- There also is potentially no plan behind these purchases aside from perhaps denying others the opportunity to buy them.
- The ammunition of that war is content. That’s clear from Amazon‘s blanket offer to Sundance premieres (read the deal here). But other people want that content too…like territorially based distributors who are in the same bidding space as our friends in question.
- This war is having the effect of driving up prices for film acquisition and the smaller distribs simply can’t compete.
- This has stopped local distributor’s from acquiring works that would have ordinarily been their bread and butter including documentaries. Like-wise films that would make film festival selection in Oz are also now locked up very quickly for international SVoD.
- This is a very simple, deliberate and not unknown strategy: attack all your competitors with a towering front by making content to difficult and to expensive to buy. The distribution sector in Australia saw a similar internal war in the 1990s.
- The longer you do that the more difficult you make it for your competitors and eventually they will run out of money, content or energy. Then their catalogue can also be bought at a rock-bottom price by the attackers as an added prize.
- For these warring companies the competitors are both distributors and exhibitors as both sectors have what they want – bums on seats and content.
- As an aside the notion of bums on seats has itself changed – those bums can now be reached on seats at home as comfortable as those in cinemas so the idea of luxury comfort in cinemas with wine and cheese (and the inherent cost) is losing currency by the day.
- Back to the point…what does this do for the distributors? Does it mean they won’t be able to acquire content to the same volume because of the cost and availability? That’s already happening.
- Does it mean they will need to acquire a different type of content? Most likely.
- A different kind of content is an interesting point – both the distribution and exhibition sector have trained themselves out of handling “niche” pictures and have in most part lost the ability to talk to audiences in a tailored way.
- The number of screens in Oz requires a high-level of content turn-over and the business models of both distributors and exhibitors are geared toward servicing a very high volume.
- It stands to reason then that these old volume levels are likely to be unsustainable – the films may simply not be there.
- Where theatrical release was a traditional lynchpin in distribution our international friends have a very different outlet and perspective – festivals are meaningless for them aside from the primary theatrical markets where the work is acquired in the first place.
- So local distributors will be buying less and paying more, fewer of the big festival titles will make it to both the festivals and broader release here, yet we will have more screens servicing less content – or potentially a different kind of content.
It’s just not adding up to me.
I just can’t quite find see the longer-term viability or logic of both the distribution and exhibition sector in its current form in the current environment…but change is good! There is no bad guy here and these changes also create different opportunity.
I’m very interested in seeing what kind of films we’ll be seeing on independent screens over the next 12 months.
While I think of it... 
Thanks Richard, for a thoughtful outline of the world we are now in, cinema-wise and Streaming-wise. I see three things in my crystal ball:
* The films Netflix and Amazon are buying for $12 mill a pop would need to be pretty good for producers to forego their films having their day at festivals and in cinemas. It’s possible to make that much from cinemas alone in the US. For every title these behemoths buy there are still going to be many they don’t buy…and judging from what I see on Netflix, their taste isn’t that shiny bright or perhaps worth the money. Rights holders who sell (out) to Netflix and Amazon are not believers in the power of cinema.
* The big cinema chains are actively seeking “alternative content” so the niche is becoming recognized. Perhaps because they see the money being taken by some cinema on demand titles and waking up to the fact that audiences want more than the sugar hit they used to get from the franchise content such as Star Wars etc. And I concur…when are audiences going to get sick and tired of being fed “Punch Me in the Face 3” or whatever?
* Staying home to watch from the couch isn’t the same as going out to the cinema. The cinema delivers more punch (pardon the pun), more emotion….why? Because laughing or crying in an audience of 50 people, or 200 people is just more satisfying. Cinemas know this. This is what they are selling.
* It used to be that the cinema was the place of escape. It still is for most audiences but as we enter the most perilous age for Humanity as a whole, we are going to the cinema for answers, messages and activism.Time was that Greater Union would never consider playing a film like Pilger’s THE COMING WAR ON CHINA. But today are are…and why, in the US, is the organizing around opposition to the Trump Presidency being started in so-called “Town Hall Meetings”? For the same reason that cinemas are being colonized by “message films” – where there’s a Q&A and usually a call to action. Full Cinemas are always good news, especially when the average cinema audience (for the old escapist cinema) is now only 19% – a rising tide lifts all boats.
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I agree Mr Scrine. There is nothing like the cinema experience and I’m certainly not saying that experience is dead. I am however saying it’s changing and quality will always win out but the experience has to be thought about and delivered in a way that is perhaps not being done right now. That’s going to be the exciting part for audiences.
I also agree that there are still many films out there for festivals but by the same token festivals are also now a business and that business needs box office. My twisted logic says that if some of those big ticket items are (possibly) being removed from the circuit then there is potentially a box office implication for festivals whose financial base in large part rests on a small number of key money-making titles. That may mean a change to their financial and program structures.
Either way though I think it’s clear that the model that’s been in operation since the 90s at least is changing mighty fast.
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