Business Maverick


What is the future of the movie theatre?

What is the future of the movie theatre?
(Photo: Gallo Images / Papi Morake)

I’m not sure, but I do know about the past of the movie theatre and there is a reason it is called a ‘cinema complex’, because dealing with the movie theatre is as complicated as a Pythagorean maths formula.

As a teenager, the movie theatre is an enormously important rite of passage because … girls. Or boys. Whatever. 

Asking someone on a date to the movies is tactically a good move because there is something downbeat about it; this is not an invitation to a dance or a bar; it’s nice and casual. Parents are more likely to be onboard. And, importantly, the chances of a “yes” answer are more likely, particularly if you lie through your teeth and claim you are going with a group of friends.

Once the cautious and reluctant assent is given, a tactical battle plays out which makes the battle of Stalingrad look like a playground skirmish. What movie? Daytime, or night time? Romantic movies signal goodwill, but horror movies are more likely to result in involuntary body grabbing, which is actually the point.

And how far can you push your luck? The movie theatre itself is nice and dark, so that’s generally a plus. 

There is that annoying – and massively expensive – popcorn in the way. Somehow you have to negotiate your way around that. 

With a totally put-on casual air of confidence, one must try to hold one’s date’s hand. Once that’s achieved – assuming the hand is not withdrawn in shock (often my fate) – there is an agonising process of wondering how long this uncomfortable hand-holding gig is supposed to last. It gets sweaty pretty quickly, but quick hand withdrawal might be interpreted as cooling ardour. It’s complicated. It’s important not to overplay your hand, you might say.

For the owners of cinema complexes, the past two years have been the real horror show. 

We all know that movie theatre attendance collapsed during Covid, which is sad for moviegoers but cataclysmic for theatre owners. But the movie theatre was actually in decline even before the pandemic hit.

The Motion Picture Association of America records that the total number of tickets sold in the US way back in 2002 was about 1.6 billion, moving down more or less every year from then. 

But there is an interesting adjunct: the best year for movie cinema owners financially was 2018, for the simple reason that movie tickets, like the popcorn, have been getting more expensive. 

In 2018, the industry income was about $12-billion. I’m sure the trend in SA has been much the same.

Well, call it hubris if you like, but the extent of the collapse in 2020 was shocking: total income dropped to $2-billion – and in 2021 it improved, but not by much. 

This year was better still, but tickets worth only $6-billion have been sold to date in the US – in other words, just more than half the peak.

The reason for the limited comeback is also obvious: streaming. We all discovered Netflix and Hulu, and all the others and, generally, the habit has more or less held (cheaper popcorn? Pause for the beer run?) 

But there is no doubt that going to the movies will remain popular as an “out-of-home experience”.

The advent of streaming services has put the movie studios in a really difficult spot. Some movies during the pandemic were held back for years so they could be shown first in a theatre, which underlines how important theatres are for the studios. 

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But in some cases, they relented and allowed the streaming services to show the movie simultaneously with the theatre openings. A few – Top Gun: Maverick, for example – are still betting on the theatre-first release, with Tom Cruise shown thanking the audience for getting off their couches before the action started.  

In the past, about 50% of a studio movie’s lifetime revenue would be earned in theatres.

So, now a new style is developing in which theatres will still launch blockbuster movies, which may run longer, often about a month before they appear on streaming services. But there is a tug-of-war going on here, because the streaming services are now making their own movies too.

In SA, an interesting battle has just played out, with Ster-Kinekor going into and then, this past week, emerging from business rescue. Apparently, behind the scenes, it was touch-and-go because the new investors were determined to renegotiate new lease agreements with mall owners. But it’s a massive relief that the group managed to claw its way out of insolvency.

The people who are not so happy will be trade creditors and the previous owners who have had to take a big hit; both will be getting a mere 5c on the rand. But that’s investing for you – sometimes you lose. And previous investors did vote in favour of the deal.

Interestingly, Ster-Kinekor’s slightly smaller competitor, Nu-Metro, apparently played a sharper hand, renegotiating its leases very quickly and bulldozing its way through the downturn. 

It’s an illustration of how important fast action by management is required not only to take advantage of opportunities, but to manage downturns – a much tougher job.

So, is Ster-Kinekor worth R250-million? 

We don’t know the numbers because this is a private group, but I suspect it’s a pretty good deal for 424 big screens and 64,000 seats in 52 movie complexes. But a lot depends on Hollywood’s output.

The real lesson here is the utility of business rescue. It’s a tough job and it would be easy to conclude that it’s not working, because so many companies entering business rescue aren’t coming out the other side. 

But it is unlikely a company will enter business rescue if it’s not touch-and-go in the first place. 

In some situations, like this one, the problem is less the company and more the business environment. If the business environment bounces back, it is possible to save jobs. So, a hat tip here to Stefan Smyth, Ster-Kinekor’s business rescue practitioner. 

I’m sure the 800-odd employees will be relieved – not to mention the teenage population of SA. BM/DM


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