Bonnie: Don’t let it end this way.
Brian: All things end badly, or else they wouldn’t end.
AKA Flanagan’s Law, from Cocktail
During the past few weeks, I’ve joined many conference calls discussing how the film industry might change due to the Covid-19 crisis. And I’ve read many articles about this. With very few exceptions, they’ve all been based around an extreme optimism that assumes life will return to normal at some point. And wouldn’t that be nice?
But without even going so far as taking the most apocalyptic viewpoint, I think this is going to end pretty badly for a lot of the film industry. We aren’t going back to normal. At the risk of setting off a panic, here are my thoughts on how Covid-19 is going to impact the business, with a focus on what I care about – indie and arthouse films (I'll look at branded content soon). As I say at the end, this isn’t about getting us depressed, but rather, a hope that if we face the facts, perhaps we can build a better response.
Production
Netflix doesn’t see production starting up again before June, but some are saying they’re already planning for 18 months of production problems. While this may have the silver lining of a need for finished content, see below, let’s use that as a baseline and pretend work stops for another 3-6 months. This means thousands of below-the-line workers and freelancers without jobs. How many can hang on and come back to work when production stops for that long? Who will have given up and taken a safe job – if those even exist anymore – and of those who have stuck around, which ones are going to want to work on a low-mid-budget, arthouse/indie film anymore? Film sets have always been cesspools of germs and breeding grounds for shared viruses, how many people want to go back to that? And if we can get back to production, will states cut tax incentive programs, or see those as essential job builders?
I predict we’ll see a bifurcation into the extreme high and the low – more than we had before – where good crew only work on the well-funded Hollywood shoots and series. Recent college grads who have moved back home with their parents will work on the super-low budgets, but finding crew for the middle-ground will be next to impossible. That said, producers should have lots of development done and ready to go forward. Smart folks will put out promises to and lock in crew as early as possible.
Cast
But let’s say you put together a crew and are ready to shoot? You need cast. But most great cast were learning pre-virus that the best way to put food on the table was from series and big Hollywood films. And those have been on hold for a long time, until now. Now, there’s a need for great talent for all of those backlogged series and franchises. There goes your cast. On the plus side – they are also stuck at home doing nothing now. Smart producers will record some social media for their finished films, to assist with audience building when they launch their films. This will take some arm-twisting, but less than usual.
A World without Agents?
You typically cast your film with the help of agents, who also step in to help with sales (and sometimes financing). But the big agencies are already making deep cuts and laying off staff, and had bloated expenses and overhead to begin with. How many of them will survive? How many projects are they putting together for clients who can’t work? And how many sales are they making of films that can’t be produced? Sure, there will be a brief deluge of projects to be sold from the crop that were completed or close to it when this crisis hit, but what happens once you’ve sold those? Oh, and if you built your backup plan on live events, like Endeavor, what happens when that disappears? The agencies are so ingrained in the business that it’s the hardest sector to imagine disappearing, but visit one of their offices and marvel at the structures and the overhead for a few minutes, and it’s just as hard to imagine how you keep all of that going after this bottoms out.
No, we won’t see the end of agents, but we will see a thinning of the sector, and perhaps a return to the days when agents were nothing special (I admit, as I type this, it sounds like I’ve slipped into a dreamland).
Film Festivals
Film festivals have always been run closer to the bone than any aspect of this business. They’ve relied on cheap labor, donations, sponsorships, grants, memberships, and… unpaid labor (volunteers) to keep the doors open. Most are putting on a good face now, but I doubt many can survive a big loss in income. Will SXSW or Tribeca survive a loss of millions from cancelled festivals? Will the smaller regional festivals fare any better? Who will be sponsoring festivals when places like Airbnb are cutting $800-million from their marketing budget? Sundance has many big donors and the prestige to continue. So does Cannes, Berlin, Toronto…and who else? Film Society of Lincoln Center, a bastion for the rich, older folks of NYC, has already laid off 50% of its full-time staff and all of its part-timers. Yes, they do more than serve the rich, but you get my drift – If they can’t raise emergency funds, who can?
People have always said we have too many festivals and need a thinning of the crowd, but I don’t think anyone expected that to mean what we’re about to witness. (side note: everyone comes home from Sundance with the flu during normal times. How many people want to go there in an ongoing covid-19 world? I can’t bear to think about that just yet.)
Several festivals have decided to go the virtual route to replace lost screenings. The Garden State Film Festival claimed to have 15,000 viewers for 240 films (many were shorts). Not bad, actually. The most aggressive of these efforts, and maybe the most innovative, came from CPH:DOX, and reportedly demand was so great they salvaged 50-70% of their potential lost revenue and the market & forum (industry facing sections) performed pretty well for a first-effort. But CPH:DOX gets a lot of government support, which is not the case for most US festivals, and this surely helped them adapt quickly and build new systems. I can see this being replicated by the biggest festivals, and the most innovative, but few others.
Meanwhile, those festivals who have moved online have (to my knowledge, universally) told filmmakers they can’t afford to share revenue from these screenings. Ok, in this crisis moment sure, but then they haven’t offered data, promises of future promotions or much else either. These may be unstated goals, but so far, one senses that a lot more thought has gone into how virtual offerings might help festivals, and local audiences, but filmmakers…not so much. Filmmakers have accepted all of this in the past, often in exchange for not much more than coach-class airfare, a hotel room and free wine and cheese (which was often a pick two out of three situation). But now you get less than that, and how does that word of mouth translate into future success in a virtual environment, exactly?
I’m not sure, but let’s hope we can build some value-chain around the surviving ones, because the rest of this puzzle doesn’t seem to add up to any prettier of a picture.
Theaters
Even with the relief package, theaters are in a shaky spot. Before the virus hit, the big chains were already mired in debt, facing decreased attendance, and in danger of default. Perhaps the canary in this coal-mine is the closing of VIP Cinema Seating, their biggest supplier of luxury seats just this week.
The hope has been that they can weather this until the virus subsides and people return to group gatherings. When theaters re-opened in China, many took it as a great sign. But then attendance averaged one person per day, and the government closed them again within days due to fears of a resurge in transmissions. Making matters worse, studies show people aren’t putting theaters high on their list of places to revisit anytime soon. We’re in for a longer-haul than most of even the biggest theaters can survive. I predict we’ll see a re-ordering of the major chains, with AMC and Regal in serious trouble. (Just after writing this, the WSJ reports that AMC hired restructuring lawyers yesterday.)
And while smaller arthouses have always been scrappy, few have the resources in place to survive much of a downturn, and some have already made major cuts. While Criterion Collection and the Arthouse Convergence have started a GoFundMe to save arthouses, the results so far are less than encouraging. I’ve heard reports of more than a few beloved arthouses who only have enough cash to make it a month or two, and of many others who are already facing tough lease negotiations. How many will be able to survive based on the Cares Act and other government relief? In theory, they can pay salaries and rent and get loan forgiveness. Let’s hope this keeps some doors open, but my fear is the downturn will last longer than the relief.
Now add to this the bigger, existential threat – the disappearance of windows. Even before this virus, windows- the time between when a film premieres in theaters and then online, were collapsing. As I predicted weeks ago, the crisis pushed everyone, from big to small, to jump into even shorter windows. My hunch is that most of them will learn what Netflix and Amazon already knew – few films needed theatrical releases for the bottom line (talent and awards were the only valid reasons anymore). And while you can argue that true cinema, like Parasite this past year, can only succeed with theatrical, and that blockbusters will always draw fans to theaters as well, the virus will decimate enough theaters that only those films will be able to find screens anymore. That won’t leave many screens for the rest of arthouse cinema.
At the same time, none of the theaters had bothered to build any semblance of a plan for home-viewing before this happened. AMC theaters hired someone to liaison with studios to figure out a cut of that pie… the week before they closed their theaters. Arthouses have recently received offers from forward-thinking distributors to share revenue from VOD - if they help to promote these films that would have played their theaters to their members. But as Julie Anderson Friesen of CinemaFalls in Sioux Falls, South Dakota pointed out to me, these patron lists were built over years and a split of revenue only looks fair if you don’t think about the fact that those patrons are now on the email list of the distributor and will buy/rent future films, but none of that revenue will flow back to the source theater. Terms need to be negotiated.
Of course, theaters could have banded together and made their own VOD platform, and showcased distributor’s films and shared revenue while keeping their patron relationships in place, but that was too hard to do when they were busy furloughing employees to stop the bleeding. Let me only gently remind them – this should have been done pre-crisis anyways. My hope here is that the crisis will lead to some form of shared list, where I as a consumer, could sign up for updates from both my local cinema, and from distributors and artists directly (opt-in and out, of course). We’ve needed that for a long time anyways (I proposed such a system back in 2011)
Arthouse Distributors -
But don’t worry for too long that those arthouse distributors are going to get rich building an ecosystem off the backs of the arthouses. Sure, they have might gain more emails now, but none have ever been in the business of trying new things to market their films. They put them in theaters and took out print ads in the paper, because that’s what always worked. Or did until those two places disappear during this crisis. How many have the budgets to properly market these new VOD systems? My guess is not (m)any.
Arthouse content actually does need theatrical to survive – it’s not just a marketing tool, but a major revenue stream for indies, and arthouse films require the longer time to build word-of-mouth that a theatrical allows. Bottom line – arthouse distributors needed theaters more than anyone else. Without them, they will have trouble surviving.
Not that they had it easy pre-virus. Many were also over-leveraged and/or had owners that were ready to sell before things got scary. Launching OTT channels during a crisis is not going to reverse their bad news. And there’s more. Conversations with buyers and sellers over the past couple of weeks shows that most sellers are going direct to the biggest SVOD/AVOD/OTT players and skipping distributors – because a lot of what those distributors do is gone now that theatrical is on hold (maybe forever), so less quality content is even available for them to buy and possibly distribute. None of this adds up to much in the way of good news.
Documentary
If there’s ever been a scrappy bunch of filmmakers who know how to organize and survive an apocalypse, it’s been the documentary filmmaking community. There are more support systems in place here than any part of the business. Unfortunately, the only films that have ever been a financial success have been the top 1%, usually musician or sports biopics (Amy, Senna), the occasional Blackfish or Free Solo, and Ken Burns. Many smart producers were moving to commissioned work only pre-virus, and this trend will accelerate. Serious and social-issue docs are going to have a very hard time. The talk among distributors for the past few years was that post-Trump’s election, no one wanted to watch serious films anymore because they were just too exhausted after a day of his tweets. Imagine what happens now when he’s helped cause an entire economy’s collapse while tweeting about his ratings. Meanwhile, sitting around home for a few weeks has gotten the doc community to wondering whether any of this is sustainable, especially if you weren’t born into privilege? No wonder the most popular topic on the D-Word forum has been about dealing with mental health issues.
Equity and Financing
So when all of this happens, who is going to finance these films? Private equity was always a gamble, but it becomes a bigger one when you have nothing but tax credits to lessen the burden. Oh wait, how many states will keep offering those as tax revenues decline across the board in a recession that may become a depression? But when smart equity investors look at the buyers that will be left, it’s going to be mainly major platforms - who aren’t looking for equity, and who will only splurge for a small number of titles. The reports of those few splurges – as always – will keep some dumb money flowing. But the smart money is going to be investing in M&A activity, if anything, for quite some time.
SVOD Players
Which brings us back to those big-guys and their new services. Disney and Apple just launched new services that need more content. How many new subscribers are they going to get for just their library content? And Netflix long-ago switched to an original content strategy, while building up mountains of debt, as they lost library content to Disney and Peacock. Peacock might now have Friends, but as a new service that needs eyeballs, it was planning to blast into consumer-consciousness based on the Olympics. Or at least sports…oh, wait. These major services won’t die, but we will likely see them buy up struggling smaller players to shore up their libraries and ensure new content comes there way post-virus. And none of them will be looking for niche, arthouse content anytime soon.
The only services looking good here are suddenly ad-supported networks like Pluto (Viacom/CBS) and those attached to real businesses like…Amazon. (For the time being, let’s not even contemplate what happens if Amazon can’t ship packages anymore). But services build on selling toilet paper to the masses (both Advertising and Amazon) aren’t known for supporting quality arthouse films.
While we’re thinking about streaming, perhaps we should deal now with the other new player – Quibi, which launches right when people have a lot of free time on their hands. But their business model was based on what’s usually also in your hand – your phone – which won’t look nearly as tempting when you’re stuck at home in front of a giant television loaded with content. Not to mention tons of free, live-streaming options on IGTV, and when you no longer have down-time to fill on that commute to your couch.
Conclusion
Ok, none of this looks very good, right? And before I get nasty comments, remember – I say all of this as someone who loves film festivals, arthouse theaters and even the agents and distributors (ok, maybe not the agents). But I think it’s better to face the reality of how this crisis is impacting the business, and how bad it might actually get, instead of just hoping for the best. That will allow us to dream up the correct responses, and maybe let us have a better chance at inventing the future. I promise to get back to the positive thoughts – on how we react to these realities – next week.
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Film
A theater in Texas turned its parking lot into a Drive-In to much success: Forbes reports. Innovation plus social distancing, plus movies for the win. PLUS - they launched alcohol and grocery delivery, too. Everyone picked up this story, it seems, but few reported that part, which shows just how innovative this theater has been.
Collaboration will be key to survival: If that's even possible, says Jordan Zakarin in the Observer. A great article on the issues confronting all aspects of the business, and some of the new initiatives from distributors and exhibitors.
Criterion Collection and the Arthouse Convergence have started an emergency fund to help indie cinemas to survive. As I mentioned above, donations haven't been stellar yet, but there's still time. And they need it: Donate here.
Matthew Ball has a trifecta of essays on how covid-19 is impacting movies/theaters, SVOD, PayTV and OTT, and Gaming. Not much new here, but it does have good data on where things were before-covid (bc) and what might happen next.
Sundance Curated some films you should watch: I've been arguing for over a decade that festivals need to promote their curatorial abilities between festivals, and many are finally doing that. Sundance joined in this week. Now, I find it hard to believe their programmers are sitting around only watching old Sundance movies, but it's a start. Let's hope they follow Montclair's example and curate some other films next.
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MISC
You filled out the Census, right? When I posted this, response rates were just in the 30% range. Come on people.
How Artists Can Stay Afloat - and Thrive - During the Crisis - Billboard talks with several musicians who have turned to live streaming and merch, among other ideas, to pay the bills. Some are even mowing lawns, and pointing out that any income is good in a crisis. Many good ideas here, some of which would work for other artists.
The Brand Film Awards Finalists have been announced. I was lucky to serve on the jury this year, and there's some great stuff in the mix. They're announcing the winners on May 7th in a virtual event, including some panels and keynotes.
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