Subscriptions Flood Movie Theater Chains

We’ve heard it a thousand times—movie theaters, very much like books, are done. With their humongous fixed costs and their conservative outlook, they are just not ready to survive the online streaming era. That general assertion is true—streaming platforms, available for anyone with a laptop or a TV set, are releasing world-class pictures. But, although we have been doing it since the early 2000s, it is still too soon to advertise the death of a beloved industry, which is fighting to stay relevant. Sure, movie theaters will have a hard time fighting off entrants leveraging new technologies, but they will definitely not disappear. One strategy that many are following is implementing subscription services to add to their one-time ticket sales.

Since the birth of movie theaters in the early 1900s, spectators have gone to “the movies” for the latest pictures and the Oscar-worthy films. Movie theaters would rent a movie from film bookers for a few weeks, with more people going to see it when launched than later on. Given the fixed costs of the buildings (lighting, personnel, heat) and the costs of the movie leases (paying the studios), cinemas had to sell thousands of tickets to pay for the initial investment. However, they were the only option to watch movies. But this changed in the 1950s with the birth of the TV set. The TV was meant to destroy movie theaters, as films were suddenly available from home. But it didn’t—movie theaters still owned the exclusive, the scoop. If you wanted to watch a movie—and not wait months or years until it came up on TV or came out in VHS format,—you had to go to the theater. The movie industry developed the “release windows” strategy that kept movie theaters alive. The 1980s put extra pressure on movie theaters, when home-video rentals like Blockbuster became popular and the release windows were shortened. Users did not have to buy the movie or wait for it to be shown on TV; they could just rent it. But movie theaters still got the exclusive for first showings. This has now changed.

When Netflix launched its video-on-demand platform in 2007, the whole industry started to undergo a structural change. Users no longer had to rent movies (Blockbuster has basically disappeared), they could just watch them whenever on their laptop or smart TV at any time of the day/week/year. They were able to pay a stable monthly fee for unlimited options—instead of an expensive one-time-ticket for a single movie. Still, movie theaters were not under siege just yet: Netflix was just collecting already released material, not producing new-quality content. But that also changed. Then, Amazon Prime, Hulu, and HBO came aboard, and the streaming industry was even more divided. In the meantime, the number of people going to the movies has decreased every year; while the price of those tickets has increased. According to Business Insider, the average cost of movie tickets has jumped 53% in 15 years—from $5.81 in 2002 to $8.9 in 2017. At the same time, the number of tickets sold in 2017 was the lowest since 1995. However, this balancing has worked out so far—2018 saw the highest box office gross worldwide in history, says Forbes. Box office revenue in North America in 2018 hit almost $12 billion (an all-time high).

The surge of subscription-based services has also impacted movie theaters. MoviePass, the subscription-based movie ticketing service, was launched in 2011, turning many one-time purchasers to subscribers. The service had different pricing schemes throughout the years, but in 2017, the company decided on a film per day model for which subscribers paid a monthly fee of $10. The company closed in January, but the model has prevailed. Now, AMC offers a $24.95 subscription service for three movies per week called AMC Stubs A-List. In July of 2019, AMC Stubs A-list had over 800,000 subscribers. Regal Cinemas has also launched an unlimited movie ticket subscription plan for which customers pay $18 to $23.5 a month for as many movies as wanted. 

The surge of movie-subscription services may not stop the decline in ticket sales, as the increase in ticket prices has not managed to retain people (quite the contrary). Still, both strategies say one thing about the industry—movie theaters are not ready to give up. But, the birth of Disney+, Apple+, and other more established companies such as Comcast and AT&T will likely harm the movie theater more than Netflix and Hulu have. Those companies are already well known, established, can use envelopment strategies (selling to users with Apple products or AT&T plans), and some even have production studios. 

As we enter 2020, we must keep an eye on how these newcomers may impact movie theaters. For now, cinemas have managed to incorporate the best features of the streaming service industry—the subscription model—creating loyal customers willing to pay monthly fees. On the plus side, those competitors were not competing at the studio level… until now. Last year, Netflix released Martin Scorsese’s “The Irishman,” nominated for multiple Oscars, and “Marriage Story.” They were shown in theaters for the minimum time to be qualified as Oscar contenders, but the pressure is mounting to change this requirement. When this happens, viewers will no longer need to go to the movies to watch Oscar-nominated films, and that is a change. But that’s the first change; let’s see how the industry reacts after a year of Disney+ and Apple+ content (read Apple TV Plus is here to fight for prestige). Subscriptions to movie-theater chains might not be enough.