How consumers choose to view movies has been changing over the past few years with a move towards home viewing using companies such as Netflix and Amazon Prime. This viewing trend is beginning to take its toll on both film and television studios, as theatres are becoming a less popular option for viewings. Currently Americans spend around $11 billion on going to movie theatres every year and a further $12 billion on home video rental and purchase (both physical and digital). Home purchase, however, was down by 7% in 2016, compared with the previous year, while subscription streaming leapt up by 23% in the same time period to $6.23 billion.
Film companies are beginning to tap into the financial benefits they could reap from employing more watch on demand options when it comes to new films. Premium video on demand (VOD) has the potential to be two to three times more valuable to studios that movie ticket sales, and, as a result, some Hollywood studios are looking into the benefits of in-home releases of new movies. These early-release films would be available to see at the same time as, or shortly after, theatre release and would cost home viewers around $30 to $50 in comparison to the $5 to $7 currently paid to view movies months after the release day.
While this shift in focus to subscription streaming could benefit, and boost revenue, of Hollywood movie studios, the impact could be negative for movie theatre companies. In the past two months Imax China has seen share prices fall dramatically. Nomura analyst Richard Huang has said that four reasons were put forward for this drop, one being wide-spread concern that there is a drop in consumer interest for premium movie viewing experiences and that, as a result, Imax will begin to face structural market share loss. This, and the other three reasons – concern over dwindling popularity of Hollywood blockbusters, a belief by some that Imax is choosing the wrong movies to screen, and the suggestion that the majority of new Imax screens have been installed in lower-tier cities – has resulted in Imax stock values falling by 40%.
As the movie industry moves into this state of transition, several companies within the sector have seen drops in stock price. Opening on the 5th of July Walt Disney shares were down 1.4% to $105.98, while Lions Gate Entertainment experienced a drop of 1.3% to $27.77, and Regal Entertainment Group declined to $20.07, down 1.5%. It remains to be seen if this downward trend will continue for movie companies or if the proposed, alternative audience viewing options will reverse the losses.
(Please note: James O’Leary does not currently hold a position in Netflix, Amazon Prime, Imax China, Walt Disney, Lions Gate Entertainment, or Regal Entertainment Group. Henry James International does not currently own a position in Netflix, Amazon Prime, Imax China, Walt Disney, Lions Gate Entertainment, or Regal Entertainment Group, for any client portfolios).