What you need to know:

• Hollywood studios have flipped their priorities for releasing feature films first to their new streaming platforms back to cinema – content economics and streamer overkill has forced their hand.
• Paramount and Disney are two studios making huge operating losses from their streaming investments – investors are impatient.

• Sony Pictures was the only major film studio not to build its own streaming platform – it sold film rights to other streaming platforms but held to a cinema-first window. It helps to build awareness and the movie franchise brand fast, per Sony Pictures boss Stephen Basil-Jones.

• Cinema, says Hoyts CEO Damian Keogh, is proving much like a cockroach – it won’t die. Multiple records have been broken at the Australian Box Office post-Covid. 

• The likely upshot, says Keogh, is that studios will favour cinemas for their tier one releases and go back to episodic series for their streaming platforms. 

• Listen to Mi3's full Hollywood chase via podcast here - it's racy.

Too fast, too furious

During Covid, the big Hollywood studios played hardball with cinemas – rushing to take on Netflix and Amazon Prime by prioritising their own direct streaming plays, shortening release windows at the Box Office or cutting them out altogether.

But that hasn't quite gone to plan. Investors again took the knife to Paramount shares this month after the US media conglomerate announced a $500 million-plus operating loss for the March quarter in its streaming unit.

Disney's direct to consumer streaming revenues rose 13 per cent to over $5 billion in December. But operating losses in that unit blew out 78 per cent to a billion dollars. The ocean of red now has Hollywood revisiting the role and financial contribution of cinemas when releasing their potential blockbusters.

After some early nerves Sony Pictures ANZ boss Stephen Basil-Jones is relieved his business has avoided the dunce cap in the Hollywood streaming bullrush – it could have gone either way. 

Now Basil-Jones forecasts a “shakedown” and consolidation ahead for feature film studios’ direct-to-consumer streaming platforms. "You'll see shakedowns," he says. "There's just no other way about it; people can't afford five, six subscriptions."

Hoyts CEO Damian Keogh thinks Hollywood will go back to making episodic series for their platforms while channelling investment into A-grade films for cinema and increasing flexibility on release windows to maximise returns.

Indeed, Keogh admits cinema may just be the media and entertainment industry's equivalent of a cockroach: you just can't get rid of it. 

It's a tale of content economics and consumer behaviour that runs diametrically to the ecom boom – which following volcanic growth during the pandemic, has now returned to the trend line. Perhaps, as Mark Ritson points out, it wasn’t the new normal after all. It seems that people still want to experience stuff beyond their personal screens.

For cinema, the numbers back that theory with the Australian box office over the last 12 months recording some of its all time biggest hits. Globally and locally, it seems the balance of power is shifting – and may swing further should some studios decide to cut their losses. Sony Pictures Stephen Basil-Jones thinks streaming consolidation is inevitable. Hoyt’s Damien Keogh thinks the dynamics now playing out could yet favour the media cockroach.

The man who knew too much

“Sony's about the only major studio without a streaming service. And Stephen did tell me at the time, they were either the smartest person in the room or the dumbest person in the room,” says Keogh.

On the surface, he admits cinema appears an equally “silly business” to get into. “You go into a shopping centre, you take a 15-year lease, you spend $10 million plus outfitting it – and then you rely on these studios for your content,” says Keogh. “And if they make shit content, then no one comes to the movies. Or if they decide to set up their own streaming services and don't supply us with movies, then it's hard to get people to go as well.”

Keogh last year lamented that the studios “hadn’t bent over backwards” to help cinemas during the pandemic, prioritising their streaming businesses and holding all the cards as cinemas grappled an existential crisis. But he forecast the game would turn. It has – and cinema now holds a few more aces.

Last month’s CinemaCon in Las Vegas underlined a wholesale shift in sentiment, says Managing Director and Executive Vice-President of Sony Pictures Releasing Australia & New Zealand, Stephen Basil-Jones, who appears in little danger of having to don the dunce cap.

He thinks the streaming market is set for a shakeout, but what stopped Sony from piling in the first place?

“Well, first up, we've got a Chairman of the studio in Tony Vinciquerra who spent a long time with Murdoch – 10 years [running] Fox Networks – his background is TV. I think he knew the costs of entry into that place, and they are exorbitant. They are extremely high and you'll see the shakedowns in the next few years – there will be mergers and acquisitions. There's just no other way about it; people can't afford five, six subscriptions,” says Basil-Jones. “But it was definitely a planned business strategy to go and exploit the traditional model, exploit the theatrical window first – and then realise increased revenues downstream. We've always felt that, that if you can establish and build marquee value IP up front, there's going to be much life left in the game.”

Sony Pictures, instead, sold film rights to other streaming platforms without the cost and risk to build one and held to its cinema-first release windows. On the latter, the other major studios appear to be coming around to that way of thinking.

“The great thing we got out of the [CinemaCon] convention was that the studios that had dismissed the cinema business have turned around and said ‘We’re back baby! We’re believers! We need this front window!’… And I think that's a really important adjustment.”

Adjustment bureau

The Covid experience hurt. But Keogh accepts that the studios probably had to experiment with direct-to-consumer business models.

“Netflix’s share price was soaring and they were thinking ‘maybe we need one of these’. They had also lost what had once been a very lucrative DVD rental and purchase business, which helped them monetise the investment in movies over a lifetime.” Covid, says Keogh, allowed studios to “get away with some things” – same day releases on their streaming platforms, shorter release windows – that cinemas would not have otherwise countenanced, had they held any cards.

But now audiences and box office receipts have bounced back – and the big hitting stars and directors want their share. As Basil-Jones puts it, “streaming platforms don't make movie stars; movie stars are made by being at the movies”. As are their bank balances.

Scarlett Johansson took Disney to court in 2021 over a same day release which she argued deprived her of potential earnings. Director Christopher Nolan ended a near two-decade relationship with Warner Bros and defected to Universal after making clear his displeasure at the studio’s decision to release its 2021 slate simultaneously on HBO Max. Notably, his first release under the studio, Oppenheimer, has secured a 120-day cinematic release window versus the once-standard 90 days. But release windows cut both ways – and there is post-Covid willingness to meet in the middle.

“It’s come down ­– 45 days is now the sweet spot,” says Basil-Jones. “That’s more than six weeks of the film playing in the cinema and for over 90 per cent of films, they will have done their business in the first four weeks. It's a very rare film that plays beyond that. There are sometimes exceptions – and when there are exceptions, that window will be extended.”

Keogh says that arrangement “is working pretty well at the moment … We sell 95 per cent of our tickets in probably the first four or five weeks. So it's an amicable settlement on both sides”.

He says it makes commercial sense: If a movie is not making money for either party, move it on. If it’s pulling in the punters, keep it running.

“What we are seeing from studios – and Avatar II and Top Gun Maverick are great examples – is that they extend the windows while they're still making money on the theatrical release … We need studios to find ways to make money out of making movies. If movies aren't performing at the box office, and they can monetise them in home entertainment, then the less successful ones having a quicker release is probably the right thing to do.”

45 days later

For now, Basil-Jones says Sony doesn’t want to go any shorter than 45-days – because it busts an economic model most studios are still trying to nail. Pre-streaming, films would generally aim to “recoup as much as you can” via cinematic revenues, then take the bulk of profits from downstream sales – DVDs and eventually free-to-air TV revenues, per Basil-Jones.

“There is still a home entertainment market, but now it’s electronically sold or rented through Google or Apple – and that really is the time, usually after 45-days, that you can do that.”

But it’s not a like-for-like revenue replacement.

“Stan, Binge, Amazon Prime, they have changed those dynamics. And we're still learning about where the value is at what stage, which genres are going to perhaps command a premium price at an earlier [streaming release] time or a later time. Honestly, there's so much learning going on right now,” says Basil-Jones.

Hence he’s reluctant to disclose even broadbrush cinema to downstream revenue ratios.

“I can honestly say we are in uncharted waters. There is still so much flux going on with the streamers – as you said up front, they have their own challenges right now. They are trying to work out what the sweet spot is and where they need to be.”

As good as it gets

The upside of competition from streaming platforms is that “we’ve got to raise our game”, says Basil Jones. The films now being given cinematic releases have to be good enough to get people “off their couch”.

Keogh thinks that works in cinema’s favour – pushing content dynamics back towards those that made Netflix a breakout star. He points to the release of Air (the Amazon Prime-produced story of Nike signing Michael Jordan with Ben Affleck and Matt Damon) as an indicator of market sentiment.

“[Prime] executives saw that and they decided to give it a theatrical release, albeit a shorter one. It didn't have a vast amount of promotion, but it wrote about $9 million at the box office here in Australia, which is a great result for us. It was a high quality movie. So Amazon and Apple have now come out and said, 'hey, if we're doing movies, we're going to do a theatrical release with them',” says Keogh.

“I think what we will start to see is the streamers investing in their direct-to-streaming content into episodic series,” says Keogh. “I think they’ve worked out that the average run-of-the-mill TV movie is not worth doing. So they will either do an episodic thing or invest more in a really good movie that they can release in cinema with all the prestige and the marketing support.”

Sony's Basil-Jones agrees. 

"I think the streamers will recognise the value of the different types of film, be it episodic, be it feature films, and how to deliver that. So I think there's going to be a little bit more consistency with regards to how the big streamers go about their business."

But he reiterates that not all the streamers will survive. "Certainly in Australia. We're not big enough to have all those players in the marketplace."

Cocoon: The return

In the meantime, cinema is rebuilding. Keogh forecasts the Australian box office this year will be “85, hopefully closer to 90 per cent” of pre-Covid levels, buoyed by the likes of Avatar II and Top Gun: Maverick. Both took circa $93m in receipts, ranking amongst the highest grossing films of all time in Australia, with Super Mario Bros, north of $50m, per Keogh, likewise one of the biggest animated films. "Even at the moment, Guardians of the Galaxy has just gone through $25 million, John Wick around $25 million. These are big numbers. So there is no doubt in my mind, in the minds of most cinema operators, and in the minds of the studios that if the content is there, people will want to get out and experience it in a cinema."

Older Australians have been slower to return. But that is changing. Keogh and Basil-Jones think the recent John Farnham documentary, Finding the Voice, which got the oldies out in droves, indicates pent-up demand – and that studios are actively working on release valves.

"It's already broken records for a musical documentary in Australia. It's on its way to $2 million-plus box office, which might not seem a whole lot on the surface, but believe me, running cinemas, that kind of box office and the audience it has attracted has been fantastic," says Keogh. "And that's been largely funded by Stephen and Sony locally."

Basil-Jones says that with Farnham part of the Sony "family" and his former business partner, the late Glenn Wheatley, who had the original idea for the documentary envisioning it as a big screen production, it was a natural call. Though not without some commercial risk. But it has paid off – and will get a second press via Seven West before "eventually" ending up available to streamers down the track, per Basil-Jones.

"John Farnham's first hit was in '66. His audience are older now. It's multi generational, but we saw on Tuesday, which is our discount price day – and usually a great indication of how many pensioners are coming out – it was huge," says Basil-Jones. "In quite a few of Damian's cinemas it outgrossed Fast X, the Fast and Furious film. So we saw the oldies coming back again and the rest of it too."

There are "a few audience segments still to rebuild," says Basil-Jones. "there's been a great response to the big blockbusters ... but there's been a lack of romcoms and comedies in the marketplace, a bit of a drought." He's backing the forthcoming No Hard Feelings, starring Jennifer Lawrence to start to reverse that trend.

Meanwhile, the sequel to Sony's 2018 Oscar winning Spider-Verse hits screens this week. Basil-Jones is backing it to build on the return of families to cinemas.

"Spider-Verse going to be good [for cinema and the family category] because we saw Disney and other people put those sort of films straight to their platforms very quickly. Now, guess what? They're not doing that. They're coming to the theatres first. So we're going to rebuild that family audience," says Basil-Jones.

That's music to Damian Keogh's ears – and a strong signal to marketers that back brand investment to plan for more to come.