Motley Fool Money - The Movies’ Market Correction

Episode Date: May 25, 2024

In 2018, the U.S. box office grossed almost $12 billion. This year, it’s expected to bring in closer to $8 billion. What’s eating the silver screen? Catie Peiper, the Fool’s resident entertainment expert, joins Ricky Mulvey for a look at the state of the movie industry. They discuss: The relationship between streamers, studios, and theaters. How losing China as a distributor changes the dynamics of business – and creativity. Where moviemaking goes from here. Companies discussed: DIS Host: Ricky Mulvey Guest: Catie Peiper Producers: Mary Long Engineers: Tim Sparks, Chace Przylepa Learn more about your ad choices. Visit megaphone.fm/adchoices

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streaming and the ability to consume content online. It's not even produced content that a lot of people are consuming these days. It's TikTok. It's Reels. It's creator-led content, not necessarily studio-led content. So studios are now competing with a completely democratized internet of consumption. But on top of it, it's gotten expensive to go to the movies. We need to be honest about that. Like, if I used to go to the movies 20 years ago for, I don't know, maybe $15 for an IMAX, we're looking at $25, maybe $30 for an IMAX these days.

I'm Mary Long and that's Katie Piper, a fellow fool and our resident entertainment expert. Last summer, movie makers might have had a resurgence. There was Barbie and Oppenheimer. This summer, there's Deadpool. Box office sales are already down around 20% compared to where they were this time last year. and the odds that the industry is able to play catch-up in the coming months, they aren't great. Ricky Moldy caught up with Katie for a look ahead at the summer box office season

and to discuss the changing state of the movie industry. They talk about pricing power at the box office, how streaming has changed the relationship between studios and theaters, and the repercussions of losing China as a major movie distributor. Katie, it seems like the movie business is in a bad place, honestly, as we enter the summer blockbuster season. While the movies themselves are pretty good, the business not so good, but the movies themselves, like Fall Guy right now. I think that's the poster child of what we're seeing in the movie

business, which is a pretty good movie with big stars that's going to do poorly business-wise. You've studied the cycles of entertainment. Do you think we are in between waves or in a more permanent decline for the movie business? Man, such a good question. And I love the example of Fall Guy in particular because what's so remarkable about it is that the two headlining names, Emily Blunt and Ryan Gosling, were headlining names from the two big films that actually made us claim last year that the box office was back. One was in Barbie and one was an Oppenheimer. And now we're having the opposite problem with this film now with Fall Guy. So I think if there's any takeaway, I would bring to this, it's that we're in an unpredictable period. There's nothing that's

easily bankable for studios. If superheroes worked before, they're not working now. If Ryan Gosling worked last year, he may not work this year. And then something may surprise studios instead. I don't think that means we're in a decline. It just means that we're in a change of market behavior and consumer behavior. And the studios are trying to figure out what works in a new world. With all respect to Emily Blunt, I don't know how many people showed up at Oppenheimer to see her specifically. But that's also happening with challengers right. now, right? You have a mega star in Zendaya who makes a good, it's a good tennis movie. I really enjoyed it. And even someone with not just the star power of Emily Blunt, who's not as active on

social media, but someone who's plug in their wares to 100 plus million followers on Instagram cannot get her audience to show up to the movie theaters in a profitable way for her studio, for the studio making the movie. Absolutely. And I think what is implicitly in what you just said that I'll call out explicitly is that we're also talking about two different generations of media consumers there. Emily Blunt, I remember from seeing as a rising star in Devil Wears Prada. So she's more of my generation. I'll age myself here a little bit. And Sandia's, younger. She's much more of that Gen Z media consuming generation. And so the fact that we're seeing this on multiple age demographic fronts, I guess is the best way to put it, is interesting.

I think one, we always have to think about the media transitions, streaming and the ability to consume content online. It's not even produced content that a lot of people are consuming these days. It's TikTok. It's Reels. It's creator-led content, not necessarily studio-led content. So studios are now competing with a completely democratized internet of consumption. But on top of it, it's gotten expensive to go to the movies. We need to be honest about that. Like, if I used to go to the movies 20 years ago for, I don't know, maybe $15 for an IMAX, we're looking at $20, $25, maybe $30 for an IMAX these days, depending on the theater you go to. So it needs to be destination viewing at the theater.

Yeah, even as the prices have gotten more expensive, the actual box office has gone down. The pricing power is not so good. Domestic box office reached about $12 billion in 2018. That was sort of a high watermark for the movie industry. You had the power of the superheroes and you had a lot of people showing up. Now, after the pandemic, domestic box office is expected to be about $8.000. billion dollars in 2024. Some of that you can blame on the strikes, but you also have the end of the superhero boom. And also, I think the studios, Katie, have really shot themselves in the foot with these

shortened release windows. They've trained their audience to not go to the movies. And you just have to wait a few weeks before it's coming to your home on your favorite streaming platform. Absolutely. No, I mean, I've even made that decision about a number of movies. And I used to be an opening nightgirl. So absolutely, knowing that I can watch a movie from the comfort of my home, not having to deal with the people at the theater who, you know, it's a mixed bag when you go and sit in an audience these days. But I also think, you know, if we think back to the early, early days of cinema, there was always a need for also-ran content. Be Real is one example, but honestly, we're talking C, D-Real films. You would go, you would buy a movie ticket,

and you would sit in the theater for eight hours at a time, and just like you would watch the newsreels, you'd watch the vaudeville acts that had been recorded, and you would watch whatever the big feature was. And we've gotten to a point in the film industry these days where every film gets treated like it's potentially the box office hit. But the truth is, is that we need a much more diversified amount of content that comes in at a variety of different budget points. And I think that's the market correction that we're seeing right now. And some of that is happening with, I would say, almost a boom in those lower budget adult dramas. Ferrari, I think Ferrari was around a $50 million movie. You can maybe double check me on that. Didn't do so well, but then you have a movie like

Ironclaw, A24 has really mastered this where they'll spend a few million dollars on a movie, and then it's able to just kind of eke out a profit, and then you'll have some streaming money down the road. But the big event-tie stuff, you can no longer rely on just intellectual property or star power. Getting back to the release window, though, Here's the specific example, because you said you're waiting for streaming, even for a really big movie that needs to be seen. Go see it in IMAX. Dune Part 2 hits theaters on March 1st.

It goes to digital platforms a month and a half later. This is where you can rent it for $25,000, still cheaper than going to the movies if you have a family. Now it's going to be on Max on May 21st. So not even two months later from one of the biggest movie events allegedly of the year, it's going on streaming for paid subscribers of Max. I mean, what's the strategy here? Are these studios really benefiting from serving this?

I'll wait till it comes out on streaming crowd. I think that's what they're testing right now. It's really hard to say definitively that, yes, it is working in their favor. But I think we did see it work in their favor over the pandemic when no one was really going to theaters. Maybe for a horror film or two, over the pandemic, did we see a box office pop? But for the most part, it actually did benefit them to accelerate that schedule. I don't think that's the world we're living in right. now, but no one's really certain of the middle ground there. And the extra component to this is,

so the distribution, it happens through the theaters. And they are always in constant conversation with the movie studios. And every movie theater wants a longer showtime window, because every week that a movie plays in their theater, the more profits that movie's theater will make off of it. And I don't need to get too into the weeds on it, but basically the studios have the largest take in the first week of airing. And then the longer movie runs in the theater, the percentage increases in the favor of the movie theater versus the studio. And what is happening with these shortened release windows is these theaters are now, they're not making as much profit off of having these movies in the theaters. And so they're having trouble even committing

to the studios that they'll distribute their films anymore because they're not seeing the kickbacks. Oh, wow, because you can't, because they know it's going to be on streaming. And then that's when they're really making their money. Exactly. And so this is where the destination viewing becomes more important. Something like the Alamo Draft House, where it becomes like a night out with a waitered service, that's where they're making back more of those profits now. Well, I mean, I thought theaters generally are also making more money on concessions and the things

you buy to watch the movie than the ticket itself. And I also have a hard time if we're doing the Lynchian example, judging this because I'm in Denver, I have, you know what, I'll plug it now. I love my Alamo draft house subscription. It is now the cost of regular HBO Max. You can go to a movie whenever you want. If you know how to schedule you're eating, then you're not paying a bunch of money for concessions. And it's lovely.

It forces you to get off your phone for a couple of hours and watch a story with people. And it's nice. It's nice when we're working from home. I also want to talk about one key distribution point. We've talked about the domestic box office. But these studios are also dealing with the loss of China as a major distribution point. And I think there's two impacts. One is on the business and then the other is on the types of movies we see because now there might be a sort of release of pressure where these Hollywood studios are no longer trying to appease to the censors for the People's Republic of China.

Yes. It's a good point. And often when I talk to other people in this area who don't understand what's been happening behind the scenes, it feels like the Hollywood left China. But really the opposite thing happened. China developed so much of their own in-house industry for film production. They're no longer dependent on Western production for a lot of their big summer blockbuster hits. Their big box office hits are now able to be entirely homegrown. And so they've been able to withdraw their investments in Hollywood. And it has been freeing if you talk to writers, directors, producers, not having to go through censor reviews in China is huge. And Disney's Mulan, we lost in that at a bit of,

the live action, we lost the entire plot line around the ancestors or the ghosts of the ancestors from the animated film because of the censorship review in China. So it's very freeing to the creators, not to have to think about that anymore. But on the flip side, you're also not getting as many movies like The Meg, which did just ginormously huge in China and East Asian markets. They had huge stars that may have been relatively unknown to Americans that were really big in those films. And so their distribution was very big over there as well. And so Jason Statham may not be getting as big of a paycheck these days if China's not coming and knocking on his door to co-produce a joint Hollywood China film. Well, I think a lot of studios are wondering

how much they want to pay movie stars, especially with the Fall Guy aforementioned, two big paychecks for Emily Blunt and Ryan Gosling. And then you have a movie like Planet, what is it, War, I saw it, I'm sorry, War of for the Planet of the Apes, Dawn of the Planet of the Apes, the new, the new Apes movie in the trilogy, it's going to do pretty well. It's going to do pretty well in its biggest star is a CGI character. Yeah. What do you expect for studios and theaters if we're in a new normal of an $8 to $9 billion a year sort of domestic box office cycle, if we don't get back to the 2018 numbers? Because it seems hard to put this genie back in the bottle. I agree for now. We have seen market contractions in Hollywood in the past. This has happened

in the 60s and 70s, where we have a problem with superhero movies now, half a century ago, the problem was overblown musicals and spectacle films that they were not breaking even on. Movies that I grew up thinking were big successes like My Fair Lady were not when they were actually in the box office. So there was a big market contraction for the studios after over investing in both the on-screen talent and the production budgets back then. And it really forced a leaner, scrappier, more bootstrap approach to filmmaking from the creatives, so the directors and the producers. And also, consumer tastes changed. This is when we started then to see like the Bonning Clides, the bullets, the French connections, like a whole different vocabulary

in film aesthetic and style of film that people wanted to go to the theaters to see really emerged out of that. And so I don't, I can't give you an answer about where the industry absolutely is going right now. But my guess is that we're going through a similar sort of metamorphosis where it's not going to be the Iron Man's of the future. It's going to be something more innovative that is also going to be less expensive for the studios in the long run. Or it's video games, right? Where the Last of Us is being a big, is it massive television show? You're seeing these eventized releases with Fallout on Amazon as well. And there's a lot of, what is it, Legend of Zelda is in development right now.

And I think studios are really hoping that these video game adaptations take the place of that Marvel summer blockbuster. That's an interesting thing. I mean, I agree to disagree on that point. I think IP adaptation is a safer bet on the studios part, and they've run out of comic book superheroes and other things to adapt. So now they're moving on to Lord of the Rings and video games and, you know, those areas. But they're going to run out of IP to adapt at some point.

And then you get something like everywhere, everything everywhere all at once, which is completely novel. And it just knocks the socks off of everyone. So I think they're going to realize that the well is going to run dry there pretty quickly. Are there any themes starting to emerge that you're excited about or interested in with the way things have shaken out after sort of the superhero blockbuster era? I am thrilled that I never, if I don't want to ever have to see another Ant Man I'm the Wasp film again. If I choose not to, they may produce more. You never had to see it. There was a period where there was a sunk cost component to the Marvel universe where you had seen six movies and you were in for another 10 to get to end game.

And after end game, you could check out of that narrative if you wanted to. And I'm thrilled to have gotten to that point. I would say, and I'm not coming totally from an ivory tower here, but I am revealing my biases. The thing I'm most excited about is that some of the most acclaimed films, that are also getting relatively wide appeal are very intelligent. So I already spoke about everything, everywhere, all at once. Poor things, also very intelligent and playful in its approach. So I would argue that audiences, to some degree, are tired of being dumbed down for just another superhero film.

And we're actually hungry for something that gives us a little more intellectual stimulation. But I'm also an optimist. I love poor things. Let's look at the summer blockbuster calendar. We've had a few come out already in May, which have been sort of like maybe somewhat successful with Planet of the Apes, fall guy we already talked about. There's more coming out. You have a new Deadpool movie, Inside Out 2, Despicable Me 4, Furiosa.

Doesn't have to be one of those. Is there one maybe you're particularly excited about or curious about as we look at the summer box office slate? Personally, I'm very excited about Furiosa. I'm going to be very interested from an industry perspective about Deadpool and Wolverine. How that does is going to be very telling for what Disney chooses to do in the future, I think. And because I'm an elder millennial, the Beetlejuice, Beetlejuice film, cannot wait. And that's one too. I think it's rumored. Not a lot of CGI in there.

Yes. So I think it's going to be hopefully, you know what? I've also convinced myself that a new Tim Burton movie is going to be incredible. Katie, I'm ready to get hurt again. What does it mean for Disney? You mentioned Deadpool. What do you think it means for Disney if Deadpool turns out to be a hit? Yeah.

I think Disney has to really be willing to go to the riskier places. And it's been doing that for a while with some of its content. But if Deadpool can win where the more anesthetized, G-rated versions of their content is not. And so especially if Inside Out 2 does not do very well, which Pixar, but, you know, again, very family friendly versus Deadpool and Wolverine. That tells you something about not just what audiences want to see, but also what level of intrigue audiences are willing to go out of their way to a theater to versus just streaming at home. Especially for an R-rated movie, which who would have thought a few years ago that Disney's summer block, like summer box office is riding on an R-rated sort of

B-list-ish superhero movie. No disrespect to Deadpool. I like the Deadpool movies. They're fun. And also you have Wolverine, which the start of the X-Men universe is going to be, I mean, that's sort of a big rabbit in the hat for Kevin Feigey over at Marvel Studios. We like doing stock picks. I'm not going to ask you to do a stock pick. But how about a pick for when we look back in the fall, what do you think is going to be the biggest movie of the summer? It seems like there's three solid contenders, Despicable Me Four, with the minions. People love the minions. Deadpool, Inside Out 2 or Other. I'm going to be really cynical here and say, I think it's going to be Despicable Me 4. And I can't believe as a audience member, I'm saying that.

but we saw with Dispicable Me Three, just huge, huge movie-going crowds. People who had grown up as kids with some of the earlier films now as young adults going in costume. This is the level of fan participation we used to see with the Marvel films. And now we're seeing it around the minions. So I die a little bit inside saying that, but that's where my smart money is. It was the gentle minions. The gentle minions, exactly.

Yeah, showing up. in a, it was nice, people showing up in a suit to go behave politely for TikTok at the movies. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy ourselves stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you tomorrow.