Theaters are dying. Will Disney save them?

Content owners are best-suited to turn the broken movie-going experience into something enjoyable again.

Theaters are dying.

Yes, they’ve enjoyed the ride, sold us all tickets — and a lot of popcorn — but the fun is over. U.S. movie ticket sales dropped 6 percent in 2017. Theater attendance is at a 24-year low. If that wasn’t enough, theaters are now fighting with MoviePass, the only player to bring them new business in years.

Fearing for their future revenues, content owners are doubling down on building their own digital platforms. In doing so, they’re hoping they can find customers where they are and use their brand power to move down the value chain as distributors. But by focusing only on digital, they’re missing an opportunity.

As movie theaters as we know them go extinct, content owners have an opportunity to seize premium retail locations, transform the movie-going experience, and finally build that special connection with consumers — and their wallets — that they so desire. At a time when everybody’s betting on digital, a physical connection may be the ultimate differentiator.

Making movie-going great again

Film exhibitors are never short of excuses for why or how they’ve come to their current situation.

The first one to come up is usually the content itself. By nature, movie theaters depend on the content produced by others. For them, a bad movie slate coming in for the season means terrible results. This is what happened in the summer of 2017, which saw a brutal fall in stock value for theater chains such as AMC, Regal or Cinemark.

Next on the list is streaming. It’s no surprise that in the SVOD era of Netflix and Amazon Prime Video, which has become synonymous with convenience and lower prices, movie theaters are having a hard time convincing people to buy a $8.93 dollar movie ticket — the average price for a ticket in North America in 2017, up 3% from 2016.

Exhibitors would rather point fingers and blame content creators for providing them with poor material and distribution platforms for stealing their customers than admit their own responsibility. So unwilling are they to look in the mirror that they have found a new culprit in Rotten Tomatoes, a crowdsourced movie review site whose Tomato Score has Hollywood trembling.

Is this how it all ends for movie theaters? Credits: J0S0K on Flickr.

The truth is, exhibitors can’t blame anyone but themselves. They have failed to innovate and done nothing to reinvent the movie-going experience. Instead, they fell for one gimmick after another, hoping to charge customers a premium for things like 3D glasses, premium concessions, and reclining seats. As if your movie ticket wasn’t expensive enough yet, now theaters want you to have dinner at the movies, too.

At some point in time, theater chains simply stopped caring about the overall movie-going experience and started focusing on details that had but little value-add for customers. In doing so, they decidedly narrowed their own role in the value chain: they went from being a place where viewers would come to dream to being nothing more than a physical distribution platform.

Somehow, that worked for a while. Consumers had no choice but to pay, because there was no other place to watch freshly released flicks. But now streaming services have made movies available to everyone, everywhere, tech giants are distributing movies on their own terms, and theaters have lost their main currency. It seems all those fancy reclining seats weren’t enough after all.

Movies, and everything else

Is it all too late now? Or could movie exhibitors reverse the trend, regain their customers’s trust, and make their locations compelling again? If recent years are any indication, the answer is no: had they been capable of doing it, they would’ve done it already.

If theaters are the problem, the solution can only come from the outside. Our best chance to save theaters today is to put them in the hands of a major content creator, one that can leverage its own content and expertise in world-building to rejuvenate theaters themselves. And that savior’s name may be Disney.

Only a company like Disney, with a trove of IP, decades of experience running theme parks, and the capacity to bridge content and technology, has what it takes to turn the broken movie-going experience we’ve come to hate into a multifaceted discovery we’ll be ready to love.

In this new “Disney World”, movies would still serve as the centerpiece, only now they would come with derived 2D and 3D content as additional monetization channels. Access to exclusive, branded rooms, pods, and motion platforms would expand a film’s universe and prolong customers’ time within and familiarity with it.

A good example of how immersive formats can build on existing 2D content can be found in IMAX’s chain of VR Experience Centers. The locations, where customers can experience virtual reality with premium hardware and content, rely heavily on content produced by studios to promote their feature films. Of the 14 VR experiences available at IMAX VR in January 2018, 6 were derived from existing movies or series of movies, including Universal’s The Mommy, Warner Bros.’ Justice League, and Disney’s Star Wars saga.

IMAX VR’s website. Credits: IMAX.

However, IMAX VR is driving viewers not to the theaters but rather away from them, and into separate locations that belong to IMAX only. Since the 2D and the VR parts of the experience sit in distinct locations, the synergy between them is non-existent. Convenience is key, and virtual reality just isn’t appealing enough today that people will move to another place just to try a VR experience, no matter how good it is.

For the experience to feel complete, all of its parts need to take place under the same roof. This way, even people who did not buy extras upfront can end up doing so after they’ve seen a movie, as the content is directly available on site.

The content should also be accessible to everyone — whether or not people have seen the movie it derives from. Unbundling movies from their additional content lowers the upfront cost and enables customers to try out whichever piece of content they want, without feeling forced to pay for the whole package. Bundles should be a price incentive, not as a constraint.

For too long, theaters have presented viewers with a linear experience: you come in, watch a movie, and leave. Disney has all the resources it needs to turn them into free-roam areas where branching storylines would entice you to try a little bit of everything — and come back for more.

Turning memories into souvenirs

What better way to make an experience memorable than to let customers take a piece of it with them? Here, too, Disney comes prepared: the company basically wrote the bible of the merchandising business.

Of course, you go to Disneyworld for “the experience.” However, despite your best efforts to resist it, this experience doesn’t seem quite complete until you’re wearing a Mickey Mouse-shaped headband. Merchandising helps you fit in just as much as it’s a reminder of the time — and money — you spent there. As one interstitial banner for the Disney Store so aptly states, it’s a way to “Bring Home the Magic of Disney Parks!”

Making time-limited, exclusive merchandise a part of the movie experience provides a similar opportunity to extend the life of the content in the viewers’ minds. It would serve as a sign of recognition between fans, and a powerful marketing trick, by distinguishing those who have seen Disney’s latest movie, from those who haven’t. Even Netflix is now betting on merchandising for additional (and easy) revenue.

Star Wars is a case in point. From life-size lightsabers replicas to character miniatures, Star Wars memorabilia is not only a huge part of the franchise’s revenue — it’s where most of the money comes from. According to Statistic Brain, in 2015, toys alone had earned 44 percent of Star Wars’ estimated $27 billion overall revenue since the first movie came out in 1977.

Allowing fans to buy collectibles on premise after they’ve seen the latest movie of the saga could bring in colossal revenue. But why even wait until people have seen the movie to sell them the attached merch? Disney could directly bundle it with a movie ticket as part of a “Superfan” package. This would throw a sense of exclusivity into the mix.

Every new Star Wars release nowadays comes with V.I.P. screenings where fans are handed out plastic lightsabers and badges. Selling an improved version of those to even a fraction of movie-goers could bring in massive revenue.

I’m guessing this guy would totally buy a Superfan package. Credits: Amy Ratcliffe.

Unlocking evergreen fan engagement

Still, not everything is about money. Ultimately, operating its own theaters would provide Disney not only with new revenue streams, but with something as intangible as valuable: fan engagement.

Fan engagement for years has been left to a handful of places: online forums, Tumblr communities, and Twitter feeds — ever heard of Film Twitter? There, fans grew used to sharing art and news, debating theories, and planning local gatherings to discuss their common interests. Content owners let fans build their own, self-organized communities instead of providing them with the place, tools and support to do so in a supervised environment.

Only recently, thanks to the growing number of fan-focused events such as San Diego’s ComicCon, have content producers started to engage their fans on a more regular basis. In this regard, powerhouses such as Disney or Warner Bros.’ CW network have made much progress in addressing their communities, as they now promote every new blockbuster through trailers, panels, and fan signing sessions.

But relying on a third-party platform can be limiting. At ComicCon, just like everywhere else in the world, content creators compete against one another to lure fans into their sessions instead of the others’. And recent power shifts have only made things worse: in 2017, Netflix showed off its new status in full force, drawing crowds with panels about Stranger Things, Bright, and its numerous Marvel-branded shows. Amazon and Netflix gaining momentum means traditional players need to fight even harder for fans’ attention.

That Netflix or Amazon would need a physical connection to their fans at all is telling in itself. At ComicCon 2017, Netflix made the most of it, conjuring up the spirit of Stranger Things’ iconic character Barb into a larger-than-life memorial. Despite all the support shows receive online today, it seems that true community building can only be achieved in the real world.

Barb’s memorial within the “Stranger Things” Activation at San Diego ComicCon 2017. Credits: Eric Charbonneau.

That’s where a physical space comes in handy. Operating its own theater chain would allow Disney to claim back control of its catalogue of IP, turn the social conversation about its content from online to offline, and federate a community around recurring events, without having to share the stage with others.

This gives room for a variety of fan-focused opportunities, from organizing marathon viewings centered on a specific theme or franchise to marketing an upcoming release through invite-only events to releasing extended versions of a movie at specific locations. This sort of events can leave fans with a lasting memory and help content owners build a durable bond with their community. Which is the best way for them to understand, anticipate, and address, what it is that their fans want.

Every fan out there is just waiting for their own “Golden Ticket.” Credits: Warner Bros.

Build it and they will come

With so many opportunities waiting, why haven’t content owners bought or built their own theater chains already? The problem is, we won’t let them.

In 1930, the U.S. Supreme Court declared the 8 Hollywood studios of the time monopolies, before effectively forcing them in 1948 to part with the theater chains they did own. This decision put an end to a decades-long monopoly and forever changed the movie business. Vertical integration has been seen with suspicion ever since — and is still raising concerns.

Forbidding studio ownership of theater chains made sense in 1948. Not so much now. Back then, the majors controlled every part of the industry, from managing actors to distributing their movies, with no competition in sight. Now studios are bracing themselves for what Amazon, Netflix and Apple may have in store for them, and theaters won’t exist for much longer if somebody doesn’t come to their rescue. Monopoly or not, letting them merge may be our best option if any of them are to survive. A vertical approach is exactly what the industry needs.

Placing their bets on the physical realm rather than the digital one means content owners can finally play by their own rules and turn the tables on pure players. Netflix may be king online, but it sure can’t transform theaters into a temple for fans, or revive them with a catalogue of I.P. it doesn’t have.

Only Disney can. Will it?