Disney Just Got Some Good News and Some REALLY Bad News
The future is digital.
Hollywood knows that and old-school media companies have grudgingly accepted that truth.
As businesses like Warner Bros. Discover, Paramount Global, and AMC Entertainment Holdings, Inc. teeter on the brink, Disney reevaluates.
How should a century-old company adapt to industry-wide disruption in one business that was previously a pillar of Disney’s revenue stream?
Despite what people say, nobody knows the answer for sure, forcing Disney to feel its way through a new process.
Even a seemingly positive report can come with remarkable downside.
Let’s discuss a poll that just gave Disney some good news…and some really bad news.
The Topic at Hand: Movie Consumption
How do you watch most movies? If you’re a typical consumer, you view them in your home.
One of Hollywood’s dirtiest secrets is that going to the movie theater was always the exception, not the rule.
From a young age, film lovers learned to watch their favorites at home.
Maybe you rented movies or bought DVDs or watched on network/cable television.
Then again, you might be young enough that you’ve primarily streamed films for most of your life.
Across generations, Hollywood has always uncovered new ways to sell its products to people in their homes.
There’s a good business reason for that tactic. You spend most of your free time at home!
However, Hollywood has also indoctrinated countless generations of fans into the more profitable method of film consumption.
When you want to watch new releases, you must pay the price to see a movie in theaters.
That’s been the norm for as long as Disney has existed…and even a few years before then.
Alas, a generation raised on Netflix has fundamentally altered the nature of media consumption, which is a problem for Disney.
Currently, your favorite company faces a crossroads. On the one hand, Disney is strengthening its digital content.
The Direct-to-Consumer division should eventually become Disney’s most significant revenue pillar.
So, Disney must turn Hulu, ESPN, and Disney+ into viable digital brands accessible via any internet connection.
However, to survive in the short-term, Disney needs its loyal fans to watch movies in theaters.
Disney’s entire business model relies on the box office profits from releases to pay for the expense of making the films.
Then, all other phases of media consumption such as Disney+/Hulu viewing become pure profit.
When that process fails, Disney’s financial outlook weakens.
A Poll about Consumer Behavior
IndieWire and HarrisX just performed a joint survey to take the current temperature of movie-goers.
The goal was to determine how people actually consume movies and perceive the theatrical experience.
At the risk of editorializing, I suspect the purpose of this poll was to prove that people still preferred going to movie theaters.
Therefore, the results of the poll were likely shocking to the very people who commissioned it.
I say this because the results couldn’t have been clearer.
According to the people surveyed, home movie viewing is superior.
To wit, the poll shows that “34 percent of U.S. adults prefer to watch movies in theaters.”
By inference, 66 percent or two-thirds of potential consumers would rather watch a movie at home.
If you work at a movie theater, that data is like a dagger to the heart, but film lovers have ample reason to feel that way.
As the survey notes, it gave respondents several opportunities to explain their thought processes.
You can think of this section as Hollywood loyalists asking consumers to explain why they feel a way Hollywood doesn’t want.
Movie theaters will cling to the explanations of why people still go there.
The popular responses in this poll were: “the experience of watching a movie on the big screen” and “the quality of surround-sound systems.”
Perhaps the most telling response among theatrical fans was that they wanted to escape “distractions” at home.
The problem with that explanation is that people possess many more external entertainment distraction choices now than 20 years ago.
So, Hollywood no longer claims a monopoly on these customers and, in fact, must compete for their attention.
The drop in box office performance suggests that movie theaters and studios are failing in this attempt.
The Reasons Why People Prefer Streaming
Bluntly, the explanations for preferring the movie theater were nondescript.
Yes, watching something on the big screen still comes with a certain cachet for many consumers.
However, home audio systems are plenty good enough for most fans, and getting out of the house as an escape is relatively easy.
Among the only justifiable reasons to go to the theater were the quality of high-quality cinematic displays like IMAX and…exclusivity.
You may recall that Max and Disney+ provided simultaneous home viewing of many releases throughout the pandemic.
That strategy never went away, as recently demonstrated by Five Nights at Freddie’s, which was available on Peacock but still opened to $80 million.
Companies like Disney enforce exclusivity because their revenue models work best that way.
So, listing that as a benefit of theatrical isn’t a positive but rather a necessity.
Conversely, the advantages of watching movies at home are real and plentiful.
Fans pointed to the high cost of movie tickets, a valid complaint. You can often purchase multiple streaming services for the cost of a single ticket.
Similarly, fans lamented the high cost of concessions, which is requisite.
Movie theaters only turn a profit via concession sales. So, they need high profit margins to remain in business. Ergo, that one’s not going away.
Obviously, people also preferred the comfort of watching at home, a factor that vastly outweighed the “escaping distractions” crowd.
Then, we had factors like hygiene, bathroom breaks, and the inability to pause films in theaters.
Also, film lovers prefer starting movies whenever they want rather than finding a movie schedule listing that fits their needs.
In short, consumers know all the advantages of consuming films at home and the aggravations of going to the theater.
The Good News and Bad News for Disney
Absolutely none of this data should surprise anyone, least of all Disney.
Unfortunately, the poll underscores the challenge that Disney CEO Bob Iger currently faces in rebuilding his theatrical film schedule.
Disney needs blockbuster hits that pay for themselves in theaters.
That’s basically the free marketing phase when done right. You buy commercials to persuade customers to watch your movie.
Then, the box office receipts pay for the cost of production and the marketing costs.
Later, everything a movie earns in secondary markets counts as pure profit…when everything goes right.
When movies disappoint/bomb, like what happened in 2023, Disney faces multiple financial shortfalls.
To wit, The Marvels is already in danger of falling off the Nielsen streaming charts after just two weeks. Wish had a short run, too.
For this reason, Disney+ needed to pay $75 million for the rights to Taylor Swift: The Eras Tour.
Otherwise, the streaming service would have lost subscribers due to a lack of high-quality content.
According to this poll, 30 percent say they stream one or two movies a week, while the same respondents go to the theaters “a few times a year.”
People are still watching movies, though. In fact, “nearly half of consumers say they stream movies weekly, more than 7x as frequently as those who do so in theaters.”
That’s the crossroads where Disney finds itself. People want more content, but they want to watch it at home, which is more challenging to monetize.
So, this poll is good news for Disney as it transitions into being a digital company, but it’s terrible from a financial perspective.
Right as Disney tries to lure consumers back to the theater, they’ve just clearly stated they don’t want to go.
The challenge becomes persuading these streaming evangelists to come back to the theater for Disney releases.
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