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Thursday, December 10, 2020

Exclusive: NATO’s John Fithian on the Cinema Recovery Effort, Theatrical Exclusivity Windows

This week on the Boxoffice Podcast, hosts Daniel Loria, Russ Fischer, and Rebecca Pahle were joined by NATO CEO and President John Fithian for a candid conversation on the myriad issues facing North American exhibitors as 2020 comes to a close. The wide-ranging discussion touched on Warner Bros.’ decision to release its 2021 slate day-and-date in theaters and on HBOMax; the timing of cinema recovery in North America and an accompanying industry-wide marketing effort; the exhibition industry’s evolving relationship with streamers like Netflix; and NATO’s tireless efforts to channel government support to cinemas through the Save Our Stages Act.

The Boxoffice Podcast’s conversation with John Fithian took place on Monday, December 7. The transcript below has been lightly edited for length and clarity.


Diving right into it, the biggest question on all our minds has to do with the legislation aspect of what we’re going through right now. What’s at stake with the next relief bill, and where are we as of today, when we record this?

John Fithian: My team and I spent all weekend negotiating this legislation. And it’s happening in real time. The very quick background is—obviously, you guys know well with all the good work Boxoffice Pro has done in looking at the economics of movie theaters—that we have been absolutely slammed by this pandemic. And a record-breaking industry in 2019, with $42 billion in global revenues, came [in] March headlong into this pandemic and had to shut down all across the country. In some locations, we’ve been allowed to open up again with very tight capacity limits. We’ve lost out on a whole bunch of major studio titles, as they’re all moving down in the schedule to 2021. 

The the coming vaccines are really good news—for the world, of course, but also for exhibition specifically, because that means that somewhere in 2021 people will feel very comfortable coming back to our movie theaters again. The bad news, if there is one about the vaccines, is that all the studios are looking at that vaccine timeline and thinking, “I shouldn’t release my movies now. I’m going to move them all into the last half of 2021.” Which means that the movie theaters in this country that are allowed to be open are barely making any money.

[With the] Croods opening weekend, we finally got to the point in some locations where we were making 10% of what we made in the same weekend the year before. Whereas, other than the Tenet opening weekend, we’ve had weekends where we’ve been making four, five or six percent of what we made last year. Which means that by being open, many of our theaters are losing more money than by being closed. All of which is to say that movie theaters in this country are in desperate straits for liquidity. They’re on the verge of bankruptcy in many cases. Some are already starting to shut down permanently, as opposed to just shutting down temporarily. This is the biggest existential crisis facing exhibition in its 115 year-plus history. 

And so there are several things that need to happen to help. One is, Congress has got to give us some grant money to get us through to the end of this cycle. Congress has got to continue to give us tax breaks that enable us to stay solvent. The states have to pitch in and help us with grant money and help us with tax breaks. We’re we’re fighting on all these levels, literally to have enough liquidity so that when we get to the other side, and the vaccines are here, and people start flooding back to cinemas—again, as we know they will, with a great schedule later in 2021—that our companies are still alive.

One piece of all of that is the federal stimulus legislation currently being negotiated. In the previous stimulus legislation, the so-called CARES Act, we got a few things that helped our members. We got some tax benefits on how to use losses for your tax advantage, which helped all of our members big, medium, and small. We got some so-called PPP loans that helped out some of our smallest members. Most importantly, we got some unemployment comp, subsidized by the feds, for our furloughed workers. The PPP loans are long gone, right? The unemployment comp’s running out. And so both our companies and our workers are desperate. 

Okay, so what’s in this stimulus bill? We can’t get something in there that helps our biggest members. Congress just doesn’t want to help big, publicly traded companies right now. And that is unfortunate. So we’re still fighting for tax breaks for those biggest members. But for mid-sized and smaller exhibitors—those exhibitors that aren’t big and publicly traded and operate in multiple countries—there is a provision called the Save Our Stages bill, which started off in the summer as a provision to help live venues. And then we added movie theaters to that bill. It’s a $15 billion grant program. It was originally $10 billion for the live stages, and now it’s $15 billion, meaning that extra $5 billion is probably for movie theaters. And it’s a grant to cover costs of staying alive until you get to the other side. Literally. We got this bill, as written, with this $15 billion grant program into [Senate Majority] Leader Mitch McConnell’s Republican proposal. We got it into [Senate Minority] Leader Chuck Schumer’s Democratic proposal, as introduced.

So one would think, if you’re in both parties’ bills, you’re going to be in the final result. Not so fast. Because every time you get down to the final end of negotiations on these bills, everybody’s scrapping for money. Everybody wants a piece of this. There are so many industries and employee groups challenged in this country right now that people are fighting like cats and dogs over the roughly $908 billion that’s in this package. It needs to go to states and cities who are broke. It needs to go for testing protocols and vaccine distribution. It needs to go for unemployment comp. And there’s that little, little $15 billion piece in there that we’re fighting for. 

So, this weekend along comes Susan Collins from Maine and says, “That’s too much money for movie theaters and live venues. I don’t want that many people to qualify. And I’m leading the bipartisan negotiations, so I’m going to slash and cut it.” So now, literally, I’m finding anybody from Maine who knows Susan Collins. Anna Kendrick grew up there. I talked to Anna Kendrick at CinemaCon one year. I’m asking Anna to send a note to Senator Collins from Maine. All the Maine theater owners are calling her. All the other Senators. I’m doing everything to ask anybody from Maine to say, “Please, Senator Collins, just let the movie theaters stay alive.” That’s all I’m trying to do. It’s more sophisticated than that. There are all kinds of lobbyists and targeted Senators and coalitions. It’s a mad lobbying blitz right now to hold onto this bill.

What’s the timeline on these relief efforts? When can theaters expect to know what relief they might be getting?

There are two cut offs. This Friday, December 11, is the deadline by which Congress must pass funding legislation to keep the government open. Literally. That’s how broken our political process is. Once again, we’re up against a deadline, that if they don’t figure out some bipartisan compromise on general funding or appropriations legislation, the government will shut down on Saturday and senior citizens won’t be getting their Social Security checks anymore. … So everybody’s kind of confident that a funding bill of some kind will pass by this Friday. It has to. They would look really awful to shut down the government right before Christmas. Bad optics. So something’s going to pass by this Friday. There’s a thought that you take the stimulus bill—the $908 billion, currently-being-discussed stimulus bill—and combine it with the funding legislation and pass everything by this Friday, which is why we worked all weekend long. 

If you can’t reach a deal on the stimulus stuff, you pass a very simple continuing funding bill to keep the government open. And then you probably have until December 18, a week later, to pass the stimulus legislation. Reason why December 18 is a cut-off is this is an election year. It was a bloody election year. They’ve been hammering each other all year long. Some of them really want to go home for Christmas. I really hope they don’t not get it done by December 18, and then we get to spend Christmas week here in Washington lobbying. But those are the cut offs: December 11, December 18. And then next year.

There are some who think we shouldn’t spend any more money right now. The fiscal conservatives. That we’ve already spent a couple trillion dollars. Economy is what it is. Punt it into the Biden administration next year. If, indeed, it’s the Biden administration. The Republicans haven’t conceded that one yet either. And fix this in February. But it’s got to be fixed now. Because the timelines on unemployment—all that stuff expires on December 31. A lot of people are going to be hurting personally in January if they don’t pass a bill. And a lot of our companies—it’s month by month, right? If they get grants in January, they can stay alive. If they have to wait until April, they can’t. So we’re pushing really hard. 

Why do you think that the U.S. support for a sector like theaters or live venues is lagging behind what we’ve seen in some other countries, where things have reopened at a different pace? We don’t see the support that you might think we’d get in the public, in the press in some cases, and obviously from politicians. Do you think there’s one answer as to why that’s the case?

Up until this point, the U.S. has not responded to help cultural institutions in the same way many European governments have—which is the root of your question, and it’s a good one. And part of that reason is that there’s historically been, in Europe, a belief that the government has a role in preserving culture. And that has not been the case in the United States.

Like the way arts funding goes in the United States versus other countries.

Yes. But not just arts funding. If you think about simple government loan programs that have always existed, like Small Business Administration loans—when I first started lobbying for NATO as a…. I don’t want to tell how old I was, but this was in the 1990s. The Small Business Administration had a rule that you couldn’t give loans to movie theaters, because they were in the business of molding opinion. And we lobbied to get that changed. And so, in the U.S., there’s been this philosophical disconnect between government help and culture. Whereas in Europe, the government feels like promoting their own culture is huge, so there are all these great benefit programs. However, if we get this grant legislation passed, and if we preserve some of the tax breaks that our big members need, this will be the most significant government aid to the movie theater part of culture probably in the history of the Congress. So we’re trying really hard. 

The American public gets this. Half a million letters have gone to Capitol Hill from movie fans saying ‘Save Your Cinema.’ And by the way, you can still do this at saveyourcinema.com. It’s still important, because we’re still going to be fighting this legislation for another week or two. … Americans are responding. Movie fans want movie theaters to come back when this pandemic’s over. Some of them want to go right now, and that’s great. And they can do so under our safety protocols. But they’re responding. And there’s been a million letters [for] live venues, people that do local music clubs and comedy clubs. Not gigantic Broadway plays per se, but off-Broadway and small theater houses all across the country.

Image courtesy of NATO

This bill’s all about American culture. It’s about theaters. It’s about live concert performances and music performances. It’s about movie theaters and live theater. It’s really about culture. So this would be a really big statement from the American government to support us. Members of Congress—we have bipartisan support. We’ve got 55 or 56 Senators as co-sponsors of our bill. Hundreds in the House, both Republicans and Democrats. It brings together the right and the left. The lead Republican sponsor is John Cornyn from Texas, a very conservative member of the Senate. The leading Democratic sponsor is Amy Klobuchar from Minnesota—not a leading conservative, right? So it’s it’s got a lot of bipartisan support. … This would be a very historic coming together of our government to support culture in this country, which is a big deal.

Obviously the other big piece of news has to do with another topic that NATO’s been very vocal and involved about: the theatrical exclusivity window. Alarm bells rang all over the world with the news of Warner Bros. releasing its 2021 slate day-and-date. Can you give us, from the NATO perspective, your take on that news and specifically what it means for the theatrical recovery effort in 2021?

I preface this by saying the thoughts I’m giving on this podcast are not official NATO policy. This is John Fithian answering your very good questions. We didn’t put out a formal statement when the announcement happened. And we didn’t put out a formal statement because we wanted our individual companies to assess their reaction individually. And several of them put out statements: AMC, Regal, Cinemark. Lots of smaller theater owners took press questions and answered calls. But the big three all put out statements.

Because the issue of how a movie gets released—what the window is, what the film terms are, what the placement is in the theaters—is a individual negotiation between a distributor and an exhibitor. It’s not really for NATO to say, “You should play these pictures. You shouldn’t play these pictures. You should only do it under circumstances X, Y, and Z.” That’s just not what a trade body does. That decision’s made individually by companies. So that’s why we didn’t put out a formal press statement, much to the chagrin of the 67 reporters who called us and said, “We need a NATO press statement now.” And I love that my friend Steven Soderbergh did a big interview this weekend in which he said, “NATO needs to negotiate and resolve the windows issues!” I’m like, “Steven, I’m not going to jail, pal. This is for our companies to handle, individually.”

That would be straight-up illegal.

Yes! that’s called a group boycott or a conspiracy. We don’t negotiate competitive terms for our members. So put all that aside. I personally think this is a pandemic model and not a long-term model. What do I mean by that? Throughout the course of the pandemic, we have been struggling desperately to get content into those theaters where they’re allowed to be open. And the studios have been saying—some of them—”Okay, we’ll work with you.” Some of them: “We can’t really put our movies out now, because we can’t afford to. But we’ve got to have different models. We can’t rely on that kind of robust theatrical return, at least domestically.” And now you can’t rely on Europe, because most of Europe is closed.

I would point out that Tenet still is going to do $375 million in global box office, which is a big deal. Chris Nolan tells me they’re going to do gangbusters on the home release on December 15, which means, hey, the traditional theatrical model with windows worked in the only big movie to be released during the pandemic with a traditional model. Yeah, the numbers were down in the U.S. a little bit, because New York wasn’t open and LA wasn’t open. And we get it. But Chris and his wife Emma Thomas are very happy with how their movie performed globally and how it’s performing in pre-home sales. And they’re convinced the theatrical model with windows work during the pandemic. Chris Nolan is our friend. He really believes in the model. Not everybody thinks the same way. 

There have been lots of proposals during the pandemic to change how movies are released, just to try to get movies out. Some proposals, I would call pandemic-only models. And some are more long-term structural models. The stuff that Universal and some of our members have been negotiating, those are long-term structural models. Those are, “Here’s how company X or Y has agreed with Universal to play pictures ongoing,” right? Negotiated between parties, distributors and exhibitors working together on what a long-term model looks like.

There wasn’t any negotiation about this Warner Brothers announcement. They didn’t talk to any exhibitors. They didn’t talk to their talent. They didn’t talk to their production partners like Legendary, [which] has two big films [Dune and Godzilla vs Kong] on their slate next year. They didn’t talk to their people in their distribution offices. I learned it was happening before many people at the studio, who are our friends, learned that it was happening. And I learned it from somebody at HBOMax, not at the studio.

So this was a high level—Jason Kilar and above, John Stankey—decision at Warner Bros.. It wasn’t a studio decision, per se. And it’s all about gunning subscriptions for HBOMax in the year 2021. Because Wall Street’s telling them they gotta gun subscriptions. And yet, to me, it’s still a pandemic model, because they never would have risked the theatrical grosses on 17 titles had it not been during a pandemic. And they described it as a pandemic model! In their announcements and in their discussions, they’ve said, “We went in this direction because it’s a pandemic.”

So they’re labeling as a pandemic model. But I don’t know why they then had to do it for all of 2021. Our assessment of the coming vaccines and the attitudes we’re getting in serving our movie patrons is that we’re going to be ramping up in spring and juicing it hard in summer. Whether Bond goes in April or June—nobody’s thinking there aren’t going to be big pictures with [box office] success until 2022. So the thing about the announcement that concerned me the most is, yes, they describe it as a pandemic model. But then they said it extends to all of 2021. That’s bizarre. And it’s also bizarre that they wouldn’t talk to any of their partners who exhibit their movies, make their movies, co-produce their movies. That was just weird.

Aside from these big, sweeping announcements—whether they’re something like Universal striking deals with AMC, Cinemark, and Cineplex or something pandemic-specific like the Warner Bros. situation—over the last few months we’re also seeing more cinemas in the U.S. play movies from streaming outfits like Netflix and Apple TV+, because there hasn’t been that much else to screen. Speaking with your members, are you seeing more flexibility in how they’re willing to approach the traditional theatrical exclusivity window? And do you get the impression that that’s more of a pandemic response, or is it indicative of maybe a more permanent willingness to shift?

Some of both. Trying to stay open during a pandemic, when less than half the country feels comfortable coming back—despite the fact that we’ve made it incredibly safe with Cinema Safe—our members were desperate for content on the screens in those states and locations where they’re allowed to be open. Where they made the decision to stay open. And so yeah, they’re playing all kinds of stuff. Some of which they would have played before the pandemic, and some of which they wouldn’t have. 

Image Courtesy NATO

So at the beginning, I would say playing a lot of these pictures from from folks like Netflix and whatever, without windows guarantees, is a pandemic play. However—and this is where the timing of your question is really interesting—on the heels of the Warner Bros. announcement… I have great friends at Warner Bros. and tremendous respect for them, so this is the piece that I do not get. If they stick with this model, they’re going to lose their talent. They’re going to lose their filmmakers. They’re gonna lose their big projects. Those people are going to go to Netflix and Amazon and Apple and Disney and Sony and Paramount and Universal. You get the point.

Warner Bros. consistently has made lots of movies. Big, medium, and small. They have 17 movies on the calendar for 2021. But there were more than 50 directors and stars who had participant deals in those 17 movies that are now seriously damaged by this change in release models. We won’t go into how artists get compensated on the back end and these participant deals. But there are a whole bunch of big names who are like, “I wanted my movie released theatrically around the world. And I wanted a window. And I wanted to make money theatrically and then make it later on PVOD and get my cuts. And now you’re crushing all this stuff.”

Or “I don’t want my movie to go up on HBOMax and have a pristine copy hit piracy platforms hours later.”

Yes! Or “You’re killing my back end.” And also, not just as a financial proposition but as a creative proposition, most moviemakers want their best movies to be seen on the big screen. Right? So Warner Bros. is risking losing talent left and right. How does this relate to your Netflix thing? As our members needed product during the pandemic and as they’re seeing stuff like the Warner Bros. announcement, the idea of working across the board with a company like Netflix is now much more attractive. I mean, pre-pandemic, our members were negotiating to try to play Martin Scorsese’s The Irishman on a big, wide theatrical release. And they didn’t quite get there, right? But they were talking about an exclusive window. That’s more than what Warner Bros. just did! So this Netflix idea of playing wider in movie theaters now is much more attractive than it was a year or two ago for our members. So all of our members are talking to Netflix. And Apple. And Amazon. And anybody else that’s got good content, because the models are all changing.

It’s been such a shifting situation as we live through this pandemic, with levels going up and down. Theaters opening and closing all over the world. One of the questions that we’ve gotten from some international colleagues is: What’s more or less a rough timeframe of when we can see that recovery start? Because I’m not sure it’s really started in earnest without that studio support. We’ve heard news that Cineworld is thinking about reopening in March. From your perspective, where does that light at the end of the tunnel start?

Just under half the theaters are open in the U.S. right now. So we got, what, 42,000 screens and 19,000-plus are open, if I remember the data correctly. It’s a state-by-state, city-by-city, location-by-location analysis on what’s open now. But does open now mean that they’re recovering? No. As described earlier, many of them are losing more money being open [than by being] closed. They just want to keep filmgoing alive and keep serving their community and keep their people employed. But it’s not a moneymaking proposition at this juncture in the U.S.. Nor is it in Europe, where most of our cinemas are closed. However, in China and Japan, we’re kicking ass. Some of these movies in China and a couple of them in Japan—the animated picture in particular—they’re doing amazing business. Why is that? Because they stopped the virus. And they have big new content. That’s all it takes.

So to answer your question about the pace of recovery, it’s already happening in China and Japan. And the way that the disaster—it started in China, it moved to Asia, it moved to Italy and then the rest of Europe. And then the Europeans brought it to the U.S. I know our President likes to call it the “China virus,” but it was actually the Europeans, mainly, that brought it to the U.S. And that’s why New York got hit so hard. As the virus moved from Asia to Europe, to North American and Latin America, the closures went [the same way].

I remember a board call in March. [Cineworld CEO] Mooky Greidinger’s sitting there in Europe and Israel saying, “We’re starting to close down in Europe. It’s coming your way in a few weeks.” And our American exhibitors are like, “Nahhh. We’re not going to close down in the U.S.!” And then, boom!

So the migration of the closures is likely to be very similar to the migration of the economic recovery. And it’s already happening in China in Japan. That’s very good news, because that means people want to come back to the cinemas. And they love seeing movies on the big screen. And they were just worried about their health with this virus, or their government shut down the cinemas. So the numbers in China in Japan are very encouraging. My guess is if Europe actually tamps it down in the next couple months—some of them are trying hard, some of them aren’t trying hard enough to tamp it down—that in, I don’t know, February? You start to see people feel more comfortable going back and cinemas in Europe. And that’s why Mooky’s thinking March in North America.

A lot depends on how Americans behave over the Christmas holidays. Listen to Dr. Fauci. He’s trying to tell it like it is, people. Wear your masks and stay home for now, and get us to the other side. If we tamp it down and the vaccines start coming—they’re already coming faster in Europe than they are here, which is disappointing. But [if] vaccines start coming and we have a significant portion of the population vaccinated by March or April, we could be doing decent business by then. It’s just holding the film slate.

All the studios have hired all these epidemiologists, and they’re all trying to become scientists. “When will the vaccine be 50% available?” And then, “Well, how will that turn the tide and [make] people feel comfortable going back to the movies?” We’re pretty confident by summer we’re going to be doing some real, real, real business. The question is, can we do real business in March, April, and May? We’re beginning the recovery sometime next year in earnest. I just don’t know if it’s spring or summer.

With respect to that, whatever the timeframe is—what sort of strategy do you have for getting messaging out to the public? Because there’s a lot of public uncertainty or confusion or lack of awareness about what’s open and what’s not, theatrically, in the U.S. What ‘s the plan for sending that message to people that things are open and that product is coming?

You’re right on the data. We work with a couple third parties that survey our patrons on a weekly basis. NRG is doing a really good job with this, too. More than half of our patrons over the course of this whole thing, in states where theaters are open, didn’t know that their theaters are open.

But that’s tough to counteract when you don’t have big marketing campaigns for big movies out there, because that’s what people. They see, “Oh, Tenet‘s coming!” But then nothing else big with marketing campaigns. Those marketing campaigns for movies make people think, “Really? Are my cinemas open?” And they go check their show times—”Oh, my cinema’s open. Cool. I’ll go see this movie.”

In terms of messaging, we thought about several stages and several messages. And the one that we decided to start with during the pandemic was safety. And that’s where Cinema Safe comes from. A program that we’re very proud of. We worked long and hard with epidemiologists to develop a set of protocols that make cinemas truly safe. And they are. We haven’t had one reported case of a transmission of the virus in any cinema in the U.S. or around the world. Whereas churches and synagogues and restaurants and bars have a lot of them. We have zero, and yet we get lumped in with all those. Anyway, our safety protocols are good. So the first messaging was Cinema Safe. And we put a lot in that. Warner Bros. helped us with that. So did a lot of other studios. It’s a really good program. And our members are following it. It’s such a good program that several governments in Southeast Asia contacted us and said, “Can we enact your protocols for our countries?” And we said, “Sure, fine, take it.” They’re good protocols. So messaging the fact that these protocols exist and having our companies talk about all that they’re doing to create a safe environment was the first message that we started. 

When we thought we were going to have a whole bunch of big titles in the fall—ha!—there was going to be a second wave of messaging, which was about “Come back out to the movies.” And “It’s time.” And “Here’s all this great content.” And “You’ve done your job being in your house for all these months, and now it’s time to come back out and watch these great movies.” But then the movie slate fell apart. The studio’s weren’t willing to back a “Come back out to see these great movies” campaign when there weren’t a whole bunch of big movies. So that second wave of messaging kind of got put off.

Probably sometime in the spring, we get to your question, which is ramping up not just the safety protocols but ramping up that it’s time to come back out to the movies. And and that needs to be timed with a lock on movie slates and big movies. And Mooky’s made it very clear he needs movies to open back up again. This is a company-by-company decision. AMC and Cinemark have stayed open. And Marcus has. But Regal hasn’t. Those are individual company decisions. But he clearly says that if there’s a solid group of movies, I’ll open up in March. By the same token, that would be kind of the same timeframe that we’re saying it’s time to come back and have a real marketing push. Because it takes an industry marketing push and it takes advertisements for movies to get people aware that we’re open and come back.

The post Exclusive: NATO’s John Fithian on the Cinema Recovery Effort, Theatrical Exclusivity Windows appeared first on Boxoffice.



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