Writer: Teddy Kuser | Editor: Yubeen Hyun
Imagine yourself in your local theater growing up. The warm aroma of freshly popped popcorn, the faint scent of faux leather and carpet infused with years of cinematic excitement, and the steady murmur of pre-show excitement. Americans used to cherish the unparalleled experience of theatrical cinema. Yet, somewhere along the way, we forgot just how magical it can be. Once the beating heart of American entertainment, the silver screen has dimmed in light of the new age of streaming. What can we attribute to cinema’s meteoric decline, and is there still hope for a revival?
April 2nd, 1902, marked the opening of the “Electric Theatre” on Main Street, Los Angeles — the first permanent home of the “moving picture” and the tiny mustard seed from which Hollywood magic emerged. Once upon a time, theater attendance was the only way to experience cinema. In the modern era — with more than a billion tiny supercomputers circulating, each possessing over 100 million times the processing power of the Apollo Guidance Program — that could not be further from the truth. The small screen is slowly, and perhaps permanently, replacing the silver screen; a technological and economic upheaval that has fundamentally altered American culture.
It all began with the launch of the early media player software “RealPlayer” in 1995. YouTube then revolutionized the model in 2005, effectively allowing anyone and everyone to upload and stream digital content. These early platforms accustomed us to the idea of watching whatever we wanted, whenever we wanted. However, the framework that would ultimately disrupt the traditional Hollywood model took shape in the late 2000s, when Netflix shifted from its DVD-by-mail rental service to the on-demand platform we all know too well.
Streaming had gradually entrenched itself in American culture by the late 2010s, but it was quarantine in 2020 that ultimately gave it the edge over theaters. According to Statista, by June 2020, only a few months into the COVID-19 pandemic, a paltry 14% of adults preferred theatrical experiences over at-home movie watching. Furthermore, the pandemic had a structural impact on traditional film distribution methods. Remember those “coming soon to DVD and Blu-ray” trailers preceding animated films from the early 2000s? Now, they serve as nothing more than sentimental reminders of a bygone era. The idea of an exclusive theatrical release period nearly ceased to exist during the pandemic, a strategy employed by studios to push films out to the many millions confined to the solitude of their homes.
Overall, COVID-19 took a serious toll on the movie theater industry. In 2019, the domestic box office grossed $11.4 billion. Amidst the apocalypse, “The Town” garnered a mere $2.2 billion. This kind of drastic overhaul of market conditions is referred to by economists as a “market shock.” Supply-side constraints (theater closures) met demand-side substitution (streaming), accelerating a structural change with detrimental implications for cinematic culture.
Unfortunately, there are strong incentives for studios to opt for the streaming model over theatrical releases. When box office turnout, audience reactions, even weather can make or break the opening weekend, you never know what to expect when releasing a film in theaters. But, when Netflix offers your studio $100 million each year for access to your film catalog, there is no ambiguity. This is the deal some estimates indicate Warner Bros has with Netflix, which would make it one of the most lucrative deals in the studio’s history. Then, there are the production contracts. To name a few, Netflix reportedly paid $173-200 million for The Irishman back in 2019, and Amazon MGM shelled out over $250 million for The Rings of Power in 2022. The fundamental issue with this model is that it creates a lack of regard for the quality of films. Netflix knows its audience and their streaming habits, and they understand the winning strategy: bring in new subscribers and keep them engaged with a high volume of content. This strategy poses a serious threat to film as an art form. Money has always been the bottom line, but a love for the craft gave it soul… until now.
The graph above paints a very clear picture. COVID-19 knocked the wind out of the theater industry. The tragically unsurprising reality is that it has not and may never catch its breath. The movie market shock had little to no impact on job markets, studio revenue, or any meaningful aspect of the movie production business that might incentivize a transition back to the traditional model. America has lost 5,700 screens since the pandemic. Barbenheimer gave us hope in 2023, but 2024 has all but dashed those fleeting hopes. So, what is the barrier to recovery if not the pandemic? For one, pricing. One month of a seemingly endless library of movies, like the Disney catalog, costs only $6.99 per month compared to the average movie theater ticket price of about $10.45 per film. How much is a quality big-screen experience worth to consumers? Evidently, not enough. Secondly, humans are creatures of habit, and habits developed during quarantine carried over into the post-COVID world. We saw the same trend while transitioning back to in-person work. Many people opted to stay remote because it was what they were accustomed to. Economists call this tendency to stick with what’s familiar ‘status quo bias.’
There is, however, a potential future for the movie theater industry, one that might preserve the priceless cinematic experience that many hold dear to our hearts. Facing borderline desperate circumstances, theaters across the United States have rapidly implemented premium, immersive experiences in an attempt to draw consumers out of their homes. These more inelastic* alternatives to the typical theater experience have so far been a winning bet. As of 2024, over 950 theaters in North America were equipped with Premium Large Format (PLF) screens, marking a 33.7% growth compared to five years prior. In 2024, premium-format screens contributed 15.6% of total box office revenue in North America, compared to 10.3% in 2019. Business Plans reported that immersive features like interactive seating and synchronized effects can raise cinema repeat visits by up to 30%. These are indicators that cinema won’t go quietly. If the incentives are adequate, it is entirely possible that theaters can create a shift in consumer habits. This new world of cinemas would be far more immersive across the board, and a world worth the change and turmoil to live in.
