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Hollywood Gets Ready For Its Post-Pandemic Closeup

Spring Break in Florida
(Image credit: The Guardian)

Just like those gleeful post-vaccination septuagenarians indulging in indoor dining and beachside reunions, Hollywood media companies are just so ready for a post-pandemic return to theatrical releases, familiar business models, a normal awards season, and most importantly, a hybrid streaming future that still does most of what studios have done for 110 years. 

This past 10 days were filled with news about media companies tweaking business models, stuffing war chests, revamping release schedules, and otherwise getting ready for The New Normal, whenever that returns like spring breakers to South Beach. Among the highlights:

     * WarnerMedia will end its controversial day-and-date experiment after this year, moving from simultaneous releases of its 2021 movie slate on HBO Max and in theaters. WarnerMedia also cut a deal with Cineworld that guarantees its Regal theaters will carry Warner Bros. movies with a surprisingly lengthy 45-day exclusive window. Compared to other studios, that deal seems positively old-school, with possibly problematic impacts for HBO Max, the most expensive streaming service. Maybe 2021’s approach isn’t driving enough signups, or reducing enough churn. Or maybe CEO Jason Kilar just wants billion-dollar baby Christopher Nolan to stop his tantrums and get back to making giant movies that no one understands.

     * Theater chains have reason for optimism: Los Angeles County’s pandemic recovery may soon loosen capacity restrictions in the nation’s single biggest movie market. The improving circumstances in Hollywood’s backyard occurred alongside a WarnerMedia deal that will lead Cineworld to re-open Regal locations April 2 for special runs of Godzilla Vs. Kong, and two weeks later, Mortal Kombat. Regal theaters, the nation’s second-biggest chain, have been closed for half a year.

     * Disney delayed the debuts of Black Widow and five other films. Perhaps far more notable is Disney’s plan to add premium VOD windows for Black Widow and another expected blockbuster, Cruella. With Mulan, the $30 “Premium Access” deal was only available to Disney Plus subscribers. Whether Marvel obsessives, as opposed to harried parents wanting to quell the kiddies in lockdown, will pay that much for early home access will be worth monitoring.

     * All the broadcast networks plus ESPN paid dearly to lock down their share of TV’s most valuable programming, NFL games. Amazon will produce 15 Thursday-night game broadcasts, and is promising to shake things up, no doubt with sophisticated integration of e-commerce and advertising. All the deals included streaming rights, but the deal’s most telling detail was the NFL’s out clause in 2029. If broadcast and traditional pay-TV continue to collapse at pandemic rates, The Shield can walk. (Legal) sports betting will be more popular than ever by then, but the biggest bet of all is whether the NFL exercises that option. 

     * ViacomCBS sold $3 billion worth of stock and convertible debt “for general corporate purposes, including investments in streaming.” Company executives already committed a few weeks ago to spend $1 billion this year on streaming programs, ramping up to $5 billion by 2025. Some of that money could go for more sports rights, or for the 427th Star Trek spinoff series. As a pure-play media company of moderate size, ViacomCBS faces more urgency than deep-pocketed competitors to get people locked into Paramount+ during its post-launch marketing blitz.

     * Lionsgate, an even smaller pure-play studio, did its own debt deal, $1 billion to pay off higher-interest debt. But Lionsgate also faces pressure to buff up its streaming service Starz. While cult hit Highlander continues to draw a highly engaged audience of bodice-ripper fans, that’s not a recipe for scale or growth.

     * The urgency facing Lionsgate and ViacomCBS got a further jolt as investors and analysts peered beyond artfully described subscriber numbers (how many of those 19 million ViacomCBS streaming subs are actually Showtime OTT, for instance). After skyrocketing to almost $102 a share on March 22, ViacomCBS stock hit a vertiginous drop worthy of a Tom Cruise set piece, closing the week at $48.23.

     * ViacomCBS wasn’t alone in market punishment, as investors whacked a bunch of “story” stocks that had shot up in recent months. Among the others getting smacked: Discovery, which launched its next-gen service on Jan. 4 amid the same bullish talk of early signups and programming investments. It fell from a year’s high of $78.14 on March 19 to just $41.90 a week later. Ouch. 

All these maneuvers come amid early lessons learned during the Great Pandemic Pivot, when locked-down audiences aggressively turned to streaming in all its flavors. But we likely have still more changes ahead. 

The sudden fall of ViacomCBS and Discovery was less surprising than their previous sudden ascents. Clearly Wall Street is beginning to figure out how to evaluate streaming ventures as part of broader company valuations. 

So, how long will Wall Street support smaller companies trying to keep up with the big boys? Debt is cheap, and stock prices are still high, so issuing more of either makes short-term sense for the little guys. 

But the ViacomCBS and Discovery price collapses suggest harder questions are coming, and pressures will only increase to do something transformative. 

As companies continue to experiment, the biggest question remains who besides Disney is probably big enough to compete against Netflix, Apple, Amazon, and Alphabet’s YouTube? 

The always provocative analysts at LightShed Partners suggested last fall that AT&T and Comcast merge their in-house content operations, saying there was little evidence they were getting any additional value from owning WarnerMedia and NBCUniversal rather than partnering with them as independent companies. Even better, they somewhat puckishly suggested WarnerMedia and NBCUniversal should merge, so they can truly compete. 

While it’s difficult to imagine that mega deal happening, how long before companies decide the better use of capital is to buy ViacomCBS, Lionsgate, and Discovery? When Hollywood Mergers & Acquisitions Season returns a la 2017-2018, then we’ll know we’re finally in the New Normal.