Theater Owners Chief on the ‘Black Widow’ Lawsuit, Netflix, and the Delta Variant

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Things didn’t go exactly as planned.

After spending the bulk of the pandemic hustling to get government assistance for movie theaters hit hard by COVID-19, John Fithian should have been savoring a box office revival this summer.

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Instead, the head of the National Association of Theatre Owners (NATO), the exhibition industry’s main lobbying arm, is working with members to try to convince Hollywood studios that they need to stop releasing movies on their in-house streaming services at the same time they debut in theaters. In July, after “Black Widow” dropped nearly 70 percent at the box office following its record-breaking (for a pandemic) opening, NATO released a blistering statement accusing the Walt Disney Company of cannibalizing the film’s ticket sales by opting to make it available to rent simultaneously on Disney Plus. The organization charged that a “simultaneous release is a pandemic-era artifact that should be left to history with the pandemic itself.” Star Scarlett Johansson agreed. A few weeks later she sued Disney for breach of contract, alleging that the hybrid release plan cost her millions in bonuses.

This month, Fithian and major theater owners will gather at CinemaCon, where Johansson’s legal fight will be the topic du jour at the annual exhibition industry confab in Las Vegas. In advance of the conference, the NATO chief talked with Variety about the “Black Widow” suit, the Delta variant’s impact on ticket sales, and why he thinks the movie business can’t recover until more people get vaccinated.

It’s been a brutal few months for movie theaters, with capacity restrictions, closures and now the delta variant. How is the theater business doing given these challenges?

It’s been a long slog, this pandemic. It’s been 16 months of either being shuttered entirely or having substantially reduced business. The last few months there have been some really encouraging signs. We’ve had some really successful film releases that grossed well. They’re not grossing 2019 levels, but we’re certainly picking up steam.

The film supply is growing and we’re seeing consumer confidence about coming back to the cinemas increasing. We track that very closely. Last fall or winter, the consumer confidence about going to cinemas was at 40% or 50%. It went all the way up to 80% a few weeks ago. Now with the news of the delta variant we’re down to about 72%. Some people view that as a cause for alarm, but we’re still a heck of a lot higher than we were at the most serious parts of the pandemic. That confidence level has very much improved with rising vaccination rates. I hope that the delta dip, let’s call it that, is short-term. We have some really big movies coming in the fall, so we’re excited about that.

There have been more big-budget films released in theaters, but many of them, such as “Cruella” or “The Suicide Squad,” are debuting simultaneously on streaming services. How is that impacting the box office?

If you look at “Quiet Place 2” or “Fast 9,” you see some really good numbers for movies being released with theatrical windows. We’ll see more and more of that as we get to the end of the year and into 2022 when we’ll settle in on a release model that has some kind of theatrical exclusivity. While simultaneous release was necessary to get movies in cinemas during the pandemic, we also know that it’s cannibalistic. People will stay home and watch the movie on their streaming service instead of coming to the cinema if they have that option.

Warner Bros. is releasing its entire 2021 slate on HBO Max at the same time the movies debut in theaters and Disney has made movies like “Black Widow” available to rent on the day they open in cinemas. Will they stop this practice or is a simultaneous release the way of the future?

Warner Bros. has signaled publicly that even though they are committed to simultaneous release on HBO Max until 2021, they will have exclusive windows for their product in 2022. We’re pretty confident that the big simultaneous release commitment that Warner Bros. made in 2021 won’t extend past this year. Also, Warner Bros. is going through a corporate transition and the leadership of Discovery has signaled that they believe in the theatrical experience.

Universal and Sony and Paramount and Lionsgate have all signaled that they are going to have some kind of theatrical exclusivity going forward. So really the only studio that hasn’t described their longer term plans and release models is Disney. We are hopeful that their future model will involve exclusive windows. There are a couple of Disney pictures coming up that have 45-day windows, “Shang-Chi” and “Free Guy,” but they haven’t announced any plans beyond that. We know that windows post-pandemic won’t be what they were pre-pandemic, but we also know that they won’t be what they were during the pandemic. It’s not for me to determine how large a window we get, but we need to have some robust period of exclusivity.

Scarlett Johansson is suing Disney for releasing “Black Widow” on Disney Plus at the same time it opened in cinemas. She claims that the hybrid release model hurt the box office and cost her $50 million in bonuses tied to box office performance. What do you make of that situation?

We believe that simultaneous release of movies is a bad business model for the industry as a whole. Availability in the home cannibalizes ticket sales and making a digital copy available on the very same day that a movie enters cinemas exacerbates and accelerates piracy. It’s one thing to record a movie with a camcorder in a cinema and try to get a decent copy that synchs with a soundtrack. Those exist and they often aren’t very good. It’s another thing to be able to rip a pristine copy off of a home release. Theatrical exclusivity and windows have always delayed substantial piracy. We’re losing a lot of business. Scarlett Johansson is making many of the same arguments that we’ve been making in her suit. Her compensation as a very, very, very successful actress and businesswoman is based on theatrical ticket sales. By going simultaneous, Disney reduced those ticket sales and therefore reduced the compensation Scarlett received. Lots and lots of talent are focused on this issue now. Scarlett happens to be a very well known, twice Oscar-nominated actress with a huge career, so she went out first with a lawsuit, but lots of people are worried. Directors, actors, we’re talking to them all because we share the same concerns. We don’t think the creative community is doing this simply because they love the big screen experience. It’s about what’s best for everyone’s bottom line.

If releasing films concurrently on streaming is costing studios ticket sales at the box office, what’s their incentive to keep losing money?

The problem with the streaming wars is that it’s not rooted in profitability. For a significant movie, the best way to make the most money is to release the movie first theatrically with a window, establish the brand, and make a fair amount of money in movie theaters. That brand then carries forward into the later markets, where you can sell the movie on video-on-demand, as well as profit from rentals and television licensing. You make money at every step. But the streaming wars are being led by people who are not focused on profitability. They’re focused on attracting subscribers because Wall Street has said to them we’re going to jack your stock price if you get a lot of subscribers. Maybe I’m old fashioned, but where does value and profitability come into play? If you’re losing lots of money by taking movies straight to streaming services, how long does that last as a smart business model? How long are you comfortable losing money while gaining subscribers? We know theatrical windows are good for business. Actors know that, filmmakers know that, talent agents know that, and any studio executive who has been in the business for a long time knows that too. But if the holy grail is streaming subscriptions, the whole idea of trying to make money on a product gets tossed out the window.

What do you do to change Hollywood’s mindset if investors are primarily interested in streaming subscription growth? It seems like a hard argument to make.

You make your case in private discussions with the studios and when you have to you make the case publicly, as we did with “Black Widow.” You make your case with your allies in the industry that share your views. The Scarlett Johansson lawsuit is an indication that a lot of people share our concerns. At some point we need to return to an idea that Hollywood should be focused on profitability. The streaming wars will not last forever. You have too many streaming services now competing for survival. Consumers will not subscribe to eight or ten different services for long. Some will succeed and some will fail. That’s why some companies are using loss-leading strategies to be the survivors in the streaming wars. We just hope that sound business models don’t have to wait until the streaming wars are done.

What was Disney’s reaction to NATO’s public statement slamming the “Black Widow” release strategy?

I think it’s best to leave private conversations private. I’ll pass on what the reaction was.

While then why did you decide to have part of that conversation publicly by releasing a statement instead of just conveying your concerns to Disney behind closed doors?

We did convey our concerns privately, at first. I’m going to leave it there.

Are movie theaters implementing more safety measures now that the delta variant is spreading?

We can’t have a one size fits all answer to that. At the beginning of the pandemic we did. We developed a program called Cinema Safe in conjunction with several epidemiologists and recommended it to all of our members, 400-plus of whom signed up. That led to a consistency of health precautions and that’s because the pandemic was an issue everywhere. Today, it’s so different on a localized basis. In some jurisdictions, overwhelming percentages of the population have been vaccinated. In others, very low percentages of people have been fully vaccinated. In some jurisdictions you see a willingness to entertain mandatory mask policies, and in some jurisdictions you don’t. What our members are doing now is following the rules and guidance that apply to their locality. The first time around it was a pandemic for everyone. This time it’s a pandemic for unvaccinated people. Yes, you can contract the delta variant if you’re vaccinated, but the chances you’ll be hospitalized or have a serious reaction are really, really, really low.

There’s no standard answer to what the protocols are. Mayor De Blasio of New York City just announced a phased-in rule that says that in all places where you gather publicly, you have to be vaccinated — restaurants, movie theaters, Broadway plays. We are working with the mayor’s office on what that means and how to implement it. We’re concerned about children under the age of 12, who can’t get vaccinated. They kind of need to be exempt from this rule. We’re concerned about people who for medical reasons don’t want to be vaccinated. Can they use a negative test instead?

Is it difficult to implement a vaccine check?

There are huge administrative hurdles. It’s not as simple as checking a driver’s license to make sure somebody is old enough to buy a beer. In Europe, you have to be vaccinated to go into public places, but they have a standardized pass for everyone. We don’t have that. These rules will cost us ticket sales in New York City, there’s no question about that. But on the other hand it gets a lot more people to be vaccinated. It’s a mixed bag for us. We don’t want to lose revenues, but we need people to get vaccinated.

Can the exhibition business rebound if more people don’t get vaccinated?

We absolutely need more people to get vaccinated. I know that sounds like a political statement, but it shouldn’t be one. We’re just not going to get fully recovered — not just the little cinema industry, I mean any public place of business — until there’s a higher concentration of vaccinated people. It’s essential.

Will you require proof of vaccination to attend CinemaCon?

To register for CinemaCon, which means to pick up credentials, you have to show proof of vaccination or a negative COVID test taken within 48 hours of your arrival. We will check that at every event. All the top executives from the cinema companies or studios are going to have to take out their COVID cards or a photo of it or show us a negative test.

In the past, lots of big movie stars go to CinemaCon to talk up their projects. Will that happen this year?

This won’t be the normal CinemaCon. Nothing’s normal right now. All of the major studios are making a product presentation, which is the most important thing so we can see clips of their upcoming movies or sometimes their entire films. But there won’t be the bevy of stars that there were in 2019 and there won’t be as many registrants.

The economic state of the industry is super challenged. A lot of the participants, a lot of the vendors on our trade floor, do not have the financial resources that they did pre-pandemic to travel and fly and come here. And there are people concerned about traveling even at this stage of the pandemic. Maybe they have an elderly parent living at home or young children and even if they’re vaccinated, they don’t want to risk spreading it. We understand that.

Barry Diller recently made waves by predicting on NPR that “the movie business is over.” He followed that up in an interview with KCRW’s Kim Masters in which he predicted that 90 percent of theaters will disappear in the next few years. What’s your response?

Since you’re working in a written medium, your readers can’t see that I’m laughing. I have represented theater owners in one capacity or another for almost 30 years and in that timespan I think the epitaph for the cinema business has been written six or seven times, and it was written a lot more before I ever arrived on the scene. We always come back. When television was invented, it cut into our business substantially for awhile. When the VCR came out, people thought it would kill the business. The cinema is about enjoying a story in the best way possible with the best picture and sound. It’s about escaping the home and your daily tasks and routines and losing yourself in a movie. I don’t think that will go away. It got hampered by the pandemic, but human beings still want that. I know Barry Diller has a lot of experience in this industry, but he’s not the first one to pronounce us dead and be proven wrong.

When will we return to pre-pandemic box office levels?

When the vaccination rates get high enough that people are fully confident about coming out again and there’s a full film supply of product. I don’t know when that’s going to happen. When that happens and films come back with exclusive theatrical windows, I’m very confident that we will meet and exceed the revenue of 2019. It’s not going to happen in 2021.

Netflix will be offering some exclusive theatrical windows for its fall films. A few years ago, movie theaters saw Netflix as the enemy. Has that changed?

I am guardedly optimistic that with some of their movies, Netflix will find a way to release them wider theatrically with more robust windows. That’s not because Netflix believes the theatrical business is a big new thing for them, but I think they’ve come to realize that releasing their movies in cinemas makes them more of an event. They also have a ton of filmmakers who want to see their movies in theaters. The ironic thing about this is there was an attempt to figure out a wider release of Marty Scorsese’s “The Irishman” and there was a lot of discussion between a lot of our members and Netflix. In the end, it didn’t happen and it didn’t have as wide of a release because it had a relatively short window. What the reporting at the time said was that the offer on the table from Netflix was a 45-day window and some of the larger exhibitors refused to accept that. Well, flash-forward post-pandemic and there’s room to talk here. Netflix has some great product.

Have you invited Netflix to participate in CinemaCon?

We don’t block anyone from coming. They’re welcome to come if they want to. I don’t think Netflix is ready to articulate publicly to exhibitors what they want to do. They’re still sorting through it. Maybe they will be ready in time for CinemaCon 2022.

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