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Are Virtual Theaters Here to Stay?

Bacurau

When Toby Leonard, programming director at Nashville’s Belcourt Theatre, returned to the space for the first time since the COVID-19 shutdown began, a six-foot cardboard display for Never Rarely Sometimes Always struck his eye. Eliza Hittman’s film was four days into the first week of a planned platform release before it was pulled from theatrical exhibition and hadn’t yet made it to the Belcourt, but its physical teaser remained. “How many of these things were there and how many did they send around the country?,” Leonard wondered. Then he took it down.

As exhibitors and distributors initially adjusted to no theatrical releases for the unforeseeable future, the first films to pivot to a full “virtual cinema” release strategy, initially conceived as an emergency relief measure, had already started their platform theatrical releases. Scroll through a cross-section of US arthouses’ websites and a core canon of starter titles emerges: BacurauSaint FrancesThe Wild Goose Lake and breakout niche documentary Fantastic Fungi are common among the films offered online by many arthouse theaters, mingling alongside NEON’s more-recently-launched Spaceship Earth and Grasshopper Film’s Fourteen. In addition to featuring the titles on their websites, theaters contribute promotion through their mailing lists and memberships. As the virtual theatrical concept has taken off, many venues are now showing more films than they could physically accommodate in their brick-and-mortar spaces, even throwing some repertory options into the mix.

Will virtual theatrical become its own release window — a complement to the traditional theatrical release window and, potentially, even, a new first home video window before regular TVOD (transactional video-on-demand) and SVOD (subscription video-on-demand) — on a permanent basis, even when and if theaters return to normal? “We’re in talks now with our theatrical partners,” says Wendy Lidell, Kino Lorber’s senior vice president of theatrical/nontheatrical distribution and acquisitions. “To the extent that it is a supplemental revenue stream, we’re exploring what that might look like to generate more money for everybody. We’re very much considering it as part of the theatrical window, whether it’s in our contracts or not. I anticipate that it will be ongoing.” Kino’s president and CEO Richard Lorber admits that “it’s a sensitive point of discussion. We think of it as kind of a ‘Goldilocks model’: we want the virtual screening model to be successful, but not too successful. We want it to be an important piece of revenue—but not too important, because we don’t want the theaters to feel this is supplanting their investment in brick and mortar. At the same time, we’re emphasizing the value of the supplemental value in terms of flexibility with holdovers and what I’m calling a duplex model. Most of the theaters have been responsive to that. When they do open, we’re seeing a catastrophic reduction of seats: a theater with 200 seats has maybe 25 or 30 to sell. As long as we don’t have a vaccine, and even if we do, it’s going to be a long time before we have enough people to fill a hall. In the world of realpolitik, theaters have to consider that.”

Among arthouse distributors, to date Kino Lorber, Oscilloscope Laboratories and Monument Releasing have publicly provided revenue numbers for their virtual releases. Kino and Oscilloscope both have relative success stories to tout: After grossing $58,115 from four screens in ten days of theatrical release, Kino’s Bacurau has, to date, sold over 8,000 virtual tickets spread out across 223 US screens, far more than the 30 co-director Kleber Mendonça Filho’s previous Aquarius played at the peak of its release. Bacurau‘s taken in just over $100,000 in virtual revenue; altogether, the eight films available on the distributor’s new platform, Kino Marquee, are on track to gross over $400,000. For Oscilloscope, the big title to date was another film that had just started its theatrical release, Saint Frances; virtually, it’s grossed just over $100,000 over 10 weeks, playing on 126 virtual screens at its peak. That number places it between Oscilloscope’s second and third-highest grossing theatrical releases of 2019, Jay Myself ($151,331) and Ms. Purple ($80,657). (Their #1 title of 2019, the accurately titled CatVideoFest, has grossed nearly $500,000, but it’s a compilation reel with no credited director and whose viral appeal sells itself, so it’s probably not a useful comparison point. In recent years, both Oscilloscope’s Embrace of the Serpent and Kedi have taken in over $1 million theatrically.) For its part, Monument reports that Pahokee has made $13,250 in four weeks of virtual release, while this weekend’s Alice cleared $5,000 across 58 virtual screenings.

Two months into this newly created calendar, it’s still too soon to draw any firm conclusions about what works, what doesn’t and what could be improved. So far, the two (reported, but presumably) highest-performing titles came in with pre-existing awareness. Correlation does not necessarily mean causation; Leonard thinks that having built awareness in person with trailers et al. helped raise awareness, while Austin Film Society’s lead programmer Lars Nilsen thinks it’s more likely their relative success is attributable to being “first out of the gate rather than because they had brick and mortar exposure. A lot of the distributors, if they have good numbers on a title, they’re getting the word out, because they’re trying to use those numbers in the old tradition as a sales tool.”

Some distributors are finding that revenues for the virtual theatrical category have diminished as the quarantine continues. Leonard points out that “March and April are already a low performance time of year, when your biggest competition is a beautiful day,” so some slowdown was already to be expected. Nilsen also thinks a slowdown in virtual screening spending might be attributable to consumers’s increasing awareness of potential long-term financial precarity. “People were more confident economically about spreading their support” a few months ago. Whatever the deeper causes, Andrew Carlin, in charge of Oscilloscope’s theatrical sales, says “realistically it’s probably close to 40 to 50% falloff. Conversely though, the virtual cinema space isn’t limited by screens, which allowed us to book more theaters. Saint Frances played nearly 200 virtual screens, which is far more than it ever would have under normal circumstances.”

Ryan Krivoshey, founder of Grasshopper Film, concurs that there’s access to more theaters, and it’s now possible to book many more of them for an opening weekend: “We had Vitalina Varela in over 80 theaters. Right now, Fourteen is in over 60 theaters and counting. I don’t think we would’ve reached those numbers in a traditional release (certainly not same day with NYC).” Ditto, says Lorber: “We’re reaching over 350 screens, whereas before we possibly had an addressable base of no more than 100 screens that would regularly take our titles for brick and mortars, and we are able to pursue the release with lower costs across the board.” In the case of NEON’s Spaceship Earth, the potential number of screens seems almost limitless, since virtual cinema bookings weren’t limited to theaters proper. For example, the virtual NY listings include not just the theaters one would expect, like BAM and the Angelika, or even film nonprofits like IFP, Filmmaker‘s parent organization, but restaurants including Atoboy, a high-end Korean spot (which doesn’t list the virtual theater screening on their website) and the downtown Brooklyn Italian restaurant Locanda Olla e Vini (which does). (Also available on multiple TVOD platforms, Spaceship Earth is technically a day-and-date release.) With the upside of infinite booking comes dilution of revenue to the theaters themselves, with the proceeds being split across many more different parties than previously. “To the extent that the pie is going to be sliced thinner and thinner, that’s OK as long as the pie is getting bigger across the board,” says Lorber. “When the pie stops getting bigger, it stops being sustainable. Our numbers are about 40-50% higher month over month than they were pre-pandemic. I don’t know how sustainable that is. There’s a lot of competition from other companies, burn-out from theaters doing messaging to their bases and a draining of the supply of backlogged features. But for the first few months, our numbers are materially higher than they were before the pandemic.”

Access to all these screens is enabled in part by relatively sturdy technology. The Kino Marquee platform is, says Lorber, “the same architecture with different skin” as Kino Now, the a la carte TVOD platform they launched last year. That custom platform, he says, “what allowed us to get to market so quickly.” The VHX platform used by NEON, Oscilloscope and Grasshopper is owned by Vimeo, and Nilsen estimates that making a new VHX link takes about five minutes. For Oscilloscope, says Carlin, “All of our direct-to-consumer TVOD and EST sales were already being run through Vimeo OTT, so it was a very turnkey process.” With Sony Pictures Classics and other larger players either going straight to TVOD (as with Focus’s Never Rarely Sometimes Always) or holding their films, access to these newly-created virtual screens creates a window of opportunity for the smaller distributors that typically must battle for top arthouse screens from the regional bookers. If and when regular theatrical exhibition resumes, Leonard worries that “some of these distributors will wind up getting screwed.” As Carlin observes, “even our most compelling titles are still considered small relative to virtually anything released by A24, Sony, Focus, Searchlight, etc. And yet we’re still required to compete for the same screens. Therefore, what incentive would exhibitors have to book our titles theatrically, if they can simply shuttle us off to a virtual space?”

Lidell paints a more optimistic picture: in smaller communities, there’s “not enough people to justify the local theater allocating a screen to an independent film. Once they have more screens, films will be able to get booked nationally and into smaller communities. That’s going to be very good for those films and people living in those locations.” In the meantime, she points out, virtual cinemas help keep revenue moving to filmmakers, and Lorber adds that “by releasing the films now, and getting the films reviewed, we’re keeping the pipeline running and those films will be be given their media profile so they can move down to TVOD and SVOD.” In the longterm, ticket sales to the so-called “greying” audience have fallen off the last few years, but Nilsen thinks virtual screenings could also draw them back in: “older audiences have crested the technological curve” and are now comfortable with streaming. For theaters serving regional areas with fewer viewing options, there’s also the possibility to, with appropriate geoblocking technology, expand their footprint to reach potential viewers who wouldn’t make the drive from further away on a regular basis. “Some of the distributors are finding out that within the communities, the exhibitors have figured out how to sell,” Nilsen says. “‘We’ve been buying ads on Facebook’ or whatever they’ve been doing, and it’s nothing compared to the partnerships they can establish with exhibitors in their communities who have mailing lists and Instagrams. I do see a lot of exhibitors and what they’re doing as possibly being a real income booster.”

In Oscilloscope’s conversations with exhibitors, Carlin says some “have expressed interest in maintaining some form of virtual cinema even once things return to normal. On paper, yes, it sounds appealing. Why not have a virtual space that allows theaters, with a limited number of screens, to hold films longer than they might otherwise be able to? Potentially a few reasons: First, and foremost, we don’t yet know how other transactional platforms will respond to the idea of a permanent virtual space for theatrical titles. Ultimately they have enough leverage to shut this down, if and when they decide. Over the past decade, giant SVOD streamers have spent an incredible amount of money training audiences to stay home. To not go to the theater. Any arthouse that keeps a slate of virtual titles available after they’ve reopened their doors is—consciously or not—ultimately reinforcing that behavior.”

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