Will Sony’s Recent Acquisition of Indie Cinema Chain Alamo Drafthouse Open The Box Office Playing Field ?
Written by Kameron Bain
Sony has recently announced that it purchased the indie draft house theater Alamo DraftHouse, based in Austin, TX. This comes after the reinstating and sunsetting of a landmark Supreme Court case United States v. Paramount Pictures, Inc. A Hollywood Antitrust Case of 1949. The case was raised to the Supreme Court creating the Paramount Decree preventing film production companies from owning exhibition companies in the United States. Under this decree issued by the Department of Justice, a major production company like Paramount and a major theater chain like AMC were forced apart for fear of antitrust violation and monopolies. While some smaller production companies went on to own other chains of Broadway theaters, there have been many regulations surrounding the vertical integration deals of major movie studios up until this point.
In 1945, the studios owned either partially or outright 17% of the theaters in the country, accounting for 45% of the film rental revenue. While on its face, its restriction seems like a forbidden love for eternity, in August 2020 the court granted the DOJs motion to lift the decrees opening the door for movie studios to purchase theater chain distributors across the country once again without restriction. While the courts of 1945 certainly had cause for concern about monopolies with movie theaters being the primary distributor of many studio movies and source of revenue for the major studios, with a two year sunsetting period and streamers popping up all over the place, the need for the decree was rendered ineffectual in a modern marketplace.
“There also are many other movie distribution platforms, like television, the internet and DVDs, that did not exist in the 1930s and 40s,” - District Judge Analisa Torres
With slumping theater attendance over the last few years, the success of movies like Spiderman No Way Home and Bad Boys 4, and the more nimble licensing/ development business model of Sony, they are taking advantage of an amazing opportunity to position the Alamo DraftHouse as a decorative theater chain in the company's asset portfolio. Alamo has theaters in the NYC Area and across the country, however with this acquisition Alamo DraftHouse will still operate 35 of its cinemas across 25 metro areas and continue to service some 10 million guests.
(Source : Photo from https://www.judiciary.senate.gov/meetings/judicial-nominations-2013-01-23)
“Alamo Drafthouse’s differentiated movie-going experience, admired brand and devoted community fit well with this vision. Our Crunchyroll business also aligns well with their audience’s interests. We look forward to building upon the innovations that have made Alamo Drafthouse successful and will, of course, continue to welcome content from all studios and distributors.” - Ravi Ahuja, President and COO of SPE.
With more control over box office revenue splits, distribution deals, and a niche collectibles merch model, helped build Alemo's fanbase's unique viewing experiences and novelty beverages. Alamo DraftHouse is a well-positioned physical asset in Sony’s balance sheet for a number of reasons, the biggest one being the direct-to-consumer connection between the audience and the studio. For the first time in recent history, a movie studio will be able to seed audience data directly from the theaters that they own and operate, putting them at a significant competitive advantage in comparison to their studio/cable first studio competitors. In this, Sony will not only earn more money in the theatrical window per seat, but they may also be able to lower the cost of movie tickets at their theaters over others who have to split revenue with the exhibitor while still maintaining profitability at the box office.
This is all assuming that Alamo DraftHouse represents a significant enough portion of the box office to make a difference, which is not the case as of now. AMC Theatres still owns the lion share of movie screens across the US and Canada with about 8K screens and 900 locations. Alamo DraftHouse, with only its mere 35 locations certainly doesn’t measure up in terms of box office competition, and as a chain, the company will still rely on outside studio deals and programming to keep their theaters full. While these murky conflicts of interest provide a rich landscape for Sony to maneuver in the coming years. Indie producers should consider this as dine-in theaters continue to rise in popularity. According to reports, the dine-in theater is expected to be valued around $16.1 billion, and it is expected to grow to $26.92 billion in the US alone.
Certainly, this new accommodation of the law will create a changing landscape for the four-wall release which many indie producers rely on to screen their films at their own expense. As we may soon live in a world where there are fewer and fewer indie exhibitors and screens that aren’t showing the latest Disney or Marvel movies. Indie films will likely still struggle to get in on the box office action seeing a rise in screening costs and ticket prices. While there may be a supply issue due to the dwindling number of screens available. Indie theaters still have a unique advantage over some larger chains. If the indie exhibitor can control what is being screened in the theaters (with preference to its larger movie studio parent company), they may also control the revenue per ticket prices for different programs.
Where Spiderman 5 may generate the full $20 per ticket (100% of backend ticket sales) with limited marketing cost, an A24 Studio drama may only rake in $6.25 on that same $20 ticket due to splits with the exhibitor and marketing cost shelled out per moviegoer. Minus the food revenue per person which still would add an extra 40% bump in revenue per ticket for Spiderman 5, going back to Sony. This might mean that ingesting an indie film, where the split is much higher to the indie studio, will be just as profitable as showing that new big box office, third-party A24 picture when we factor in food, tickets, and marketing per person.
The indie theater scene can be changed forever with the right models, but what do you think Sony will do to maintain this audience of indie film lovers ?