On This Back Story your local movie theatre is likely to be a casualty of Covid.
70 per cent of cinema's in America will fail say owners.
Malls too are in crisis. Because movies drive traffic to retail stores.
Dana Lewis talks to Paul Heth of Karo Films, and Rob Arthur from the Big Picture.com
On This Back Story your local movie theatre is likely to be a casualty of Covid.
70 per cent of cinema's in America will fail say owners.
Malls too are in crisis. Because movies drive traffic to retail stores.
Dana Lewis talks to Paul Heth of Karo Films, and Rob Arthur from the Big Picture.com
[inaudible]
Speaker 2:I miss those sounds and I don't want them stream to me. Hi everyone. And welcome to backstory. I'm Dana Lewis. As we have all been distracted with the American democratic crisis, the world terms as I record this, another lockdown in London, where I live more across Europe, Germany, Spain, France, even Eastern Europe. And of course, America is reeling from the pandemic. I don't know about you, but my usual suspects are closed. My favorite restaurants and stores and movie theaters. I love movies. And almost every weekend, I take my sons to a show and munch, some popcorn and the escape movie theaters were one of the first businesses to have closed because of COVID-19. And they are in a way, the most visible measure of an economy under siege names like Regal and AMC may never reopen in the U S leaders of the nations movie. Businesses are calling on Washington for help. They issued a letter last week, cautioning that nearly 70% of small and mid-sized movie theater companies will be forced to file bankruptcy to close permanently without help Hollywood isn't releasing big movies, like time to die, a bond movie, because release it to who, where the cinema industry is worth billions of dollars and get this many movie theaters helped to drive people to retail stores in malls, which are also under incredible economic pressure. So in this backstory, we talked to two experts. One of them is an old friend who runs movie theaters in Russia and says, surprisingly, he's doing better than his American counterparts.
Speaker 3:All right. I want to introduce you. First of all, uh, Paul Hef, uh, who was with Carol film group, which is a leading Russia cinema operator. Hi Paul. Hello, Dana and Rob Arthur, uh, who is speaking to us from Edinburgh? Paul is in Florida right now. Rob Arthur is with the big picture.com. And Rob is, as I understand you, you guys essentially are consultants for a lot of different cinemas from China, Kazakhstan, Belarus, all the way through to the UK. All right. I have to confess, I know pole for many years because Paul, now that he is the big cinema operator, in fact used to run one theater is where he got his start. Paula was at the Radisson hotel, right in Moscow, 1993. Correct. Great memory. Isn't that incredible? I mean, I know say that often, and you've talked to people about that, but you, that, that is a, a hell of a journey starting off in rough and tumble Russia after the fall of the Soviet union. I don't know what year it was. Um, but you know, business was all trying to get a grip and they were shifting the capitalism and you started with one theater and then you went on to, to, to, uh, to build such a major business.
Speaker 4:Yeah. Thank you, Dana. Yes. I don't know if, if someone could ever redo the, you know, deal with those circumstances and that opportunity, but you're correct. We started with a cinema in a lobby of the[inaudible] for ex-pats when in Russia, there were no cinemas opened because he lost government support as part of current strike up. And then we moved on, we got, I taught Kodak in investing some money and we did a Marquis cinema and Pushkin square. And then I had the great chance to work with the red stone family on a large enterprise. And then we kept growing and growing and drawing. So how many students do you have now? We have, we have 47 properties. Um, and in, in total, our enterprise group is about 400 screens.
Speaker 3:And Rob, you have a, you have a long past as well with cinema. Cause I'm reading that you, you oversaw, um, 14 cinemas, 83 screens at one point with a Paulo cinemas, and then you went on to work with Curzon. Yeah.
Speaker 4:But that was Troy. And prior to that, kind of see, we, we watched on with any of you, I, when I was working with Warner and Warner village, as the original director in London, wondering who this guy, Paul Heth was there was making all these inroads in Russia. So yeah, it's, I guess it gets into the blood, you work in cinema and we tend to travel far and away as we go. It was really interesting. Cause just pick you up and poles point about embargoes or restrictions in Russia. Was that certain soul similar to Saudi Arabia today? Yes. Yes. And that matter of fact, I rabbi obviously know and I'm friends with mr. Oaks with Millard and I remember one of the brothers visited early on in my career and we were discussing with Miller and by doing something and that didn't pan out. But obviously what you guys did in a lot of markets was well noted. Yeah.
Speaker 3:Can I, can I jump in and say, you know, as we're speaking, it's great to talk about success, but as we're speaking here, Francis shutting down for more lockdown because of COVID-19, so is Germany. Um, so is Italy and Spain and the UK is probably going to shut down and do more serious, uh, closures. And it's already doing regionally that does this spell the death for many entertainment venues, especially.
Speaker 4:Yeah. I think that it was inevitable that these situations would come up, right? No, I fortunately, or unfortunately spent time in Taiwan 2002, 2004. And so the impacts there, consumers, they're fearful of going out there, being told by government every day to stay in the narrative is very negative in that sense. And until there's some clearance and also some Hollywood coatings, especially in Western Europe to be able to play that makes it very difficult where there's been a props of over-reliance or not on the Hollywood content on Los Angeles to deliver that in to these markets, there may be quite different, I guess, for yourself because you've got a much stronger local content in Russia.
Speaker 3:Well, before we, before we talk about the content production, no, I mean, even in Russia now that everybody has to wear masks and you know, despite the fact that the Kremlin brags of a vaccine, I mean, people are generally going into lockdown and they are generally not going out now and you must be feeling it.
Speaker 4:Yes. I mean, you're correct. And Lee ma mainly for us for the theater is what we're feeling a lack of, of content, which is, uh, we believe limiting consumers like to go to the theater. Um, we're fortunate. We do have some local production. I would say that, that we're probably seeing it less in Russia. They seem to be more stoic, more accepting of, of life's challenges. Um, so we haven't seen a big drop-off on attendance when we have content. Having said that though, we're working with capacity and emissions restrictions. So we keep, but you know, to keep social distancing, we're running about 35% of our physical space available for seating. So we have a 50% capacity, but then we have space between patrons. So we're running, you know, w with guidance from the health authorities and so on and so forth.
Speaker 3:I, you asked, did you do anything with the air or, or, uh, they would be scared to take my kids to a cinema right now. And you guys can both snicker at me, but in general, I just don't want to go where there's a lot of people.
Speaker 4:Well, it's interesting. I saw a study recently that there's been no confirmed case of any COVID, uh, being, uh, how do you, what's the medical word being contracted by visits to the cinema globally, as far as we know, but having said that, obviously, if you're an active with people, there's a chance whether it be in the pharmacy, the supermarket, it's interesting. Dana, if you go to big box retail like Walmart or the Russian equivalent, the hypermarkets they're packed, but you know, in very close circumstances in the aisles, but I would say of course, uh, I mean, I believe it to go back to your comments that if we believe that they'll never be a vaccine or therapeutics, yes, this is probably gonna radically change. People's ability to want to go to entertainment venues.
Speaker 3:How does this radically change? If I can jump in there, how does it radically change? Because
Speaker 4:Like you and your family, Dana, that, that maybe mom and dad are nervous and bringing their kids to a public forum where they may think there is, uh, uh, not access, but expose to people that may not be healthy and a half full kind of a person. I do believe that there'll be a future. And I do believe that the medical issues will be addressed. It's not efforts win, but the big issue is can a lot of companies survive to get to win.
Speaker 3:Yeah. Rob, how does it radically change? I mean, w w you've seen Sinan world here in the UK, just, you know, what are they, they closed 130 cinemas and they're talking about possibly, will they close another 500 in the U S I mean, how, how did these, how did these businesses adjust?
Speaker 4:So some, some of the operators, it's hard to say that they, they will survive the, they went into the Potomac, highly leveraged. They've tried to raise new debt going through the process, and that is become a cash and liquidity crisis for those companies. And then a key part is that if shareholders aren't supportive of those companies in lewis' markets, that's very difficult for them in their current guys to survive, but there are others.
Speaker 3:Well, the numbers are that, that 70%, I think this is more of an American number, but still it, I think it applies to across Europe, in many instances, 70% of small and midsize theater companies will be forced to declare bankruptcy or go out of business without government assistance. And right now I haven't seen the government stepping up with much of anything. Have you,
Speaker 4:I don't think there'll be anything until after the presidential election in the U S and there's likely to be more constraint in Western Europe. There's other, I guess, other other sectors value for that position in that time. But can I say that the feedback that I'm getting from the investment market is that they're highly supportive of cinema, the sea of big shift from retail and shopping experience into cinema led leisure experiences in those books, you saw those areas. So cinema does have to reinvent, and it may well be that the debt and the bond holders or the lease holders or this, or the landlords of those entities have to take control. Of some of those locations that kind of is what happened in Ireland and the, uh, the global financial crisis, 2008, 2009, where shopping centers were taken over by their owners and retailers were taken over or cinemas to make sure because there's a contagion impact. If the cinema's not there, the footfall isn't there, it has an impact on the other retailers and locations. So, so we can see that happening again.
Speaker 3:Paul, do you want to jump in here? Sure.
Speaker 4:I'd say there's, there's probably three, three points here. Dan are three issues. One the company, you mentioned Cinemark, and we have an equivalent in the United States, which is also in the UK, the, on AMC. They were extremely leveraged before the pandemic at a numbers. Frank, I don't want to use the word irresponsible, but very high levels, obviously their shareholders and their board at retool, but they were levered like six, seven times their, their earnings, which for me, is not sustainable business model before the pandemic. So I think going to the pandemic, obviously folks had had encumbered or impaired balance sheets are going to have a tough time. I mean, in Russia, we're a little bit more fortunate because you know, Dana in emerging market, you're more conservative with your capital because there's always a crisis. And in 2014, we had a ruble crisis which forced us to work with our landlords to go more percentage rents, build up capital reserves to be a bit more responsible. And I think unfortunately, the two companies I mentioned really got stuck in a bad time in their balance sheet history. Now I'd also say that again. My feeling is when we looked at the, the, the market, there's a lot of challenges of streaming in the home. People can watch things at home. People are anchored to the, to the couch, with the TV, with these great media centers. But we understand that from a content perspective, which I think the lessons being learned that motion picture really can't return capital without theater. So these big productions.
Speaker 3:So tell me that, that goes, that goes back towards where Rob was starting with content, but can you explain that to me? Because I don't quite understand that. I mean, what is it, if they haven't released a lot of big films like here, you know, endlessly about James Bond didn't come out. Right. And so how can, how can they survive if they can't fill a theater seat properly? And then you're saying at home, they just don't get the numbers either.
Speaker 4:Right? That's correct. And so I would say, and I, I'm a bit of an extra on this because I have a company called monumental and we co-invest in studio pictures for our markets, you know? So we partnered, we've partnered with Fox, with Disney and with Sony on a number of co-productions. So that I haven't seen a business model that allows an investor in motion pictures to return capital on that investment without the theatrical platform. Uh, and I think when you look at the American studio, companies led the well, I can mention bond, which is MGM, it's a UK as well. Uh, the broccoli family, but these large productions, they actually need the theater platform to, to justify the investment in the first place. If the, in my opinion, if you follow the money, if the studios really believed that there was a model that video on demand from the home, which would cover the cost of these productions, return the profit, that they would theatrically what a great time to do it right now. But the ones that were tried including Moulen by Disney, um, I think trolls was a lesser, uh, success. I just don't believe anybody thinks that that model replaces that theatrical platform then in home viewing then interest with TJ, like the five or six platforms to generate the revenue.
Speaker 3:So you want to also just tag on there because, uh, you know, it's, it's interesting. I mean, you guys are both experts at this, right. But in terms of content I'm reading, um, where big companies like Apple, Amazon, Netflix have considered buying theaters, um, and are already committing to doing so, because they understand, as Paul says that you need that you need that theater to put your content on and really generate the big numbers, but in COVID-19 environment, you may be doing so at a, at a loss or a, or a breakeven or,
Speaker 4:Or something. So, so we, we we've looked to, I guess, that question of vertical integration, which I think is probably Marley a North American discussion point, because if you take, say the, the discussion polls just hard with monumental and Colorado, if I go to Japan, there's tow haul who are producers, distributors, exhibitors, a vertically integrated CJC GV in Korea. And you also have a range of Chinese production outfits, which are also producing exhibits in distributing in China. So, so it's a fairly typical model in emerging on international markets, but not so in North America,
Speaker 3:When you talk about Asia, are those theaters running at a loss? Are they making money?
Speaker 4:Uh, they, they are back on track, they're running, but 75 to 80% of where they were in previous years, but in the last two weeks or so, Japan's largest ever local content opening. So, so there's, so there's significant, I guess, significant returns to cinema in those markets, which we've identified as being most resilient during the, the Corvette period and they've contained and identified, contained the issues addressed the issues so far, but the also have very
Speaker 3:Long way away from that in Europe. That's for sure.
Speaker 4:Yeah, very much so. And then I would just make the point. I don't think Netflix or Amazon buys a theater circuit because it, in my opinion, they're theatrical films can get distributed any way into that platform and tie up all that capital. The other thing Dan is, you know, as a theater operator, you need last year, for example, Carol, we showed somewhere North of 500 motion pictures. So you need even, Amazon is as huge as they are. Doesn't make near the mountain. Doesn't their theatrical output would not even be a fraction what's needed to pay the rent on a, on a, on a facility. You, you need significant pipeline of content. And
Speaker 3:When the pipeline is slowing down, because there,
Speaker 4:Hi, not a pipeline is shut. Uh, and I mean, major films, you're absolutely correct in there. There are films from, from kind of second tier, not second tier, but smaller outfits are using this opportunity to get their product out there. We're seeing a lot of art pictures and festival pictures, but again, I'll go back. I do think that in the late spring, early summer that we'll see a, an app, an unbelievable outpour of content back into the theaters. Once consumers feel like there's either a therapeutic or a vaccine, and the studios have also held back and announced, it puts so much product. Like for example, next year we have something like nine Marvel movies on the calendar. It's just crazy. So, but you're absolutely correct movies,
Speaker 3:Nine Marvel movies that are in production now, or
Speaker 4:You're already educating them on the shelf, holding them on the shelf and they might be finishing post-production. But the point is we have, we have basic a blockbuster, or if not two every week for like 45 weeks next year, that's assuming we get back open. And that's why I've seen mainly starting April, maybe through June, is that when consumer sentiment and these medical issues, at least even from a, um, a morale standpoint, if not even actually into the hands of the consumer, do people feel more safe going out?
Speaker 3:Let me flip this around. And both of you, because you're saying that the, the, the movie companies or the production companies need the theaters in order to move big content and big numbers. Yeah. Moles need them because it drives some traffic through the mall. Right. But Rob, you, you told me when I talked to you on the phone the other day that you think some of those malls are not going to be around period, nevermind the movie, the health of the movie theater, and that they could become distribution points for Amazon and that kind of thing. But I think that the
Speaker 4:That's a key piece, this is primarily a North American Western Europe position where there's been an over supply of retail space. So there's likely to be a contraction of up to 30% of those, that retail space in those markets. So yeah, some of
Speaker 3:30% of the malls, or just 30% of the retail content, and that will shake out depending on where it's loaded in a character,
Speaker 4:I would like it to close or be, or be repositioned as partly mixed use residential or last mile. I go to a points for Amazon or,
Speaker 3:Well, I mean, it's easy to say 30%, but when you imagine physically on the ground, 30% of retail going out of business in the tens of thousands, hundreds of thousands of people employed in that 30%,
Speaker 4:I was just looking at, say, Ray restaurants in the U S and there there's a say$900 billion
Speaker 3:Industry per round. And,
Speaker 4:Uh, so it's, it's got a huge spend that's millions and millions of people who are live, what can the casual dining sector, which is a key part of those moles, but it's, Macy's JC, Penney's Bloomingdale's all of those units are they're dispensable. No, as far as the that's just the, the retailers or consumers are concerned. So, so some of those in the most successful have to be converted into most more expediential or leisure oriented spaces.
Speaker 3:So even if those theaters can survive in those, on their own collectively within a mold, there, isn't going to be a multi-beam.
Speaker 4:Yeah. So there has to be a reposition of the moles priorities, which should mean a move more towards experiential with cinema. Uh, and we're seeing that in Western Europe, no,
Speaker 3:That again, there should be a move towards
Speaker 4:So experiential, uh, development. So that includes cinema with the links to the studios. Plus other other forms would be food, drinks, dining, other leisure forms. But instead of it being a key component of thought there, that means that the cinemas have to be much better than they were. And some of the work that was being done in the U S especially was moving in the guys in areas that wouldn't be most score Eastern BU or in Kazakhstan. They've already, they've, they've got most they're two or three years old. So they're, they're in their infancy. They've already been moved towards more leisure needed expediential. So they're, they're, they're much more sustainable.
Speaker 3:Well, how was it in Russia? Because if I'm not mistaken, you can set me straight. But, you know, I mean, going back 15 years in Russia, when I lived there, I was there 10 years ago, but even 15 years ago, we're just starting to see those big malls open up.
Speaker 4:That's right. I think Rob made a good point because we have contemporary, um, physical plant or contemporary units. We have a lot of things that we're talking about trying to do in Western Europe and North America, we've already done, you know, we call it next generation theater is all reclining seating, fully automated. Uh, we haven't special ventilation like you're talking about for, we have, for example, we already have a pipeline of, of, we work with the streamers, with our product. We just showed, for example, in all of our theaters, UFC fighting, like with a lot of things that guys haven't done in these markets, plus the way we lay out our location. So, Dana, I guess if you've been to Florida, you've been to whole foods, for example. Sure. So like our, our concessions are more that type of style with healthy alternatives, kind of a grab and go tight instead of kind of this little over the council. A lot of those things we've already done
Speaker 3:See fighting as well. Do you have to have bouncers in Russia? It sounds like,
Speaker 4:Oh, we've been okay. But I think also we know we have a big relationship with Ikea and we're doing a massive, uh, development plan with them. They've also taken that kind of mindset and how they do them all. So their feeling is because remember Ikea in Russia is a big mall operator. They have 16 of these super malls, uh, 20, 30, 49 emissions a year to the mall and their ideas that retail is going there. People go to these destination locations to experience products and brands, but not necessarily buy them. So it becomes more of a introduction of experience to a consumer versus the actual retail trade because people are buying at the home. So, yeah,
Speaker 3:I think we're all saying that the emerging markets, which, you know, generally are in the tail end of development actually are leading in this area right. In traditional markets, like the U S yeah.
Speaker 4:Cause we don't have such legacy assets and circle assets. And I would say in the United States is that the, and you know, I worked harder for the American company. Hadn't had screens in the U S in the early two thousands with the red stones. But, um, I think that the American market is just vastly over screened. And I think part of what's going to happen. I believe that the American cinema market, the screen cap will contract by 20%, but I don't think that necessarily means a 20% contraction in gross revenue. I think you'll see more output in the other locations, but the locations that ended up staying we'll have to have all the things I just mentioned. And we're also seeing kind of a migration from urban vertical offices housing to people back in the suburbs. I think you'll see, as Rob mentioned, a reconversion of these malls into work resident entertainment experience versus just straight retail.
Speaker 3:Yeah. Well, you may as well put residential in there because of commercials doing very good. You need an alternative, right? Yeah.
Speaker 4:In America, you know, has a lack of housing stock, right. As you know, so affordable housing, particularly for younger,
Speaker 3:If I can end on something positive, um, there's always this struggle, um, to, to generate local content or domestic content. It's always been, you know, the, the, the big foot. Um, and everybody goes to see those blockbuster movies. Is there an upside here in terms of the people who work in film and entertainment, um, and, and writers and actors and all of that, that suddenly local content, um, is, becomes a lot more marketable and a lot more profitable than these, just waiting for those big blockbusters to come at a holiday.
Speaker 4:Well, I think if you look for our market again, Dana for the Russian market, which by the way it is now, can you imagine when I started, it was about a million dollars box office. Now we're about a billion and we're the sixth largest home Mark in the world for admissions from, from zero. And by the way, analogy to people talk about streaming tone cinema. When we started, everyone said, Oh, people won't go back to theaters because they had DHS tapes. You probably remember Dana the black market, the, that, but I'd say one of those. No, no, never, never. But I would say though that, um, we, local production was 1% of our box office. So we started, it's about a third now of local production, which is a couple of hundred million dollars. Right. And the other thing we see is now is that never in my career, have I had access to so much content that could be put in a public fashion. So
Speaker 3:Locally produced in terms of domestically produced,
Speaker 4:Domestically produced, wait, it's a third of our business, local language producers, but globally, if I even take English language, we have so much film being made. Now, whether it be Amazon, Apple, the studios, I can go through a number of other, other producers and in the UK. So I just see this. Yes. And we're seeing now, for example, in, in, in, in the pandemic, what we're able to market, not maybe some of the, the lesser known catalog of, of, of, of contemporary content, particularly we're doing really well with our product. It's like, you know, very sophisticated niche product and festival product. So I do see an upside and we, we believe that the future of cinema will be not just cinema, but it's another, uh, destination to program content of all kinds in with all this technology and that type of seating and communal interaction. So I'm very bullish on it. I'm looking
Speaker 3:Forward to having my new, my new news program in, in Carroll films.
Speaker 4:You're excited about future content, just to add to what Paul said. I spent time in Kazakhstan and my first reaction was less, but we've got a star Wars movie coming up. Let's walk on this, let's focus on this. And the guys locally were saying, we've got some Kazakh films coming out. These all work really well. So I spent the, the new year period there. We're looking at, we're just looking through the films. And I was walking through the whole Seaport was walking in, you know, it was really incredible. All the kids were coming in and the families were coming in to watch the Kazakh films. And they've moved from say three productions a year up to 50 in a relatively short space of time. I think the median age has a big impact there on the content coming out of Holy wood. There's much more reflection on local content, language and culture in those areas.
Speaker 3:It's so interesting because I grew up in Canada with CBC where the government used to mandate national culture, because we were worried about being overwhelmed by American culture. And what you're saying is that this just happens naturally. And it's a great thing.
Speaker 4:It is. It's helping that Chile. Uh, but I get taught key 60% is local content. I speaking to African producers today who are saying, look, we've got a median age of 19 and a half. We need a different type of content for, would it be, Oh, the, the Nollie was, or[inaudible] Zimbabwe. They want something different, but they also want Hollywood.
Speaker 3:Who's, who's the biggest film star in Russia right now. Paul, there must be a few of them. Anyway.
Speaker 4:I, I, I would say that, uh, let me, I have to think about that. Yeah, we have, I'd say there was probably two, in my view, there's maybe two or three Russian stars in sherbet, but I'd say in Russia, it's more about my view that based on that the lead producer and director are kind of the big brands, whether it be mr. Bond or Chuck or mr. Ernst or people like that, fedora Vaughn check that they're kind of the above the title, uh, you know, a fedora on Bonner Chuck movie, that's a big marketing hook or a Constantine arts produced movie. So it's a little bit going back to the forties of Hollywood when you had the great producers like Louis B. Mayer and those guys, David Selznick. So in restaurant more like driven that way, but there's some up and coming stars, but having said all that, there's still excitement when Tom cruise movie comes in or, you know, some of these big Hollywood temples. And right now it's interesting the studios and the theaters, the theaters and the studios, but there is a future for both of us would just have to get through this pandemic.
Speaker 3:I'm optimistic. I can tell you are. And that's great to hear. And after taking a look at some of the numbers, which are quite daunting, so yes, Carol film group. Great to talk to you, Rob Arthur of the big picture.com. Thank you guys. Thank you very much. Bye bye. And that's our backstory cinemas. And by
Speaker 2:Extension the retail industry hammered by a pandemic. Please let it in soon. But realistically we are in this movie. Well into 2021, I'm Dana Lewis, please subscribe to backstory. And if you want to sponsor the podcast, be in touch. Thanks for listening. And I'll talk to you again soon.
Speaker 1:[inaudible].