Last March, movie theaters shuttered, the curtains stayed down on Broadway, thousands of school musicals went unperformed, musicians and comedians cancelled their tours, and film and television productions shut down everywhere.
Many hundreds of thousands of people who work in production, the performing arts, and those whose work supports the entertainment industry were laid off. Hotels, airlines, and dozens more sectors reliant on the entertainment industry’s travel saw bookings canceled. Trucking companies, toy manufacturers, publishers, and marketing professionals dependent on film franchises to generate new merchandise were affected, too. So, too, were large and small retailers.
Technology, however, provided somewhat of a rescue as quarantining consumers greatly increased their consumption of streaming media. In fact, you could say 2020 was the Year of Streaming Services, with launches from AT&T and NBCUniversal. Viewers could check out Disney+ and Apple TV+ (a late 2019 launch) while also checking out Hulu and Netflix, each creating and releasing critically acclaimed content.
Each year, the Motion Picture Association (MPA) releases the THEME report: a collection of data gathered and analyzed from third-party sources, viewers/audiences, and home/mobile entertainment market (which includes electronic sell-through, video-on-demand, and subscription streaming).
CRE professionals haven’t generally focused on the entertainment industry, however findings from THEME report suggest that while the pandemic seriously affected revenues, audience consumption offers strong evidence that the appetite for new content hasn’t diminished even one bit.
The entire theatrical and home/mobile entertainment market generated $80.9 billion, an 18% decline from 2019 and the lowest it’s been since 2016. Theatrical revenue fell sharply to $12 billion from a high of $42.3 billion the year before. This entertainment type also only accounted for 15% of total global entertainment revenue — a steep drop from its previous 43% market share in 2019.
The pandemic accelerated the digital streaming trend, on the other hand, which saw a 31% increase in revenue to $61.8 billion. In fact, digital media accounted for more than three quarters of total revenue generated by theatrical, home, and mobile entertainment.
The US’s theatrical, home/mobile entertainment market fell 11% from $36.1 billion in 2019 to $32.2 billion last year. The nation’s digital entertainment revenue growth followed the global revenue curve, growing 33% to $26.5 billion and with digital media capturing a commanding 82% share of theatrical, home/mobile revenue (compared to 2019’s 55% share).
Physical revenue still generated more revenue than theatrical, declining 26% to $3.5 billion and accounting for 11% total revenue. Theatrical entertainment — $11.4 billion pre-pandemic — accounted for 7% of last year’s total revenue, at $2.2 billion.
Live entertainment venues have also been effected and industry members have had to find alternatives to deal with shutdown.
“As the live entertainment industry shut down overnight performers and theatre educators were forced to close shop or pivot in a creative way. As a Broadway performer and educator I felt it necessary to keep the arts alive for people and didn’t want Covid to limit artistic expression. I created “Broadway Unlimited” which in the past 16 months has reached 750 students of all ages in 5 countries and 35 states online and in some areas in person as mandates have lifted. I think virtual voice and acting lessons will continue though as students in Spain, Alaska, and even Pennsylvania now have access to professional theatre artists from Broadway right at their fingertips.” says Donna Vivino, Broadway Actress.
Online video subscriptions saw a YOY increase of 32% with 308.6 million subscribers in 202 and subscriptions growing 35% to total $24.7 billion in 2020. Netflix dominated taking nine of the top 10 spots of streamed original television programs. The Mandalorian, from Disney+, was the only non-Netflix show to break into the top ten. Disney+, however, saw its films capture seven of the top 10 spots, with Frozen II leading the pack.
Fewer television shows and movie releases
Production challenges and studio closures resulted in fewer original scripted television shows, which dropped from a record 532 programs in 2019 to 493 in 2020. Production delays forced producers and studios to move many shows to this year’s television season. Original Netflix shows have also dropped YOY by 12% in the first quarter of 2021.
While some studios have experimented with offering movies on streaming platforms like Disney+ for Hamilton, and dual-release options, like Godzilla vs. Kong which opened in movie theaters and streamed on HBO Max, only 338 movies saw theatrical release between March and December 2020 — a 66% decline from the 987 movies released the previous year.
Ever looking for creative options, studios explored ways to make films available in homes and recover at least some of the investment in making those movies. We saw the arrival of premium video on demand (PVOD) shortening the theatrical releases to 17 days before whisking them to digital streaming platforms for a premium cost.
Perhaps the Legendary Pictures/ The Warner Bros. Godzilla vs. Kong will herald a new post-pandemic business model. The movie grossed $69.5 million over the first two weekends following its March 31 release and grossed more than $350 million globally. HBO Max said the movie was the most-watched content in the channel’s eight-month history.
It will take time to recover — and the digital revolution may have forever impacted the entertainment industry — but one sector benefitting from the thirst for new, original content is the need for studio space.
Connection Between the Entertainment Industry and CRE
Even before COVID-19 turned the world upside down, the demand for high-quality creative labs, sound stages, and production labs was growing. A CBRE Americas Research report indicated a 74% YOY increase in streaming demand. An estimated 11 square feet of production space sits in only a handful of North American cities. With consumer appetites expected to continue craving content — streaming on the go and across multiple devices — content will continue to grow in importance and diversity.
Having spent $121 billion on original productions in 2019, according to Variety Intelligence Platform, U.S. media companies plan to expand their production budgets even more dramatically. LA and other traditional filming hubs continue working to attract new business and would rather keep productions temporarily stymied by the pandemic from finding new locations. California offers $330 million in tax credit funding for television and film companies, but space remains tight in the state. In the past, entertainment companies typically rented sound stages as needed. However, Netflix has bucked that trend committing to multiyear leases to support its production pipeline. Investors have taken notice.
While the bulk of the sound stages exist in California and Georgia, other markets exist throughout the U.S., including New York and New Jersey. New Jersey offers a 2% diversity bonus and a 30 – 35% tax credit to production companies working in the state. Cavern Point Studios, originally slated to open in spring 2020, will complete construction in 2021. Its 135,000-square-foot complex includes three sound stages and space to accommodate large scale productions, elevating it to compete with other film production companies at a national level.
The film and television industry isn’t the typical focus of CREA United’s members, but that doesn’t mean a production company won’t come knocking in search of appropriate space. Experts predict the demand for original streaming content will continue increasing. The warehouse demand does offer stiff competition — especially since a sound stage costs four to five times more than a warehouse to build. But if you’re dreaming of tinsel town or hope to rub elbows with the stars, perhaps, as Field of Dreams’ Ray Kinsella said, “If you build it, [they] will come.”