NOTE 1: Apologies for the delay in posting, work has ramped up quite a bit. However, the industry does not lack in things to write about.
NOTE 2: Next week will revolve around a lot of quantifications, so be sure to bring your calculators.
NOTE 3: I hope you have a great week!
Sony Pictures made history with its acquisition of the Alamo Drafthouse theater chain for an undisclosed sum. This move marks the first time since 2002 that a studio has owned a theater chain, granting Sony access to invaluable theatrical metrics, data, and direct engagement with Alamo's four million members.
Recent reports have led to some misconceptions about this acquisition. Initially, Sony's bold move was thought to be illegal, drawing on Hollywood's history of similar cases being contested in U.S. courts. However, this landmark decision highlights a new era in the relationship between studios and theaters.
A Brief History of Theaters Versus Studios
In 1948, the United States vs. Paramount Pictures Inc. reached the Supreme Court. The verdict went against the movie studios, forcing them to permanently divest their acquired theater chains.
Therefore, many were puzzled when the Alamo Drafthouse fell into the hands of Tom Rothman and Sony Pictures Entertainment (SPE) this past week.
Here’s what flew under the radar: in 2020, a landmark decision by the U.S. District Court in New York terminated the 1948 Paramount Consent Decrees.
Since this decision, Alamo Drafthouse has experienced years of financial instability. In March 2021, Alamo Drafthouse filed for Chapter 11 bankruptcy due to COVID-19. The theater chain emerged from bankruptcy under the ownership of Altamont Capital Partners.
Now, Alamo is officially under Sony Pictures' division, SPE Experiences. This is a significant turning point for theatrical distribution and the control studios have over theaters. The power SPE now holds in theatrical distribution will revolutionize the system. More importantly, it reflects the current state of theatrical distribution.
Sony's Strategic Advantage in Theatrical Distribution
Sony Pictures has positioned itself as an "arms dealer" in the streaming wars, opting not to own or operate a streaming platform. Instead, it focuses on theatrical distribution as its main objective.
With Alamo Drafthouse theaters now under its belt, Sony boasts a nationwide network of 35 dine-in locations and direct access to a dedicated membership base of four million subscribers. These members are deeply engaged with Alamo’s merchandising, menus, and special screenings. For perspective, Alamo ranks eighth in theater count in North America, while AMC tops the list with 591 locations.
This acquisition offers Sony's theatrical division unprecedented advantages. The studio now has unfiltered access to data on film performance at Alamo locations, including showtimes, marketing email impressions, and promotional material effectiveness.
Patrick Corcoran, a partner at The Fifthian Group, noted, “There is a real disconnect between the way theater owners see moviegoers and the way distributors do.” Now, Sony and its exhibition teams can bridge this gap with essential data, shifting their strategic outlook. Tom Rothman, Sony Pictures Chairman, has long emphasized that theatrical distribution is the cornerstone of Sony Pictures. This acquisition demonstrates their commitment to theaters over streaming, benefiting artists like Quentin Tarantino, who prefer theatrical releases. By making this strategic move, Sony signals its long-term investment in the theatrical industry.
Additionally, it will be interesting to see how Sony's recently acquired anime streaming platform, Crunchyroll, leverages this new distribution outlet. In 2022, Sony acquired Crunchyroll from AT&T for $1.8 billion. With Alamo theaters, Sony and Crunchyroll can now distribute Crunchyroll’s theatrical offerings more effectively. Alamo has a reputation for prominently featuring both new and classic genre films, which could now include anime. Crunchyroll has previously partnered with Cineplex and AMC locations, resulting in revenue boosts for single weekends and overall financial gains. Successful titles have included anime series like “Demon Slayer” and “Dragon Ball.”
Ambler’s Cut On It All:
The Federal Trade Commission, led by Lina Khan, has long been staunchly resistant to both horizontal and vertical mergers. Surprisingly, however, the Department of Justice and the FTC have largely let this antitrust case slide without significant pushback. Why? Because of the dire state of the theater business in North America.
In 1948, a studio buying a theater could gain substantial leverage in the competitive market. Today, the focus is on ensuring that films destined for theaters actually reach them.
Sony Pictures is fully committed to advancing the theatrical experience. Tom Rothman recently emphasized this commitment in an interview with Deadline, declaring, "Only greatness suffices. Good is insufficient. We must create exceptional works that are culturally indispensable." A film's release must seize a moment and leave a lasting impact, compelling audiences to prioritize a trip to the theater. Rothman asserted that both 'Barbie' and 'Oppenheimer' would not have made the impact they did if they had gone straight to streaming. This is a fact.
While bullish on the future, Rothman also acknowledged the substantial risks inherent in Sony's theatrical distribution strategy. "Achieving greatness is challenging, and the risks are immense. But so are the rewards."
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