The pandemic has crushed the movie business. Theaters were closed for many months and some movies debuted on streaming services instead of theaters. That was a crushing blow to an industry that was suffering before COVID-19.

Theatrical releases had already been fighting for attention with the many choices people have at home. Sure, people would go to theaters to see a new Avengers movie or something with the words “Star Wars” in the title, but it had become harder to get people to leave their houses for smaller releases even before anyone had even considered that we might have a global pandemic that would force theaters to shut down.

Now, movie theaters have reopened, but they’re not operating under the same conditions they operated in before the pandemic. Now, many movies premiere on streaming services — sometimes for free and sometimes for an extra charge — on the same day they’re released in theaters.

If that continues, it makes the long-term viability of movie theaters a major question. That made the release of Walt Disney’s (NYSE: DIS) “Free Guy” an important gauge of the state of the industry. The big-budget event film was released only in theaters and by pandemic standards it was successful. Calling it a success, however, is very much grading on the curve.

Dan Kline and Steve Symington dig into the numbers and talk about the future of the movie industry on the August 23 edition of “7investing Now.”

A full transcript follows the video.

[su_button url=”https://7investing.com/subscribe/?marketing_id=18024″ target=”blank” style=”flat” background=”#96C832″ color=”#000000″ size=”6″ center=”yes” radius=”0″ icon=”https://7investing.com/wp-content/uploads/2021/04/7Investing-3.png” icon_color=”#000000″]Sign up with 7investing today to get access to our 7 top stock market recommendations every month![/su_button]

Dan Kline: Okay, so first topic here is Disney’s (NYSE: DIS) Free Guy. This is a movie they inherited when they bought 20th Century Fox, has made $112 million in box office, and it only dropped by 34% domestically week over week. That’s actually really good. Is this non-franchise non-sequel film a sign that the movie business is back? It’s back, baby. Steve is that’s true?

Steve Symington:  I wouldn’t say back, back. But I think the one advantage that this one has is that it was a theater-only release, right? It wasn’t one that Disney decided to do a release like they did with Black Widow which saw really, really steep plunge in its second weekend. And I don’t know if that’s just a sign of its staying power. Because a 34% drop is not bad actually, when you when you look at that, like often you see 50-60%.

Dan Kline:  Yes. 60% is actually common for a blockbuster.

Steve Symington:  I mean, 50% is alright, that’s not bad. And when you’re getting mid 60%’s and 70%’s, that’s when they’re this might not have legs at the box office. And so you know that that’s a sign that this could have some staying power, or it could be a sign that maybe it’s the only thing anyone wanted to see. And they did do a really decent job marketing this one. And even my kids asked can we go see Free Guy? I’m like yeah, I really want to go see it. I haven’t seen it yet. But we’ll be one of those people who picks it up in the following days. And, and yeah, I’m excited about that, and, maybe the state of the movie industry overall.

Dan Kline:  So I’m going to argue the opposite direction. One, the drop is good. And usually when a movie has good word of mouth, it will do well in weeks after. And this movie has good word of mouth. I didn’t check the Rotten Tomatoes, but it’s a good rating. The problem is $112 million globally is a terrible number for a blockbuster. When we look at where Black Widow is now. Black Widow between the Disney+ money and remember, Disney keeps all of that money on Disney+, so I forget the number, let’s say it’s 150 million directly on Disney+, they keep almost all of that. Whereas the theatrical release, it’s somewhere between 70% goes to Disney towards the beginning and that number goes down.

So that movie is at about $500 billion dollars. But it’s probably the equivalent of like $550-600 million when you look at the different strategy. That movie will probably get to the equivalent of like in the mid-six hundreds. That’s very respectable for a kind of second-tier Marvel release. Free Guys is going to struggle to get to $250 million. It doesn’t make money at $250 million. We don’t know what that movie cost, but between the advertising between the. This is going to be a movie that’s going to take years to make money which is typical, a lot of these like secondary. But like this is being heralded as people going to the movies, these are not big numbers, they almost certainly cost themselves money by not releasing it on Disney+ same time.

But is it possible Steve, maybe with smaller budgets? Like we saw the first Knives Out movie was a relatively small budget movie, opened small and stayed in theaters for like 25 weeks and sort of legged out a bunch of money? Is it possible that well-reviewed movies at a certain budget might make sense as theatrical-only releases?

Steve Symington:  That might make sense just to just to stay back that way, and the I wouldn’t expect it to be able to. A movie like this I don’t think is expected to perform as well as even Black Widow it’s like a second tier Marvel marvel movie rather. Because it just doesn’t have kind of the you know 22-plus film storey building to its advantage or the big Marvel name. But I think this might just might well prove to have legs in the theaters, and then they can they’ll throw it on Disney+ later and use that as retention tool there. It’s not something where, we’ll have $125 million alone from Disney+ in Premiere access, because it’s just not doing that.

But I think they kind of understand well what they’re trying to accomplish with this. And yeah, I was poking around I can’t quite see. Usually, they’ll give you, at least like marketing, production budget, and generally, kind of rule of thumb used to be that, if you doubled your gross box office receipts of your production budget, then you were pretty happy with that. And anything else was kind of gravy on top of that at the theatres anyway.

Dan Kline:  That’s always been a kind of faulty number, because that’s a number that makes you break even if you do well in some things that don’t exist anymore, like your HBO window and your free TV window, sales and all those other things. There’s no way a Free Guy cost less than $250 million to make and market. So for that to make money, it needs to be well above where it is, it’s a success for the times we’re in, it won’t be a big money loser. It’s well regarded, so it might be a franchise potential and the type of things that can build and then the second one, it gets to new sales, of the first one that’s absolutely possible.

I wanted to point this out only and we’d love your questions and comments. I wanted to point this out only because, dear god, don’t go out and buy shares of like movie theater companies. Because, don’t double down on popcorn. Like the movie business as we know it is dead. And I think it’s really important to say that. There are going to be theatrical blockbusters, they’re going to be films like Black Widow, where you could watch it at home, but you want to see it in a theater. But Steve, you have a few kids, once you get to $30 on Disney+, that’s cheaper than going to the theater, right, for your family, if everyone goes?

Steve Symington:  Yeah, it is, but for certain titles, I I’d prefer to sit in a theater and experience that, and then to see my six year old walk in and be wow, look up. Even though he’s been to movies before, but every single time it’s there is something to be said for that experience versus paying $30 bucks to watch a movie at home that I wait for. But we’ve done it a couple times, with Premiere access movies, and we’re sitting there on a rainy day and we just don’t feel like going out. It kind of makes sense for us sometimes. But I think there’s a place for the movie business but maybe not an investable place.

Dan Kline:  I fully agree. I think there’s going to remain movie theaters that we have way too many screens. And there’s going to be events there’s going to be a boxing and wrestling pay per views. There’s going to be concerts, there’s going to be things like. I live in Florida, which is has a lot of expat New Yorkers and Bostonian’s so there might be like Red Sox Yankee games, like shown in theaters, but you also have to change that infrastructure.

My son and I have talked about going to the September 5, the AEW All Out show and watching it, which is a pro wrestling group, and watching it in a theater. The problem is that theater still has theater snacks and theater food, it doesn’t really have the equivalent of like watching a UFC fight in like a Buffalo Wild Wings where like the food is, I mean, the food is good by Buffalo Wild Wings standards. But certainly it’s better than like a movie theater hotdog. So like there’s a lot that needs to be done, in order to make that happen. So I do think there will be a place for theaters, but not an investable place.

Already a 7investing member? Log in here.