The movie business has struggled mightily during the pandemic and it’s worth questioning whether it will ever recapture its former glory. You can, of course, make a case for the cinematic experience and the joy of experiencing something with other people in a public place. That may be a driver for big-budget films but it’s not likely to get people to leave their houses even when they’re not worrying about COVID-19 anymore.

Walt Disney (NYSE: DIS) has been at the forefront of the film business and it has struggled to figure out the right strategy during the pandemic. It has released some movies straight to its Disney+ streaming service and it has pursued some hybrid releases where it charged a premium price for people to access films through Disney+ while they were still playing in theaters.

For its latest release, “Shang-Chi and the Legend of the Ten Rings,” it opted for a full theatrical release. That resulted in the best box office performance of any movie during the pandemic, but with box office numbers that would not have been considered successful pre-pandemic.

That raises a lot of questions as to how much of a drag on the box office can be blamed on the pandemic and how much can be attributed to people not being as eager to leave the house to go to a theater as they once were. It’s not a question that any one film will fully answer but it’s very possible that the movie business, which was already struggling, may look very different even when the world returns to normal.

Steve Symington joined Dan Kline on the Sept. 27 edition of “7investing Now” to break down what we can learn from “Shang-Chi” as well as where we should maybe not jump to conclusions. He also discusses why movie economics, which have never been simple, may now be even more complicated making the line between failure and success even murkier.

A full transcript follows the video.

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Dan Kline  1:18  We are going to talk the mess that is the movie business. Then we are going to talk Amazon doing something really bold. Amazon is usually known for cutting prices. In this case, Amazon is raising prices and I’m going to argue that they may be starting a new trend. And lastly, we’re going to talk about a subject I’m sure you all talk about all the time around the dinner table. Probably with your friends, probably. It’s the big in the movies you watch that, of course would be treasury yields. No, I had to look up what Treasury yields were earlier. This story to me is silly. We’re not going to spend a lot of time on it.

But first, Steve, I want to talk about the movie business because you and I pre-pandemic, we’re both pretty big movie fans. A lot of times I’d hear you were taking the kids to the movies. I specifically lived to so I could walk to the movies and our previous place that we lived. So pre-pandemic, I really like the movies and I’m gonna say my behavior was changed, but we’re gonna get into that later. So Shang Chi, which is the latest Avengers movie, so Marvel Cinematic Universe. it’s top the box office for the fourth straight weekend. And it’s done about $196 million in the US and Canada. That makes it the top-grossing film for the year. It’s gonna make, it made another $166 million globally, so it’s gonna be at about 360 million at the end of this weekend, or when they finish tabulating last weekend. So Steve, arguably this film might get to 450. That would place it below pretty much every Marvel movie ever. Does that tell you everything you need to know that even the blockbuster is to blockbuster just isn’t going to matter anymore or am I reading this a little too seriously?

Steve Symington  3:00 Yeah, I don’t know you might be it’s it’s one of those things where this is sort of this is a group of heroes, right? In the Marvel Cinematic Universe that that, arguably, almost nobody had heard of, you know, before they launched this, you know, unless you’re like a big Marvel nerd, and you’re reading the comics, and you understand this. So I mean, I wouldn’t read too far into its performance. And I think they’re calling it a success, just because this is sort of one of those, like, third-tier characters that they don’t really, you know, didn’t have any huge expectations for but they’re obviously setting up a bigger stage. So

Dan Kline  3:34 Oh, yeah, Yes, Yes, it did. What pre-pandemic when this film was set up, it was supposed to be a billion dollar movie. That was the benchmark for the movie. Because look, you’re looking at the person who wrote a clinical analysis of like, Guardians of the Galaxy would only do like 400 million that I got lambasted for this something like 4000 tweets, telling me what an idiot I am. It’s been written up in multiple theme park publications about how badly I got this wrong. So yeah, they’re framing this as a hit. But Steve, do you think that’s largely because people don’t understand the economics of the movie business.

And let me break it down quickly. They don’t tell you what the budget is. But the budget for this is probably somewhere north of $250 million. Typical marketing is probably about the same, but I’m gonna say no, I’m gonna say that they, they probably spent half that so maybe 375 is your all in cost. If you get to 500 million, let’s say half that it’s a little less than that. But let’s say half that goes to the theaters. So you’re at 250. Let’s be generous and rounded up to 300 million. Steven, your theatrical release, you’ve lost money. So I understand there’s a longer reaching tail for this. But under what circumstances is a major blockbuster movie, losing money, at least in the the, the prime of its release, considered a hit?

Steve Symington  4:52 I don’t know. I think this is it’s also strange times right in the box office. So I think they can call this a hit given the circumstances and considering the fact that they can use this as if anything else a retention tool for Disney (NYSE: DIS) plus moving forward. And to be fair, I was actually on record about seven years ago calling Guardians of the Galaxy saying it would probably be at least 800 million globally the box office so that was one of my one of my calls. Thank you. But yeah, I didn’t have high hopes for this one anyway, given its you know, both its schedule and, and the subject matter. I’ll go see it. And I think Marvel fans will go see it. But I think I think a lot more people are going to wait for it to reach Disney plus too. So it’ll be interesting to see how it kind of plays out and how well you know whether it has legs at the box office in the coming weekends, that’ll be something to watch.

Dan Kline  5:50  Here’s the thing, it’s already down to topping the box office at $12 million. What a legs mean it does 8 million next week. Like I’m being very generous when I say 500 million globally, that that that assumes a China release, which doesn’t look like it’s going to happen. And again, we would love your questions. We’d love your comments. I’d love to hear if you’re willing to go to the movies. And here’s what I’ll say, Steve, my bar to go to the movies. And this is my biggest case, forget the meanness of AMC or any other theater company. My biggest case against these companies is I was a prime moviegoer. As I said, I literally moved someplace where walking to a movie theater would be possible. And I did that all the time. I’d go to movies like three in the afternoon because I’d finished working I go see something or see it again.

Now. I was gonna go see Shang Chi. And because our past couple of weekends, my son has been working and we haven’t been able to do it. I googled the other day, hey, when’s it coming out? And I went, wait a minute, it’s on Disney plus in like a month? Like or maybe even less than that. And I’m not going to do it. My bar has gone up. So let me ask you the question. Again, we would love you to weigh in. Let me ask you the question. What does it take to get people out of the house if a movie advertised as starring the next Avenger, that is tying it into the biggest box office series of all time, really is not a needle mover? I mean, this would be considered a mild hit under most circumstances, because a lot of mild hits actually lose money in their first run. But what’s gonna get people to the theater? What’s gonna get you to the theater?

Steve Symington  7:21  I would say, I wouldn’t say necessarily to the theater, but to the out-of-the-house period. I’d say things like sporting events and concerts, you know, these are things that we really miss things that offer a truly differentiated experience relative to their alternative streaming versions, you know, it’s not the same arguably watching the concert, you know, streaming or a sporting event. Yeah, you can watch, you know, football on TV, but college football, those sorts of things that are nearby. You might argue that for all, but the very biggest movies, most people are willing to just wait till they can stream it on their 80 inch TVs at home. That’s what I’m thinking.

Dan Kline  8:00  Yeah, I would actually argue that for not college football, and not pro football in like heavy tailgate markets. But in a lot of markets, like I don’t know, if I still lived in New York, when I want to get out to the Meadowlands or when I want to watch it, like in a bar in an apartment. I think there’s a really big barrier there. Now, let’s look at this from an investing point of view. I don’t think this hurts Disney. You can’t invest in the NFL, but I don’t think this hurts the NFL because they’ll make their money one way or another. And the reality is most teams are going to sell out whether people actually physically go to the games because you’re not going to give up those tickets. But Steve, is this a case of where sort of all the lesser players like if you’re a Disney, you are 123 in terms of IP, and the top five was right below you? Comcast (NASDAQ: CMCSA) is next and they’re a distant second. This is not Coke and Pepsi. This is coke and like RC cola. There’s a few franchises obviously, but Jurassic Park and Fast and the Furious – there’s a couple that Comcast owns. But if you’re Comcast and your streaming platform is Peacock and not Disney plus, are you in real trouble? Like do you have to like literally adjust how you’re making movies?

Steve Symington  9:06  Yeah, I think you do. You know, that’s it’s really a tough go for any any company not named Disney in my opinion going forward. And it’ll be really interesting to see how this unfolds. You know, kind of once we, once life sort of return returns to totally normal. You might argue that it’s it’s kind of normalized already, to some extent. But no, I think what happens is, is we see some of these kind of second and third tier movie producers take some, you know, a few big expensive shots at the big screen. Once the pandemic is basically really in the rearview mirror. And, you know, to that end, you’ve got Pfizer CEO over the weekend, saying that life is going to return to normal within a year and he basically echoed the sentiment of Moderna CEO, which is previous previously expressed, and he also said we might need COVID booster’s annually. But I think maybe once it returns to normal, we do this. But I’m not sure that those big expensive shots at the big screen will pay off. But I think they’ll still take them.

Dan Kline  10:12  I think the Disney’s of the world are going to take them. I think the big franchises are going to take them. I think we’re going to see a massive contraction in the number of screens. And I agree with you, I can’t wait to get to a concert. I don’t live in a great place for the bands I would like to see. So I’m very eager to travel to concerts and I’ve been to the movie theater. My son wanted to watch a wrestling pay per view. And we couldn’t go in person in Chicago to see it so we watched it in a movie theater. And it was a cool experience. It was five hours. So we got to eat. There were drinks. It was a very there weren’t a lot of people there. So I do think there’s uses for theaters.

Dan Kline  10:46  But Steve, do you think aside from the the known franchises, that we’re just going to see movie budgets go down because like Netflix has figured out, hey, I can make an Adam Sandler movie where I’m paying Adam Sandler 20 million, and I’m giving him another 20 million to make the movie like half of that goes to like his buddies. And then they make some piece of crap and people watch it. Sorry to insult you Adam Sandler fans I know he’s a really nice guy.

They filmed a couple of those movies in Swampscott Massachusetts and I’ve heard which is where I grew up, but I heard nothing but great things about them but these are not great movies. Is that just kind of the model where we’re seeing a lot of like Kissing Booth and like I don’t even know the titles are. Like Bright than one where Will Smith battled orcs or was an orc or I don’t even remember or the one where Sandra Bullock wears a blindfold? Like these are all kind of like pretty low rent movies if they were released in theaters that were all considered kind of hits in the in the streaming world, is that the new normal?

Steve Symington  11:37  Maybe I think like I said, I think we’ve got you know, coming to argument for some some pretty expensive like big box office hits and they’ve spent a fair bit of money on some of their series. You know, they’ve talked about how much money they want to spend, wanted to spend on like a Game of Thrones prequel, but I don’t even know if that one’s still on. But I think maybe they’re more they’re smarter about the way that they allocate those budgets. I think those budgets will still be there, they’ll just be used differently, they might you might see more, you know, like a docu-series kind of thing, not a docu-series but longer series where you have basically multiple short movies that make up a season of a new kind of epic adventure or something like that. So I think you’ll see more of that.

Dan Kline  12:23  So I agree with that more of more like HBO style programming where you’re spending significantly and then that hasn’t particularly worked for Apple (NASDAQ: AAPL). We talked a little bit in our Slack over the weekend about how Apple has spent all this money and they have shows people are talking about but nobody’s actually watching those shows and I know Ted Lasso fans would argue with me.

But you only have 20 million US subscribers so these are you know. It’s like Parks and Recreation or 30 rock these are shows that amongst your sort of semi intellectual friends feel like hits, but amongst the broader world, they’re not actually doing that good numbers. But I think Amazon’s Lord of the Rings sequel, or all the things HBO can do with the Game of Thrones world or George RR Martin’s Wildcards is out there being licensed. Like I think you’re gonna see some of those big tickets.

Dan Kline  13:11  I’m watching right now I’m watching Titans, which is a live-action version of the Teen Titans that is incredibly well done that was originally done for the DC Comics service. There’s like six people got and now it’s being repurposed. It’s on HBO, and it’s airing on TNT. So I think you’re gonna see a lot more of that with the theater becomes less important. And for Disney, I think the numbers are pretty easy. Now they’re not easy if you’re Scarlett Johansen, but like something like like Black Widow, maybe that tops out at $500 million, or 400, or whatever the number is. But maybe 5 million people directly signed up for Disney plus after the paid window to watch it. But maybe another 10 million looked at like the bunch of movies you’ll get on Disney plus. So as an artist and someone who’s suing them, how do you figure that out? It’s really, really difficult.

Steve, let’s wrap this up a little bit here. But let me close it out. Are you going to see even things like Marvel where the TV shows become more important? Where like I loved all those shows. But they were all sort of just like, sort of connective tissue and not so much like moving like big narrative things? Is it possible that like the big happenings in a Star Wars or Marvel are actually going to happen on the small screen?

Steve Symington  14:27  I think the model works and it has worked and people have talked for a long time about how about how you know, they’re afraid people are gonna have like superhero fatigue, right? But they’ve been talking about –

Dan Kline  14:41  Not me.

Steve Symington  14:42  Exactly. I mean, for the past 20 years, you could say the same thing like oh, people are gonna get tired of superheroes eventually. It’s like you could do they’ll still be saying that in 100 years, I think they’ll still have enough material to keep going but you know, I think there’s plenty of material where your small screen stuff plays a larger role. And they realize that’s kind of how you keep people and you kind of become more sticky you give them well-made productions like that.

Dan Kline  15:09  So to wrap this up, Steve, here’s what I would say, when you’re looking at this from an investing point of view, I would arguably look at the winners like, like Disney has a much better chance of being a long term success in streaming than Comcast does. And, you know, HBO and Time Warner and that whole mash up with Discovery, that could be interesting, but I’d be really careful about placing my bet, you know, and sorry, to our friend Alan Sokoloff, I’d say like Viacom. And I understand that there’s a lot of like advertising metrics, and Pluto and other things that sort of work there.

But your content isn’t good when, when the SpongeBob movie or like, you know, the fifth rank Star Trek series that really kind of nobody cares about compared to the Mandalorian. I worry about that. This is going to be a world where franchises matter. We’re even seeing it play out now on television, you know, where AMC was a powerhouse for a long time, and now you’re starting to see their shows get old and we saw this with HBO. When when you can’t replace your hits with hits, it becomes very, very difficult. Now, HBO is getting a lot more leeway than a cable network. Steve, I’ll give you the last word here. And then we’ll take a couple of questions.

Steve Symington  16:17  Yeah, I think this is kind of a hurry up and wait scenario just to see how it unfolds. And however it unfolds, I think it’ll be good for consumers. And you know, I think that’s maybe one of the things that a lot of people can take solace in unless you’re maybe an investor in these third-tier services. But I think you’re right you focus on the companies that kind of win in this space as an investor like Disney’s,

Dan Kline  16:41  And we’re in a we’re in a golden age of content and that’s going to lead to a question here from Max Lucas because he brings up something. I definitely want to watch the foundation show based on Isaac Asimov novels, but I I’m tired of getting stuck more streaming services and probably will keep me from watching it. I believe that one Steve is that one on Amazon or is that one on Apple? It’s on one of those two?

Steve Symington  17:02  I honestly don’t know there’s so much I’m so behind.

Dan Kline  17:05  What I would argue with both of those I know it’s on one of those that’s on Apple according to JT Street. There are so many free ways to get an Apple TV plus subscription that you know buy a new iPhone, buy it buy a new device I think Verizon gives a free Apple TV plus. You probably know someone who could let you watch that. There are some shows though where I’ve thought about maybe I’m just gonna wait until I could buy this like rented on Amazon because even though it’s technically cheaper to spend the like 9.99 a month or 5.99 a month to get it, I’m not gonna remember to cancel and I’m gonna end up spending much more money. Heels on Stars is what I’d like to watch that I might wait until either every episode is out and I could just watch it in like 1

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