Dear HHSE Friends & Followers - We hope that everyone took some time off today to reflect on the works of MLK, our own goals and achievements, and on the monumental / historic events now impacting the world (from political and economic strife, to the ever-worsening COVID-19 Pandemic). Truly, we are living in historic times.
Which brings us to the earth-shaking / paradigm shift now impacting the entire Entertainment Industry.
COVID shut-downs have accelerated the prior trend away from theatrical attendance and towards home-movie experiences. The availability of large-screen, HD Televisions at affordable prices... dramatic drop in costs for significant quality surround-stereo sound... and the exploding availability of quality entertainment through streaming services have combined into a perfect-storm for a cultural shift in how we receive and enjoy entertainment.
DISNEY had no choice after their March 9, 2020 "premiere" event of MULAN. Just 2-days later, Broadway shows and most movie theatres nationally were shut down for the first wave of the COVID-19 pandemic. MULAN had been scheduled to open on over 4,000 screens in March, but Disney had discovered that there were no theatres available, and no audience enthusiasm to sit in a room next to coughing strangers for 2-hours. So, on Sept. 14, 2020, Disney pursued a bold move to open MULAN onto their Disney+ streaming service at a premium rate. Theatre owners were enraged, but could not protest due to ongoing shut downs. Industry experts freaked out and predicted horrible results for Disney. However, consumers (with their impressive big-screen TVs and surround sound systems) said "bring it on..." and Disney grossed over $300-million in less than a month. They didn't have to split this money with theatres... they didn't have to incur the costs of shipping displays, masters and other promotional materials to 4,000 locations... and they didn't have to WAIT three months to be paid. The experiment was a success... but was it a fluke?
Since that time, other films have embarked on either a "short-window" to streaming (i.e., 30-days) following a limited theatrical launch - to "simultaneous" release to theatres and streaming.
This weekend, the second MAJOR title to break the prior rules and release windows opened to more phenomenal streaming success: "NEWS OF THE WORLD" - a period western starring Tom Hanks - has been # 1 on almost every premium streaming platform (and this has happened after a small theatrical release less than a month ago). Universal has not yet announced their mega-haul from this weekend's streaming of "NEWS OF THE WORLD." But industry insiders are already pegging the revenues to settle out in the $250-million range... which is many times greater than streaming revenues under the old "theatres first" model.
One of the interesting observations resulting from the Hannover House audits of our activities these past five years has been the amount of money the company has SPENT in opening films in theatres. On the low-end, each location must have a master, posters, the "Virtual Print Fee" (Projector access), and ideally a small amount of social media / ad support. So it has been costing HHSE about $2,000 per location as the bare-bones cost of admission. For higher profile films, the studios like to send banners and standees to theatres... they like to pay for premium screen visibility for upcoming trailers months in advance... and they like to buy tonnage of ads on TV, internet, print and radio... all designed to drive awareness and pack the opening weekends.
For a studio release onto 2,500 locations, the typical "bare bones" expense is more in the range of $10,000 per location... creating a WHOPPING out-of-pocket marketing cost of about $25-Million. So what does this give the studio execs (besides ulcers)? This level of marketing gives the film a legitimate shot a grossing in the top five releases for any given weekend. Big films can often hit $12,500 "per screen average" box office results... which (if released onto 2,500 screens), could result in an opening weekend of about $31-Million. Sounds good compared to the $25-mm expense, right? Wrong. The THEATRES demand a big piece of the box office... which can be 30% for a huge hit... all the way to 65% for an independent studio title. If such a release ends up grossing $60-million over the course of four or five weeks... then the Studio will be comfortably into recoupment of their releasing costs (but not yet recouping the costs of producing or acquiring the movie).
All of these calculations have been thrown out of the window now... with COVID destroying the vice-grip of the theatre chains, and the studio prisoners finally tasting meat. A distributor with the right product (often with the right stars), can now experience a two-or-three-fold improvement in bottom line results from the new "stream it as soon as you can" paradigm.
Which brings us to Hannover House and MyFlix. Over the course of the 28-years that Hannover House has been operating, the Company has re-invented itself several times, in an evolution that parallels the changing entertainment marketplace. Five years ago, we recognized that direct-to-home streaming was the next big thing, and we developed a multi-studio concept that is finally being launched under the MyFlix banner. Also, over the past few years, we moved away from packaged goods (DVD and BluRay) in favor of how theatrical exposure would help with streaming advances from Netflix and other Subscription VOD sites. While theatres are temporarily shuttered (for the most part), we do believe that there will remain a good business for the right "event-level" sort of film (where consumers will still want to see it on a ginormous screen as opposed to home viewing). But what we see as the more obtainable and assured business model is the direct-to-streaming (or simultaneous release onto streaming and theatres), for the next few years.
Over the next few weeks and months, the results of the simultaneous achievements of the MyFlix launch and the F10 / S1 Offerings from HHSE, are expected to create revenue resources unlike those ever before experienced by the Company. Some proceeds will be generated from transactional video-on-demand "one-off" sales... and likely more will be generated from all-you-can-watch monthly subscriptions. But the other side of the company's 2021 model - the creation of original productions - now adds a tremendous component of exclusivity and world-premiere status opportunities for films that HHSE and MyFlix can facilitate together.
Recently, this blog mentioned the opportunities for feature financing from State incentives, co-production opportunities, pre-sale partnerships with international distributors and entertainment lenders acting as bank "gap" financiers. This sort of consortium of funding elements works ideally for films in the $5-mm to $15-mm production range... and example of which is show in the chart below.
We believe that HHSE and MyFlix can use the changing V.O.D. income paradigm as a key USA distribution component to not only build consumer traffic and revenues for MyFlix... but to also build a sustainable and valuable film library for revenue generation in perpetuity.
While the political world may be on fire... the economy is on eggshells... and COVID is on a spike... you can rest comfortably knowing that HHSE and MyFlix are on target for a tremendous revolution and evolution that will make the coming days and weeks an exciting launch for what will be an even more impressive 2021 for our shareholders.
Hold onto your seats, friends... the engines are now warming....
