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With film production slowly restarting and cinemas reopening amid the COVID-19 pandemic, Credit Suisse analyst Meghan Durkin says Hollywood’s content pipeline looks “increasingly risky.”
And the questions of just how comfortable cinemagoers will be, given the pandemic’s current trajectory and how much COVID-19 protocols and insurance are inflating film budgets, have raised red flags for the Wall Street market-watcher.
“While theater companies are optimistic regarding a stacked 2021 Hollywood film release slate, benefitting from key 2020 titles pushed out to 2021, we continue to see risk to both 4Q20 and 2021 releases due to concerns regarding movie-goers willingness to return to theaters as COVID-19 lingers,” Durkin argued in an Oct. 1 investors note.
As film production resumes after being halted early on during the pandemic, the Credit Suisse analyst sees COVID-19 insurance and on-set costs jacking up studio budgets, and possibly changing the mix of tentpoles that reach the local multiplex.
Durkin said film production insurance that once cost less than 1 percent of a budget now runs to eight to 10 percent of production costs. “On top of this, COVID-19 insurance will cost another 7-10 percent, plus the costs of health and safety protocols on set. We estimate the total incremental COVID-19 costs range from 21 percent to 29 percent of a film’s production budget, or $26 milion on a $100 million film,” the analyst wrote.
Durkin cited the Hollywood studios exploring the Premium video-on-demand window as a new business model as the prospect of more closed theaters and self-isolating audiences embracing streaming platforms has distributors pushing tentpole releases online.
But she urges the studios to reconsider which movies they greenlight in the future, given continuing pandemic risks.
“Studio chiefs that have been focused on evolving film windows and distribution methods might start to reconsider the types of films they produce near term – as comedies and dramas (which studios have been shifting away from in recent years) carry lower production risk than action films (which make up 35% of global box office the past four years),” Durkin argued.
The bottom line, she added, is the recovery for Hollywood’s film pipeline needs to be pushed out.
“With 4Q20, 2020 and 2021 film slates looking unlikely to hold, especially with Hollywood film productions not yet ramping back to a normalized level, and film production costs dramatically higher in a COVID-19 world, we see an elongated, challenging recovery for both film studios and movie theaters,” Durkin concluded.
Oct. 12:00 p.m. Updated to correct the writer of the Credit Suisse investor note being Meghan Durkin.
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