Over the course of the next several weeks, JP Marvel will publish the series “2025: Long Term Effects of COVID-19”, an exploratory imagining of life in 2025, after COVID-19. Each series entry will provide a hypothetical 2025 reflection on the pandemic’s impact since 2020, focusing on a key aspect of American industry, commerce, government, society, or culture.
When COVID-19 struck the United States in 2020, Americans began an era of social distancing. Many of us stopped visiting movie theaters, restaurants, sports arenas, and amusement parks; in lieu of participating in those public/social activities, we stayed home and sought more solitary forms of entertainment. This radical shift had an immediate detrimental effect on many leisure and entertainment companies, but some successfully adjusted and are now thriving in the new social paradigm.
Restaurants had a difficult time staying afloat during COVID-19. Operators who remained opened relied on takeout service, but their anemic revenues barely covered overhead expenses. When local governments finally eased restrictions, restaurants reopened dining space but in mandated stages: outdoor-only seating first, followed by limited indoor dining and then eventually full establishment seating, though overall capacity never returned to pre-COVID levels due to new spacing regulations. Localities that reopened their restaurants too quickly or did not enforce strict social distancing and hygiene protocols suffered relapses: they were forced to return to lockdown status, and their restaurant businesses suffered significantly. Many small operators closed, but the industry did adjust to the new restaurant “normal” and ultimately survived. The past couple of years the restaurant industry has made a stunning comeback, and its success has provided a much-needed boon to the small business sector and labor market.
From the onset of COVID-19, movie theaters suffered dramatically. Unlike restaurants, movie theaters had no takeout services, and most Americans were simply unwilling to take the risk of sitting in a theater to watch a movie. Recognizing this early during the pandemic, some film studios directly released major films through their own burgeoning streaming services (to strong consumer acclaim). Movie theaters pushed back, threatening to boycott the “rogue” studios that did this, but the protest mostly fell on deaf ears. As a result, the industry looked to be heading for permanent closure. Historically, movie theaters operated on thin margins, and secular demand in the form of ticket volumes had been trending downward for years. The prospect of facing these pre-COVID realities with intensifying competition seemed an insurmountable battle. Consequently, large chains shuttered their least profitable locations, and many smaller chains and “mom-and-pops” went bankrupt. In the wake of capacity destruction and changing consumer taste, the US government revisited a 1948 antitrust case and reversed the related legislation that had led to the separation of ownership of movie studios and movie theaters. Amazon, Netflix, and other multimedia conglomerates that owned studios quickly responded by buying or partnering with movie theater chains. They also led a revival of a once highly popular movie viewing option: the drive-in movie theater. Automobiles provided a natural social distancing mechanism for Americans, and the convenience of a drive-in option for movie viewing proved incredibly attractive. Other entertainment providers took notice, particularly music and theater production companies, and they now book these venues regularly to host events. Consequently, drive-in movie theater attendance is growing for the first time in decades.
Not surprisingly, destination spots like amusement parks and museums did not fare well during the COVID-19 pandemic. Like movie theaters, these locations offered no remote offerings and were structurally built to pack many people into small spaces, and Americans were not keen on interacting in such close quarters. Smaller destinations with weaker cash flow balances – independent amusement parks, art galleries, etc. – suffered the most during the pandemic, and many closed permanently. Some large museums and other destinations with the technological capabilities attempted virtual visits, but most of these projects largely failed. When these locations physically reopened, they did so initially at severely reduced capacity, in some case as low as 30% of total pre-coronavirus capacity. For the past five years, they have been working toward returning to full capacity, but they are unlikely to get there due to certain immutable structures and processes incompatible with social distancing requirements. Moreover, most destinations need not worry about returning to those capacity limits anytime soon because current secular demand does not come close to approaching those levels. Disney parks were an exception; their demand was depressed but not below capacity restrictions. Much of this can be attributed to Disney’s tremendous popularity prior to COVID-19, but the company was also well positioned with its thoughtful park designs and sophisticated traffic monitoring/flow control technologies. Disney continued to innovate, creating apps to detect and track potential disease vectors amongst its attendee populations. Some privacy watch groups have criticized Disney, but their protests have largely gone unnoticed or ignored as all park attendees are aware of their surveillance upon entering and seem undeterred.
The sports industry weathered COVID-19 better than the movie and amusement park industries, mostly because it was more financially sound heading into the pandemic. Live sports demand was strong, both through streaming and traditional distributions methods, and their broadcasting rights often led to bidding wars by media companies with deep pockets. The pandemic did shut down, postpone, or shorten the seasons of many professional leagues and, of course, this had a negative impact on the industry. But the sports industry also innovated during this time, and it returned stronger, pumping out content in novel forms. F1 and NASCAR turned to simulated racing with drivers using remote rigs to drive virtual cars. Football returned to Germany in the form of “bubble leagues” in which games were played and broadcasted without live audiences. All athletes and retainers were kept in effective “bubbles,” separated from society and routinely tested for illness throughout the duration of the season. The format worked, and many European countries as well as the US quickly followed suit. When live audiences returned, they were greeted at stadium and park entrances with temperature checks. Inside, seating configurations looked noticeably different, with many sections retrofitted or completely roped off, shrinking the venues’ overall capacity. The cleanliness at some of these locations now rival that of fine dining restaurants. This has all led to new expenses for operators, who have successfully passed them on to consumers because hardcore sports fans are perfectly happy to pay more in order to enjoy live entertainment once again. COVID-19 did claim some casualties, but the sports industry is going strong today despite its much higher operating costs. It does have competition though, and one competitor that grew immensely in popularity during COVID-19 is video games.
Video games had been on a rapid rise leading up to 2020. As internet capabilities increased, allowing for digital downloads and social gaming, video games exploded in popularity. The pandemic did not slow industry growth; in fact, it accelerated the timetable of mass adoption by 5 years. Americans with no prior interest in video games started playing them since television and film production had slowed to a trickle and live sports halted altogether. Video games also provided people a means to meet and interact with other people regularly. Nintendo, one of the original videogame companies, had one of its best quarters for sales in its 100+ year history during the shutdown. This success was not isolated to a single company; many industry players thrived during the pandemic. Video games’ global addressable market was $152 billion in 2019, up 12% from the prior year. In 2020, the market grew 20% to $180 billion. Today, the global market is $240 billion. Although COVID-19 passed and other forms of entertainment became available, video gaming continued to increase, both in participation numbers and usage frequency.
We will have more reports in the coming weeks on what the world might look like in 2025…