The COVID-19 pandemic severely impacted the Spanish cinema industry. Cinemas gradually reopened after the initial lockdown, but box office revenues were initially poor. Streaming platforms became a prominent alternative release strategy, altering film distribution channels significantly. Examples include Mulan, Soul, and Wonder Woman 1984, which opted for streaming releases, bypassing or supplementing theatrical runs. This shift prioritized user demand and profit generation, mitigating losses that might have occurred with delayed theatrical releases. Confinement restrictions and studio decisions further harmed the movie theater sector. The Spanish Cinema Federation (FECE) reported substantial losses and highlighted the industry's economic significance, including its contribution to the overall economy, the audiovisual sector, tax revenue, employment, and gross added value per spectator. Given declining theater attendance and the rise of alternative release strategies, this paper analyzes the financial figures of Spanish cinemas to determine the impact of COVID-19 and identify challenges faced by the sector, especially its dependence on Hollywood studios and the threat of streaming platforms. The study aims to highlight the importance of Hollywood cinema in Spain, the impact of streaming platforms during the pandemic, and the present and future effects of the pandemic on Spanish exhibitors.

The literature review examines the significant role of Hollywood blockbusters in the Spanish movie theater sector and the influence of streaming platforms during the pandemic. Traditionally, movie theaters served as the primary window for film release and brand building. However, in Spain, the focus on box office receipts of Spanish films often overlooks the sector's dependence on foreign productions, particularly American films, for revenue generation. The Spanish cinema industry transitioned from a family business model to larger, more specialized operators and multiplexes located in shopping centers. American productions dominate the market, with major studios wielding influence through subsidiaries. This results in an oligopoly that controls release dates and acquisitions, leading to a homogenization of products centered on commercial films and limited space for other types of films. Exhibitors face challenges such as imposed scheduling and unfavorable revenue divisions. American film productions have significant power in foreign markets due to vertical integration, barriers to entry, economies of scale, and the star system, dominating markets economically and culturally. Blockbusters, with their high-concept plots and special effects, are a crucial element in attracting large audiences. American films also show seasonality in Spain, with higher attendance during vacation periods. Despite hopes that digitalization would allow Spanish cinema to compete more effectively, this hasn't happened. The pandemic exacerbated existing problems in the audiovisual sector, with increased streaming consumption. The simultaneous release of films in theaters and on OTT platforms (Day-and-Date release) is becoming increasingly common, posing challenges for the traditional cinema model. While initial concerns about this strategy's impact on theaters were high, studies, including those on the South Korean market, suggest that simultaneous releases aren’t necessarily detrimental to theaters, especially for big-budget films. Streaming platforms offer advantages such as lower costs, personalization, and broader access. However, the high cost of theater tickets, limited offerings, and time constraints remain challenges. The future of theaters may depend on their ability to adapt to changing consumer preferences and offer added value.

This study uses historical data and time series techniques based on fractional integration to analyze the impact of exogenous shocks, like the COVID-19 pandemic, on the Spanish cinema industry. Fractional integration methods assess whether shocks to the series have transitory or permanent effects. The methodology is based on the idea that a time series (xₜ) might need fractional differencing to achieve stationarity. The model used is expressed as (1−B)dxₜ=uₜ, where 'B' is the backshift operator and 'uₜ' is an integrated order 0 process (I(0) – a short memory covariance stationary process). The parameter 'd' can be any real number, representing the order of integration. d=0 implies stationarity, d=1 implies non-stationarity. Higher 'd' values indicate stronger associations between observations over time. The equation can be expressed as an infinite MA representation. d<1 implies mean reversion, and d≥1 indicates permanent shocks. The study employs the Whittle function via a Robinson (1994) testing approach in the frequency domain. Hypotheses I (transitory shocks) and II (permanent shocks) are tested: If d<1, shocks are transitory; if d≥1, shocks are permanent. In the empirical application, the model yₜ = α + βt + xₜ, (1−L)dxₜ = uₜ is used, where yₜ represents total monthly revenues, α is the intercept, β represents a linear time trend, and uₜ follows a seasonal (monthly) AR process (uₜ = φuₜ₋₁₂ + εₜ). The model includes classical ARMA and ARIMA models as special cases (d=0 and d=1 respectively). The McLaurin expansion of (1−L)d is used to express xₜ in infinite AR and MA processes with hyperbolically decaying coefficients. Data on total monthly revenues in euros for Spanish and foreign cinemas are used, along with market share data to determine revenue from Spain, the European Union, the United States, Latin America, and other countries. The period ranges from January 2008 to December 2021.

The data analysis uses total monthly revenue data from January 2008 to December 2021, obtained from the Spanish Ministry of Culture and Sport. Descriptive statistics show that the US accounts for the largest contribution to total box office revenue, followed by Spain and the rest of the EU. The correlation matrix indicates a high correlation between total revenue and US revenue, and between Spain/EU revenue. The analysis uses both the original and log-transformed data. Pre-pandemic results (data ending in December 2019) showed fractional integration (0<d<1) in all series, indicating long memory and mean reversion, but with heterogeneity in the degree of persistence (d). The lowest persistence was in the US (d≈0.28), followed by Spain (d≈0.41) and the EU (d≈0.46), with the highest in Latin America (d≈0.59) and other countries (d≈0.60). Aggregate data showed the lowest persistence (d≈0.16), reflecting the influence of US data. Post-pandemic results (data to December 2021) reveal a substantial increase in persistence across all series. The time trend became significant for US data. The estimated 'd' values are now homogeneous across all series, ranging from 0.54 (EU) to 0.65 (Latin America) for the original data and from 0.63 (Latin America) to 0.72 (USA) for log-transformed data. This indicates that the COVID-19 pandemic increased the level of dependence and persistence across the board. Prior to the pandemic, the US and Spain showed less persistence, facilitating recovery from negative shocks. However, after the pandemic, all series are highly persistent, indicating that the effects of future shocks will be long-lasting.

The findings address the research questions by demonstrating the significant impact of the COVID-19 pandemic on the persistence of Spanish film industry revenue. Before the pandemic, shocks had shorter-term effects, particularly in the US and Spain. After the pandemic, all series became highly persistent, meaning future shocks will have more prolonged effects. This change reflects a paradigm shift in the industry, rendering traditional business models obsolete. The results support previous research indicating a shift towards user-centric models, where the user determines the time, platform, and manner of viewing. The industry is experimenting with new business models, including theatrical releases, day-and-date releases, Pay One models, and direct-to-streaming releases. The findings reveal a clash between commitment and convenience institutional logics, especially with large tech companies acquiring studios and theaters. The increasing power of OTT platforms and their investment in global content creation further complicates the landscape.

This study successfully achieved its objectives of highlighting the importance of Hollywood cinema, the impact of OTT platforms, and the pandemic's effect on Spanish exhibitors. Pre-pandemic, the US and Spain demonstrated less persistent responses to economic shocks, while Latin America and other regions showed greater persistence. However, the COVID-19 pandemic resulted in a significant increase in persistence across all regions. The traditional business model is no longer sufficient for economic recovery. Future scenarios for Spanish cinemas include focusing on mid-budget film releases, implementing policies to regulate OTT platforms, attracting audiences through incentives, and diversifying revenue streams. This involves a shift from solely focusing on viewer numbers to emphasizing aspects like monetization, retention, and customer lifetime value.

The study's limitations include its focus solely on the Spanish market and the use of annual market share data applied across all months due to the unavailability of monthly data on market shares of different cinema products. The fractional integration methodology could be extended to incorporate potential non-linear structures in future research.