Hollywood has recently been telling America about the financial trouble
the movie industry is facing. In response, Americans have asked
Hollywood to start producing movies that are good enough to watch and
worth the ten dollars theaters charge! Over the past four years ticket
sales for new movies have steadily decreased. Why is this happening?
Are movie theaters going away? Will movie studios go out of business
and further limit consumer choice? This article will attempt to answer
these questions by examining the challenges and opportunities faced by
both the entertainment industry and consumers.
Why are ticket sales declining?
Home theater systems
Besides the limited quality of movies being produced, many Americans
have set up “home theater” systems in their homes. The decrease in
prices of big screen TVs and theater quality surround sound systems has
produced a generation of movie viewers who have the resources to create
a theater environment in their own homes. When you add the convenience
of not having to tolerate someone else’s crying child and being able to
pause the movie when you need to get a snack or drink there’s really no
question why movie theater attendance is down.
DVD pricing and release windows
For years, the movie business has operated on a series of complex release windows:
First, movies play in theaters, then, six months later, the video
window opens, followed by the opening of the pay TV and then free
television window. (Slate, Downloading for Dollars)
Since the price point for a DVD is lower than taking a family of four
to the theater, many consumers simply wait for the movie to be released
on DVD. DVD players have decreased in price so much they’re almost
ubiquitous in American households and are a crucial part of any home
theater system.
Hollywood is being pressured financially at the theaters by these
situations. A good opening weekend is a huge part of the viability of a
film. Studios spend an average of $30 million per film promoting the
theatrical release. The question many industry analysts are asking is
why the studios don’t shift the release windows, or eliminate them all
together.
Simultaneous Releases?
Some of Hollywood’s biggest players are testing this theory right now, sort of. The film Bubble,
directed by Steven Soderbergh and backed financially by tech
entrepreneur and Dallas Mavericks owner Mark Cuban is the first of six
films planned to test Hollywood’s window system. Released January 27th,
Bubble could be seen in theaters or pay-per-view on cable and from satellite providers through HDNet television. Four days later, Bubble was released on DVD with additional content available on the DVD version.
Bubble is a tightly controlled experiment. The film itself is
short (72 minutes), starred only amateur actors and was mostly panned
by critics. Theatrical distribution was limited to Landmark Theaters
which Cuban owns and a few independents…other theaters boycotted it.
Pay-per-view was also distributed through a Cuban owned venture HDNet
which has distribution through many major cable companies and satellite
providers DISH Network and DirecTV.
A few days after the film’s release, Soderbergh and Cuban declared
victory in their experiment. While theater earnings were only $70,644
on 32 screens, DVD sales quadrupled expectations. A profit sharing
model gave 1% of DVD sales to theaters that showed Bubble. The film itself cost about $1.7 million to make and had profit projections after only a week of release.
Are movie theaters going away?
Why do Hollywood profits matter to American consumers?
If you like economics, the declining movie ticket sales conundrum may
be of interest to you. Most Americans however don’t really care.
Hollywood presents an image of big budgets, expensive cars, mansions
and movie star lifestyles while most of America is buried under credit
card debt and struggling to put gas in their Hondas or pay their
heating bills. But, Hollywood profits should matter, because if a film,
TV program, or documentary doesn’t have a large audience, it gets
cancelled and nobody gets to see it.
In America, we love our entertainment. Despite the quality of a
program, television shows that don’t have big enough audiences for
network TV inevitably get cancelled. In my mind, Arrested Development is one of the funniest programs out there right now. It has had
critical success and a core of viewers, but it won’t be coming back
next season. Fox will burn the remaining episodes in poor and sometimes
random time slots. Even long running, “successful” programs like The West Wing and Star Trek: Enterprise ultimately get the axe. If Hollywood resorted to different distribution
and income models, they could still make a profit and American
consumers could still get the programming we crave.
Will consumers pay for TV programming?
Hollywood has made an assumption that consumers won’t pay for
programming and have to rely on advertisers for revenue. But, over 70%
of Americans already subscribe to cable or satellite TV to get clear
programming. The question isn’t whether Americans are willing to pay,
it is how much will they pay.
Andy Bowers from Slate offers this theory –
The West Wing has about 8 million viewers per week. It costs about
$6 million per episode. In other words, if every person who now watches
the show paid $1 a week, TWW would more than pay for itself.
Obviously not all 8 million viewers could or would pay for the show.
But let's say a quarter of them would. That's 2 million people paying
$3 per episode (or maybe $4, throwing in a buck for Steve Jobs and the
cable companies). The episodes could be viewed on a PPV channel,
downloaded to a DVR, or slurped onto video iPods.
Now, imagine if all TV programming could be distributed in this fashion! Programs like Arrested Development wouldn’t have to rely on a top 20 ranking to stay on the air.
Programming would become a function of consumer demand…American TV
watchers would actually have more choice!
Will advances in technology decrease consumer choice?
Technology creates choice
Technology is the enabler in this scenario. If there were no device for
us to record or playback programs, we would still be at the mercy of TV
broadcasters for our entertainment. The Digital TV migration of 2009 will make it possible for every household to enable
some sort of pay-per-view option, even if they don’t subscribe to cable
or satellite TV. Mobile viewing choices will also be increasing with
products like Apple’s video iPod and DISH Network’s PocketDISH.
So how do technology advances effect movies?
I was noticing the other day after a Shaggy Dog commercial
that most new movies that are advertised heavily are re-makes, sequels
or spin-offs of comic books, video games or TV shows. Think about the
movies released lately – Starsky & Hutch, The Dukes of Hazzard, King Kong and Star Wars: Episode III. I thought it was because Hollywood had finally run out of new ideas, but Edward Jay Epstein explains they do it on purpose!
Simultaneous release on multiple platforms will reduce the $30 million
advertising cost studios use to blitz consumers into going out to a new
movie on opening weekend. In turn, Hollywood will be able to afford to
“green light” more movies that can still turn a profit even with
smaller audiences. If theaters are given a share of DVD sales, the
burden of possibly having less movie goers in their seats is alleviated.
Bubble is only the first of six films to be released
simultaneously by Soderbergh and Cuban. Soderbergh made a prescient
statement in a recent interview, “Name any big-title movie that's come
out in the last four years. It has been available in all formats on the
day of release. It's called piracy.” Indeed, controlling piracy is a
huge motivation behind the industry wide move to digitize TV. Movie
piracy can take several forms including filming the movie in the
theater with a high quality camcorder, or copying the master disc from
a post-production facility.
Conclusions
Bubble was just a test. I think the next few films to be
released by Soderbergh and Cuban will feature A-list actors and really
send a message to Hollywood they must change their business model, or
they could be out of business.
Technology is a great enabler of change and consumer choice. For
Hollywood studios it is the ultimate profit maker and vehicle for “just
in time” product delivery. Simultaneous delivery of new movies through
various outlets like theaters, DVDs and cable and satellite TV
pay-per-view allows more choice for consumers and more choice for
Hollywood to produce innovative, high quality films. These advantages
will also trickle down to TV programming as well.
Hollywood can lead the way in driving digital video content for TV and
movies while remaining in control if they will embrace technological
advances instead of fighting them. The music industry has already shown
suing 12 year olds for downloading pirated songs is no solution for
anybody.
References:
http://www.slate.com/id/2131124/
http://www.slate.com/id/2135544/
http://www.slate.com/id/2134933/
http://news.yahoo.com/s/ap/20060131/ap_en_mo/box_office_bubble
http://the-op.com/saveourbluths/
http://www.slate.com/id/2134803/
http://www.alternet.org/mediaculture/31379/
http://www.politechbot.com/docs/cbdtpa/hollings.cbdtpa.release.032102.html
http://www.tv.com/seinfeld/the-little-kicks/episode/2378/summary.html
http://www.theforce.net/episode3/story/Seven_Admit_Copying_Star_Wars_DVD_96736.asp
http://www.slate.com/id/2134453/
