Welcome to CineScene.
I had intended this blog to be published in the magazine that I previously worked for, but it seems that (to put this in the kindest words I can find) I have been made a victim of the economic downturn. That’s transition # 1.
So I am shifting my writing to this blog, in hopes of attracting enough of an audience to make it worthwhile to continue. (Transition # 2.)
As I go along, I will include previous blogs, as they may be of interest to film professionals and movie fans.
And now for Transition # 3, the actual subject of this blog – changes in the film industry, exhibition side. Let’s start with a bit of history.
From 1981 to 2005, studio income from Theatrical Exhibition shrank from 58% to 21% of Hollywood’s total income landscape, while Video Sell-through grew from 7 % to 49%.
That’s a huge change, and it continues to haunt the landscape today – the stalled Screen Actors Guild negotiations are hinged to these figures in both directions: the actors want a bigger share of the pie, and the studios want to keep the bottom line down (read: pay as little as possible).
Meanwhile, from 1981 to 2005, Video Rentals (as a percentage of the whole) stayed the same, while Broadcast Network income dropped from 10% to 1%, and Basic Cable grew from nothing to 3% of the studios’ income.
Studio revenues account for 80% of almost $12BB in consumer spending on sell-through sales, while the studios gained only 47% of the $8.5BB box office, 26% of $8.25BB in rentals, and 21% of $8.4BB from Premium TV, excluding Video on Demand (VOD) and Pay Per View (PPV) – the remaining percentages went to distribution partners.
And in the nascent VOD and PPV areas, the studios took in 60% of $125MM in VOD receipts, and 48% of $200MM in PPV income.
Though they get good percentages on VOD and PPV (studio share, 60% and 48%, respectively), the income is not large enough to warrant major interest (a third of a billion dollars, or less than 1% of total income from all sources).
Clearly, the future of Hollywood is in DVD sell-through (studio share, 80%) – or whatever the next generation of consumer-owned titles will be.
It doesn’t take a math whiz to see that 47% of 21% (Theatrical Exhibition) is a whole lot less than 80% of 49% (Sell-through).
Ok, that’s the money, but let’s look at consumer motivation.
Previously, no one thought that people would want to own films the way they own books – a library at home of favorite titles.
But DVD ownership is a logical extension of the desire to own knowledge or at least to hold onto information, and someone other than a few Kassandras should have seen this trend in advance – people buy and keep books, even though they may read them only once or twice in the time of their ownership.
In 1998, the first year that DVDs were offered on the market, DVDs represented about 8% of total ‘home video’ sales (total sales of $6.5BB).
But by 2005, DVDs had virtually wiped out VHS sales, having reduced them to just $500MM of the total $16.5BB – in 2006 there were virtually no VHS retail sales, and the market was static at $16.5BB. Translation: DVDs added ten billion dollars to the total income of retail sales, at the same time that they caused a decline of $5.48BB in VHS sales – VHS declined to just 3% of the retail ‘video’ market.
Early projections that HD-DVD would outstrip standard DVD seem to be coming true, as Blu-Ray’s market share has grown.
In fact, ‘a la carte’ PPV, VOD, and Internet video promise to be the fastest-growing segment of the studios income stream in the coming years. The 2005 aggregate gross of those three segments was $ 37.8BB retail sales, with studio revenue estimated at $17.26 per transaction.
The numbers will look different now, but the preceding figures came from Adams Media Research, a topline marketing research firm.
So what does it all mean? It means that portable movies are the way of the future, whether on disks or thumb-drives, or stored in iPods or your cell phone. And when we say ‘portable movies,’ we actually mean any kind of narrative moving-picture experience – feature and short films, TV shows, cartoons. But that alone is only half the story.
Another segment of this tale of the future is in how the studios will handle exhibition – and that has a couple of noteworthy components. The first is acquisition.
Previously, each major studio need a new film for the pipeline every two weeks. Why? To hold places in the exhibitors’ (theater owners’) calendars, so that a film from a rival studio would not take that screen.
Studios pretty much figured on 24 films per year, and they initially made almost all of them in-house. The studios made a range of films, with different budgets and bound for different markets or audiences – many were small films that could be sacrificed to make room in the exhibitors’ calendar.
But as budgets soared and the value of money declined, the studios started negative buys. To fill in their slates, the studio acquisition reps bought films at festivals or at film markets – especially foreign films or those that would fit into ‘indie’ slots. In 2008, there was a feeding frenzy at Sundance, with bidding wars going on for acquisition of new indies.
Why? Because the studios had cut their production slates so drastically – they were making (a very rough) half of the number they had made a few years previous.
And at the most recent Sundance festival, reps were buying films they had not even seen. This interesting fact was printed on the same page that claimed that Box Office receipts were up for January, in spite of the predicted collapse of the American economy.
Ah, the American economy. Yes, the playing field is changing under our feet. And people are always looking to the last war – or, in this case, the last depression. I keep hearing that movies are ‘recession-proof’ and that people went to movies to escape their woes during the 30s. But theater tickets did not top ten bucks then, and the studios did cut budgets, like it or not.
There’s a big difference in two bits for an A movie and a B movie, plus cartoons and newsreels. And you could stay in the theater all day if you chose – which many people did, to say out of the cold in the winter and out of the heat in the summer.
But let’s get back to the second component of how Hollywood will handle exhibition in an uncertain future: marketing.
We hear much of the long tail these days, and not enough people know what that means. In the case of exhibition, the long tail means finding niche markets or select groups to whom to promote a film.
Gone are the days of full-page ads – hell, there may not even be newspapers around when you are reading this – and marketing to a wide audience. Using focused marketing, the studios can reach only soccer fans or only horror fans or only tightly-framed demographics.
As costs go up and marketing techniques become more sophisticated (and your personal preferences become commodities traded behind the computer screen), we will see the entire scale of marketing change.
And that’s the topic for a future CineScene blog!
(Well, along with why you won’t really have to worry about watching films on your phone.)
David Hakim is an assistant director, producer, and publicity expert who developed campaigns for every major Hollywood studio and handled publicity for the Motion Picture Academy. Find him in the Reel Directory online: www.reeldirectory.com.
All material copyright 2009 David Hakim and may not be duplicated - ALL RIGHTS RESERVED.