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.
<b>Why are ticket sales declining?</b>
<i>Home theater systems</i>
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.
<i>DVD pricing and release windows</i>
For years, the movie business has operated on a series of complex release windows:
<i>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)</i>
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.
Some of Hollywood’s biggest players are testing this theory right now, sort of. The film <i>Bubble</i>, 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, <i>Bubble</i> could be seen in theaters or pay-per-view on cable and from satellite providers through HDNet television. Four days later, <i>Bubble</i> was released on DVD with additional content available on the DVD version.
<i>Bubble</i> 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 <i>Bubble</i>. The film itself cost about $1.7 million to make and had profit projections after only a week of release.
<b>Are movie theaters going away?</b>
<i>Why do Hollywood profits matter to American consumers?</i>
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 <i>nobody</i> 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, <i>Arrested Development</i> 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 <i>The West Wing</i> and <i>Star Trek: Enterprise</i> 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.
<i>Will consumers pay for TV programming?</i>
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 <i>how much</i> will they pay.
Andy Bowers from <i>Slate</i> offers this theory –
<i>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.</i>
Now, imagine if all TV programming could be distributed in this fashion! Programs like <i>Arrested Development</i> 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!
<b>Will advances in technology decrease consumer choice?</b>
<i>Technology creates choice</i>
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 <a href="http://www.ideamarketers.com/library/article.cfm?articleid=73565">Digital TV</a> 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.
<i>So how do technology advances effect movies?</i>
I was noticing the other day after a <i>Shaggy Dog</i> 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 – <i>Starsky & Hutch</i>, <i>The Dukes of Hazzard</i>, <i>King Kong</i> and <i>Star Wars: Episode III</i>. 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.
<i>Bubble</i> 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.
<i>Bubble</i> 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.