Commentary
Thinking Outside The Box Office
The
continual, almost obsessive, reporting about falling attendance
at movie theaters this year so shaped the story about Hollywood
that even by August the New York Times could report, "Hollywood's
box office slump has hardened into a reality." But is it
Hollywood's reality?
Yes,
movie attendance in the U.S. was down in 2005, but that
is not unusual. In most years since 1948, when 90 million
Americans -- two-thirds of the population -- went to the
movies in an average week, attendance has declined. And
now only about 10% of the population goes to a movie theater
in an average week. But don't cry for Hollywood: In 2005,
more people than ever watched its products -- though not
in movie houses.
The
fixation on the movie box-office, which is abetted by the
media's treating box-office numbers like some great sporting
event with a weekly "champ," obscures the reality that Hollywood's
real business is not about making movies any more; it is
about creating licensable properties -- including TV programs,
cartoons, videos and games -- that can be sold in a multitude
of markets.
Of
course, Hollywood once was entirely about movies for theaters.
Up until the late 1940s, virtually all of the major studios'
revenue in America and Canada came from the proceeds of
the tickets sold at movie houses, which they either directly
owned or controlled through "block booking" contracts. They
could largely determine where, when and for how long their
films played, without independent and foreign competitors
cutting into their box-office harvest. And since they were
then the only place in most cities where people could get
their diet of motion picture entertainment -- including
newsreels and cartoons -- they could count on a huge weekly
turnout driven not by national advertising but by habit.
This all ended
by 1950. The U.S. government broke up the studios' monopoly
over the theaters, forcing them to divest themselves of
theaters and abandon block-booking contracts; and the advent
of home television ended their monopoly over the audience
for motion pictures. Instead of paying to go to movie theaters,
a large part of its former audience now chose to watch sports,
games shows and movies at home for free. By 1959, theaters
had lost over 60% of their audience. By the late 1980s,
even though the population had nearly doubled, annual ticket
sales had fallen from 4.6 billion in 1948 to just over one
billion. Even worse, the studios had to split what was left
with independent and foreign filmmakers. To survive, Hollywood
had to reinvent itself. How did it do so?
Hollywood
is never short on imagination. Instead of relying on habitual
moviegoers to fill theaters, it created audiences for each
and every different movie released by bombarding potential
moviegoers for a particular film with expensive, 30-second
ads on national TV, usually seven ads in the week preceding
the opening. For this strategy to work, studios needed to
target a demographic that predictably clustered around the
same TV programs, and that could be motivated to leave the
comfort of the home on an opening
weekend. They zeroed in on the only people they could reliably
lasso: teenagers.
The
problem with audience-creation is that, even though studios
could succeed in filling theaters on opening night with
movies that triggered teenage interest, it often cost more
just for advertising and prints than they got back as their
share from ticket sales (theater-owners keep about half)
Obviously, this would be a formula for bankruptcy -- if
the movie business still depended mainly on ticket sales.
But with color TV sets in virtually every home, and with
less than 2% of Americans going to movie theaters on an
average night while over 95% remained home to watch, Hollywood
logically followed its audience from the big to the small
screen. Underlying reality: In this pursuit, the studios
had the good fortune of losing their lawsuit against the
VCR. And equally fortunately, the teen audience they recruited
also proved to be the primary audience for profitable videos,
games and other licensable properties.
In
2005, the ticket sales from theaters will provide less than
15% of the studios' revenues while home entertainment, in
the form of free TV, Pay-TV, DVDs and videos provided more
than 85%. (See Chart). Movies
now serve essentially as launching platforms for licensing
rights, much like the runways at haute couture fashion shows.
To be sure, they are not the only launching vehicle -- as
Jeff Bewkes has brilliantly demonstrated with HBO series
such as "The Sopranos" (which may partly explain his becoming
president and COO of Time Warner, Inc.); but the theatrical
release of movies remain the usual means for sufficiently
establishing products in the public's mind so they can succeed
in other more profitable markets, such as DVDs, television
and toy licensing.
Even
in terms of the box office, Hollywood did not fare badly
in creating audiences this year. Although U.S. theaters
took in 8% less money in the first nine months of 2005 than
they did in the same period in 2004, the movies of the major
Hollywood studios -- Fox, Sony, Warner Bros., Disney, Paramount
and Universal -- taken together, were up, not down. From
Jan. 1 to Sept. 30, 2005, the movies of the six majors took
in $4.7 billion compared to $4.5 billion in the same period
in 2004. They did so by increasing their slice of the total
box-office pie from 68% in 2004 to 75% in 2005. (See
Chart)
*
* *
The
losers were the independent studios that specialize in more
grown-up movies, such as Lions Gate Entertainment and Newmarket
Films, and the two so-called "studioless" studios, DreamWorks
SKG and MGM. They suffered 40% box-office declines in 2005
and have now both sold themselves to major studios and their
financial partners -- MGM to Sony, DreamWorks SKG to Paramount
-- while Lions Gate Entertainment has dropped out of the
business of opening movies in wide releases simultaneously
on 3,000 or more screens.
If
the Hollywood studios now have a virtual monopoly on such
wide releases, it is not an accident. The Big Six can prudently
afford to make the huge investment in audience-creation
necessary to open a movie on thousands of screens because
they, unlike wannabe studios, have the muscle to earn it
back by leveraging their products across many licensing
platforms -- including those, such as the TV networks, that
belong to their corporate parents. The Hollywood studios,
with their repertory of successful amusement-park franchises,
including "Star Wars," "Spider-Man," "Batman" and "Pirates
of the Caribbean," and the proliferation of new platforms,
can look forward in 2006 to a very happy new year.
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