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Sunday, April 6, 2008

Are curtains coming down on movie theaters?

Hollywood is able, at the end of most Decembers, to proclaim the previous year its most successful ever. While true, at least on the surface, it masks a long-term problem: People just aren’t going to movies much anymore.

Movie attendance levels occasionally rise from the previous year, but the general trend has been downward. The biggest movie-going year was way back in 1946, when enough tickets were sold for an astonishing 90 million people to go every week. Then television came in and stole the theater’s audience, followed by competition in the form of video games, computers and a general lessening of audience amazement. Total 2007 attendance was down 8% from the year earlier, and the current year’s box office looks unlikely to top last year.

The “most successful year ever” award is thanks to the ever-rising price of tickets, which averaged $6.88 in 2007, up 33 cents from 2006 and up more than $1 per ticket from 2002.

So it’s no surprise that film studios are struggling. Bernstein Research analysts said that most studio returns “have not meaningfully improved over the past decade” and that while revenue growth typically “has been matched or exceeded by expense growth, this hope of spending more to make more has generally not panned out.”

In a research note titled, “Isn’t It Time to Rethink the Film Studio Model?” Bernstein notes that while theater audiences are smaller, the home video market has exploded. The firm identified three potential growth opportunities:

  • Blu-Ray DVDs. The firm estimates that Blu-Ray revenue will be $4.2 billion in 2011, up significantly from its 2009 estimate of $1.1 billion.
  • Online distribution. While noting that the results for Apple’s online movie distribution hasn’t met expectations, Bernstein expects large growth in this area as more titles become available. Currently, only three of the top 10-selling DVDs are available online.
  • Video on demand. Bernstein said that from a financial standpoint, “this represents the Holy Grail for studios,” as it provides better economics than physical rental. “In the rental market, the studio takes 30% of the retail revenue whereas in a video on demand purchase, the studio takes 70%.”

It’s almost guaranteed that studios will look to these areas to combat lagging audience rates, but don’t expect last picture show-type theater closures. Mega-theater IMAX has been gaining popularity as studios release their biggest titles on the biggest screen for the biggest possible revenue (average IMAX ticket is well above $10). If anything, expect the process of going to the movies to regain some of the “event” status it had back in the 1940s, and possibly for audience amazement levels to creep back up.

(,2/4/2008 Author:Ryan Vlastelica)

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