Last year was not a good one for the movie industry. Box-office revenue fell for the second straight year and ticket sales (a much more telling statistic) fell to a 16-year low point. Theater ticket sales haven’t been this low since 1995, when the most successful movies of the year were the original Toy Story and Batman Forever. This low water mark coincides with ever-rising ticket prices, which at an average of $7.89 per ticket are at their highest point ever. Half a billion fewer tickets were sold in 2011 than the year before, and a slew of high profile big-budget blockbusters couldn’t save a troubling year for the movie industry.
The Hollywood Reporter’s “Year in Review” for 2011 included their choices for the 15 biggest flops of the year, including notably Mars Needs Moms, Conan the Barbarian and New Year’s Eve. Collectively these 15 movies lost an estimated $140 million at the box-office. Keep in mind that the studios which produced these films collect only about half of its profits, with theaters collecting much of the rest. And that doesn’t include the cost of advertising (roughly 50% of the film’s entire budgest); all told, you have a vastly larger loss than the box-office would suggest. The average rating for these 15 films on the movie review aggregate site Rotten Tomatoes was a paltry 37%; a decidedly “rotten” critical response to these box-office losers.
This lackluster critical and commercial response echoes a sentiment voiced by influential players inside the industry. Michael Lynton, CEO of Sony Pictures Entertainment said this in Spring of 2011: “So far there is just nothing terribly compelling about what we’re delivering as an industry.” Despite some heavy-hitters later that year (most notably sequels to Harry Potter, Transformers and Pirates of the Caribbean) a subpar Christmas season for movie theaters sealed the fate of a decidedly down year for the industry.
So what is causing this decade-and-a-half long slide in ticket sales? The vague and unmeasured barometer for Hollywood fare is the casual moviegoer, who in my experience has suggested a lack of originality in Hollywood’s yearly line-up, an overabundance of sequels and adaptations with too much reliance on spectacle and flashy, soulless visual effects. Yet this opinion will not stop many of these same moviegoers from buying tickets to tent-pole releases such as Transformers, Batman or The Avengers (often with inflated IMAX and 3D prices). In fact, the notion that there is no originality in Hollywood may be overstated. From 1995 to 2012, the highest grossing movie source has been Original Screenplay (at 48% of market share) with Based on Book/Short story and Remake in 2nd and 3rd, respectively. The tidal opinions of general audiences, while interesting as vague indicators or hot-topic concerns, do little to answer the question of the industry’s prolonged slump. If we are to think of Hollywood as an industry with one main product (an oversimplified equation for the sake of this argument) it would be worthwhile to examine just what that product is and how it has evolved in the last few decades.
Many of the storylines in the business of modern cinema can be traced back to 1948 and the U.S. Supreme Court’s Paramount Case. Before that decision movie companies were vertically integrated, meaning they controlled every phase of the movie-making process, from production to exhibition. Due to this game-changing antitrust case, studios were forced to give up control of their movie theaters, which allowed a larger number of independent studios to gain a foothold and produce their films. (Since then, many major studios have been immersed in larger media conglomerates such as Viacom and GE and have figured out ways around the Paramount decrees). But in the late 1940’s and onward into the 1950’s, this transformative case coincided with the advent of television as a profitable and affordable entertainment source for American families, effectively spelling the end of the old Hollywood studio system.
Studios needed to come up with a response to television, a way of giving moviegoers something they couldn’t get more easily in their home through regular TV programming. This led to studios introducing Cinemascope, Technicolor, 3D and a number of other technological gimmicks in order to draw in moviegoers, but to little avail. These years of unsuccessful scrambling were called “the horrible decade” of Hollywood by Life magazine in 1957.
In the end it was a new brand of directors, producers and writers that turned things around and gave rise to an era known as New Hollywood. These young moviemakers were given more control than ever by studios; they were typically film school-trained and their movies emphasized realism, location shooting and narrative themes of counterculture and youth rebellion. Some of the directors to come out of this epoch include Francis Ford Coppola, George Lucas, Martin Scorsese and Steven Spielberg. More than ever before, Hollywood films challenged audience perceptions and evoked complex emotional reactions.
Then two films were released that changed the landscape of Hollywood forever. Steven Spielberg’s Jaws (1975) and George Lucas’s Star Wars (1977) came out to huge critical and commercial success, and although we didn’t know it at the time, they marked the beginning of the ‘Blockbuster era’ of Hollywood. The term blockbuster has come to mean a high-concept movie (it can be summed up in a phrase or sentence) with a large production budget, its release preceded by a blitz of saturation marketing and commercial tie-ins (think “happy meals,” toys and T-shirts). They are sometimes called “event” films (in Super 8, for instance, a train crashes releasing a giant alien) and there is often an emphasis on spectacle and visual effects. Movies like Jurassic Park, Titanic and E.T. are examples of successful blockbusters: movies with hefty price tags that were still able to provide a good return investment through merchandise, home video and rental sales and the worldwide box-office gross.
Since then, studios have been chasing the successful blockbuster. This summer will see the release of The Dark Knight Rises, Prometheus and The Amazing Spider-Man, and we have already seen the trailers, billboards and print ads for these movies for months now. Studios are gambling on these heavy hitters to come through at the box-office, and the success or failure of any of these films can define a studio’s entire season.
Which brings us back to 2012, and last year’s historically disappointing year. If Hollywood’s strategy and product has changed little in the last couple decades then what has changed to cause consumers to pass on the theater experience?
The biggest reason may be ticket prices, which have increased in price by 81% since 1995, when the average ticket cost $4.35. These constant price hikes have ballooned with the explosion of 3D and IMAX movies, the tickets for which cost almost twice as much as the 2D alternatives. And as of last Friday, some major theater chains (Regal, Cinemark, AMC) have again increased the price of movie tickets, with 3D going up by an average of 8.3% and IMAX 10%. Theaters are risking a potential backlash in hopes that customers will shell out the extra cash the way they did for past releases like Avatar and Alice in Wonderland.
“This is a very dangerous situation for the movie industry,” says Paul Dergarabedian, analyst for Hollywood.com, who warns that “there is a point when people will literally just stop coming because they can’t afford it.” Brandon Gray, the president of the website Box Office Mojo says “they’re probably over-estimating the appeal of 3D.”
Another factor controlled by theaters is the price of concessions, which are notoriously exorbitant. Things like candy, popcorn and pop are promoted as essential parts of the movie-going experience while they can easily cost more than the price of the movie tickets themselves. A family of four paying the average cost of a 3D movie will already have spent about $45 just to buy their tickets, and they could easily double that price if they buy snacks and drinks. Movie critic Roger Ebert posits in his blog why movie revenues are dropping, and he ascribes a lot of it to “the theater experience.” He blames high ticket prices and “grotesquely oversized” and overpriced refreshments. He says “Americans love the movies as much as ever. It’s the theaters that are losing their charm.”
Americans more than ever have an alternative to the theater experience, and it is in their own homes. Large picture-perfect HDTVs and readily available DVD and VOD (Video On Demand) services have given movie watchers an affordable and comfortable substitute for increasingly disenchanting theater chains. Services like Netflix, Roku, YouTube, Comcast OnDemand, AT&T U-Verse and Redbox give movie lovers unprecedented access to movies around the clock, all from the comfort of their phone, television or computer. Netflix is now the largest single source of peak internet traffic in North America, accounting for nearly a third of bandwidth usage during peak hours. Netflix and these other services tap into a desire for instant gratification that movie theaters just can’t deliver.
So what does this all mean for Hollywood?
It doesn’t mean that it’s time to panic, yet. A bad year or two will mean little in the broad scheme of things if the industry trends upwards again. Despite the drop in revenue opening weekends have stayed relatively strong, which means that diehard theater-goers will continue to go to the movies even if it costs them more. Studios are aware that each Avatar or John Carter is a hefty risk because of the price, but as long as the sum of these bets keeps paying off for The Big Six the system will continue in its current state.
2012 has already gotten off to a stellar start, and studios have every reason to believe that this year will be a rebound from last year’s box office malaise. Lionsgate’s The Hunger Games earned $155 million on its opening weekend, the largest ever take from a non-sequel (shattering a record that had been set mere weeks before with Dr. Seuss’ The Lorax, which earned $70 million in its own opening weekend). The Hunger Games stayed on top of the charts into April, outperforming analysts’ expectations and giving a huge boost to Lionsgate, which has had little to brag about lately. Disney’s The Avengers has enjoyed spectacular success at the box office, setting records for the largest opening day and 3-day hauls in box office history. And at $1.2 billion worldwide it is still going strong.
The 1st Quarter of 2012 is up 23.2% from last year at the same time, and industry hand-wringing has given way to high fives. Now we stand on the edge of summer with more blockbusters looming on the horizon and studios hoping that the party will continue.
So we can forget about 2011, right? Not quite. Even if 2012 continues on an upswing there is that troubling statistic that started all of this off: ticket sales that have been dropping for 16 years. That is not a fact that studios can afford to ignore, and although blockbusters are not going to disappear overnight, it’s hard to stop the rumblings of eventual change. Studios are cashing in on effects-driven blockbusters but audiences are more film-literate than ever before, and want great stories and characters. Theaters are making up for a drop in sales by upping the cost of going to the movies, but that strategy will only work so long before the bubble bursts. Eventually the system will need to evolve beyond its current state to become sleeker, more affordable and more responsive to the desires of a diverse and technologically-savvy audience. Perhaps Hollywood will grow by getting smaller, like in the days of New Hollywood (now Old Hollywood?) when movies like Taxi Driver and The Godfather turned a generation of movie watchers into film critics. If there is one thing we’ve learned it is that history repeats itself, and Hollywood would do well to take a moment from chasing the money to look at where it’s come from and where it’s going next, or risk going the way of the Romans. Eras come and go but without the benefit of hindsight it is impossible to say just when one has ended and another begun. But I suspect that we are in the midst of a shift, and just as a light bulb flares brightly before going out, I think the blockbuster age is turning into something else even as it breaks its own records.
Tags: blockbuster, Box Office, business, film industry, Hollywood, Jaws, movies, New Hollywood, Paramount Case, Roger Ebert, Star Wars, Steven Spielberg, The Avengers, The Hollywood Reporter, The Hunger Games, theaters, Ticket Sales