[IP] Why are Movie Theatre Revenues Declining?
Begin forwarded message:
From: Barry Ritholtz <britholtz@xxxxxxxxxxxx>
Date: July 19, 2005 2:32:15 PM EDT
To: "Dave Farber (E-mail)" <dave@xxxxxxxxxx>
Subject: Why are Movie Theatre Revenues Declining?
Hey Prof,
For IP, if you like . . .
Why are Movie Theatre Revenues Declining?
http://bigpicture.typepad.com/comments/2005/07/declining_movie.html
There's been plenty of chatter about declining movie theatrical
revenue. You just know the MPAA is itching to tie this onto piracy
somehow and thus get some favorable legislation. Let's nip this one
in the bud, shall we? 5 factors are hurting theater revenue:
1) Social factors eroding theater environment (talking, cell
phones, babies crying, etc.);
2) Sacrificing long term relationships with theater goers for
the increase in short term profitability (commercials, no ushers, etc.);
3) Higher quality experience elsewhere (Home theater);
4) Declining quality of mainstream movies;
5) Easily available "Long Tail" content alternatives (Netflix,
Amazon).
While content quality has indeed worsened over the years, it
shouldn't be much of an issue this Summer: As of late, there have
been a spate of movies which have been either well-reviewed (Batman
Begins) or had good word-of-mouth (Wedding Crashers) or incredible
special effects perfectly suited to the big screen (Revenge of the
Sith, War of the Worlds).
So what else might be the source of declining theatrical fortunes?
How about the movie-going experience itself? The adventure of heading
to a cineplex is becoming a less and less pleasant ordeal. Many of
the headaches involved have been painfully detailed by Bob Lefsetz'
readers (see below).
Note that we are not even discussing content quality at this point.
Then there are the adverts. A recent L.A.Times article -- Now
playing: A glut of ads -- points out that even studio executives were
stunned by 15 minutes of commercials theatre goers had to endure
after paying their 10 bucks:
"As head of production at New Line Cinema, Toby Emmerich is not your
typical moviegoer. So when he wanted to see "War of the Worlds" the
other night, his choice was between seeing the film in a theater with
a tub of popcorn or watching it in a screening room at Jim Carrey's
house, with a private chef handling the culinary options. Despite
this seemingly loaded deck, Emmerich opted for a real theater.
"I love seeing a movie with a big crowd," he says. "But I had no idea
how many obnoxious ads I'd have to endure - it really drove me crazy.
After sitting through about 15 minutes of ads, I turned to my wife
and said, 'Maybe we should've gone to Jim Carrey's house after all.' "
When DreamWorks marketing chief Terry Press took her young twins to
see "Robots" this year, she said, "My own children turned to me and
said, 'Mommy, there are too many commercials!' Now, when the lights
go halfway down, I'm filled with dread. The whole uniqueness of the
moviegoing experience is being eroded by all the endless
ads." (emphasis added)
So while the industry laments piracy, consider if you will why going
to the theatre has become so much less enjoyable than watching DVD
films on your own big screen in the comfort of your home theatre.
The theatres have adapted Radio's disasterous Hamburger Helper
approach: Short term increases in profitability in exhcange for
alienating your core audience, who eventually seek out a better
substitute. Quite frankly, I'm astonished the film industry has
(contractually) allowed theatre owners to degrade their copyright
protected product by diminishing the experience so dramatically.
As Radio has so painfully learned, the end result is a big fat Buh-bye!
To a large degree, this is a zero sum game: The theatre chains
losses are Best Buys' gain; Is it any surprise that high quality home
sound systems and large screen TV sales have gone through a ginormous
growth spurt over the past 5 years? Even as the lowest common
denominator productions falter, Netflix (and its rivals) allow home
theater owners to enjoy a Long Tail orgy of content.
Yo, theatre owners, when a segment of retail electronics called HOME
THEATRE explodes in sales, that is your wake up call. You seem to
have been oblivous, and missed the bell ringing.
Good luck getting the toothepaste back in the tube!
Sources:
Now Playing: A Glut Of Ads
The Big Picture
Patrick Goldstein
L. A. Times, July 12, 2005
http://www.latimes.com/business/custom/admark/la-et-
goldstein12jul12,1,35978.story
Lefstz Letter
June 5, 2005
Barry L. Ritholtz
Chief Market Strategist
Maxim Group
405 Lexington Avenue,
New York, NY 10174
(212) 895-3614
(800) 724-0761
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