January 2, 2006

2005: A Hollywood Horror Story (or Was It?)

Filed under: Business Moves,Economy — Tom @ 4:55 pm

At the theaters, 2005 was a bust of epic proportions. In fact, Tinseltown’s past three years have been ones of steady decay at the box office to an extent well beyond what the gross revenue numbers reveal:

hwood0205

Whether this decline means long-term trouble for the film industry is debatable (though the theaters themselves have obviously taken quite a hit), and there is a noticeable lack of concern over the sustained three-year decline, the likes of which would drive other companies to totally reexamine what they are doing (see: Domestic auto industry). While commentators like Tammy Bruce and Mark Steyn point to how out-of-touch film-makers are with their audience, the industry, though acknowledging that 2005 was a rough year, appears to have adopted a “What Me, Worry?” attitude.

Part of their lack of concern lies in the belief that DVD sales and rentals will make up for drops at the box office. But it looks like that didn’t happen in 2005 (and almost certainly didn’t, after considering inflation):

The sky might not have fallen on the fast-maturing DVD business in 2005, but the double-digit revenue growth studio home entertainment divisions have enjoyed almost since the format’s launch in 1997 did come to a grinding halt.

Final numbers on consumer spending won’t be available until the middle of next week, but the consensus among studio executives, analysts and other observers is that it might be hard to top the record $24.5 billion consumers spent on home video purchases and rentals in 2004.

The article goes on to say that unit sales are up and unit prices are down, which means all is not bleak if Hollywood moguls can firm up their pricing.

And, according to this Wall Street Journal column by Edward Jay Epstein (requires subscription), they are in a position to do just that, because the big studios have essentially cornered the market:

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.

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.

The big question mark in the whole equation is whether the “Big Six’s” skill at “audience-creation” will continue. In the meantime, anyone hoping that Hollywood will produce more movies in 2006 that reflect the values of the wider population appears to be in for a disappointment, as the folks who produce and deliver our entertainment seem to be quite content with themselves.
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UPDATE: Dan Glickman, the head of the Motion Picture Association of America, does his best “What Me, Worry?” dance in an OpinionJournal.com column (link may require registration). The problem, Dan, is that the hits you cite are either remakes, sequels, prequels, or were written by British people who know how to tell a story. The 2005 Hollywood-originating content of most of these is very low. What if one or more of these wells runs dry?
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Notes: Box office and ticket price figures were obtained from the Yearly Box Office page at BoxOfficeMojo.com. 2005′s total was revised upward by about $16 million on January 3, 2006 to reflect final changes made at BOM. Population data was obtained from the US Census Bureau by subtracting 40% of the population Ages in the 0-5 age group from the total population.
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