Hollyblog: Studios Are Determined to Kill the Film Business

Their lack of knowledge of the economics of the theaters is stunning – but worse is their lack of interest in hearing points of view other than their own

CINEMA-CON, LAS VEGAS:

Film studios seem determined to kill the movie business completely. After putting video stores out of business by authorizing Redbox to rent videos for $1 per day from what amounts to a Coke machine, now they want to put movie theaters in a coma by authorizing a new at-home video-on-demand release during what has until now been the exclusive first-run theater window.

This comes after demanding for the last 10 years that theaters spend $ billions on digital sound, stadium seating, digital projection, 3D projection and new locations.

Now James Cameron wants a completely new system put in place with enhanced frame rates for further $ billions.

In a stunning suspension of disbelief, many studio executives argue that an enhanced early at-home alternative will encourage MORE people to go to the movie theater — do people this naive really exist? It sounds exactly like the last ten years of internet gurus and solons calmly insisting that free (stolen) music would encourage higher CD sales. See how well that worked out. Fool me once … call me a record executive; fool me twice … what do they think, we're politicians?

I ask: "Are you a movie without a movie theater?"

If you answer “yes” a movie is a movie even if released just on television, then go ahead.  In fact, if that’s true why aren’t you doing it now? The TV networks have no exhibitor relationships to destroy, why aren’t they spending $300 million to produce Avatar, or $150 million to produce “the Hobbit” or even $60 million to produce “The Hangover?” I know why because I’ve asked TV network heads in the past. They say it’s ludicrous to assume they could spend like a movie studio for TV product.

The TV movie model does not support the economics of a major feature film.  It is the theatrical release that makes a movie a movie and builds the momentum and interest that enables it to gross over a billion dollars. For a major worldwide hit, it is also the largest contributor to the profits of a movie. Don’t be fooled by “retail” numbers.  Home video was a very big retail number but the share to the studios was around 35 vs. 60 percent for a major hit in the movie theater.

Further, a major theatrical hit has an unlimited upside while a major video hit is intrinsically limited. Video and television are great for catalog, but they do not fund a front line release schedule — for that you need the movie theater with its higher per capita income and greater share to the studio.

As for the impact on theatrical attendance, I believe it will be devastating. However, among studio execs the best case quoted to me was a 10 percent drop in attendance with the executives insisting that, "Some theaters will close, others will raise prices … it's all good."  The reality is that a 10 percent drop in total attendance, across the board and permanent, will cause 2/3 of all the theaters in the U.S. to close their doors and never open again. 

When I brought this up, the response was that movie theaters were just a real estate play anyway so profits didn’t matter to the theater companies — something which hasn't been true for 30 years. Today, virtually all theaters are in leased premises rented from mall owners with only older, outdated facilities still existing on owned property.

The lack of knowledge of the economics of the theaters is stunning – but it pales in comparison to the lack of interest in hearing any point of view other than their own.

What is true is that the studios f—ed up the video business deliberately and with full knowledge. They were told by every video store chain that $1/day Coke machines dispensing videos would kill the bricks and mortar video stores. Their response was the typical studio response: "F— off and get out of my office!"  

When Hollywood and Blockbuster shut their stores studio revenue dropped immediately by $ billions.  The public’s demand didn't drop by that amount and in fact the volume of video rentals was increasing when this took place, but with increasing volume at 40 percent of the price the stores could not be profitable. The exigencies of a retail business dictate that when revenue drops below the break-even point the entire store closes, not 10 percent of it. 

Studio executives are desperate and have invented this accelerated video/internet window mainly as a means to keep their jobs — see how clever we are, how progressive and forward thinking? The utter denial that this will affect the movie theater is stunning to behold and laughable to listen to if they weren't so serious. 

I'm going to say it again — a 10 percent drop in attendance, with the attendant loss of box office revenue, concessions income and advertising income will CLOSE the theaters.   Most theaters have only 15-20 percent operating margins. Amazingly, studios executives are simultaneously haranguing (and alternately ridiculing) the theater owners by demanding they increase their spending on new technology, even as they plan to undermine the theatrical release. 

The contempt the studio executives have for the theater owner/operators reminds of the Silicon Valley contempt for what they laughingly refer to as "authored product" — you know, like books, music, movies and TV shows, stuff people have to think of, write and create and pay for. 

Don’t believe me? There are many theater companies which are public. Run the numbers yourself.

What are the options? Theaters could raise their prices — like Broadway theaters are a viable model for the movies, or maybe Grand Opera is the new model? Go twice a year for $150 a person. The main advantage movie theaters have in the marketplace is that movie-going remains the single cheapest thing a family or couple can do on a night out of the house. Despite complaints over ticket prices and parking fees, by any comparison to restaurants, sports events, concerts, theme parks etc. movies are far and away the cheapest entertainment alternative out of the home. 

You could cut the theater in on the income, but: (a) that wouldn’t make up for the lost concessions and advertising income which together are 70 percent of a theater’s operating profit, and (b) wouldn’t that be contrary to the reason for creating the window to begin with making it moot?

Raising prices will simply drive more people to the home alternative. What about cutting costs?  Rent for theaters is fixed — pay it or file Chapter 11 and a drop in attendance doesn’t reduce the mall owner’s need to turn a profit on their development. Over 80 percent of the labor costs are at the minimum wage and people are already complaining that staffs are too small. Utility rates are unaffected by theater attendance. Sugar prices won't go down and neither will the cost of candy. Popcorn notoriously costs only pennies to begin with and the soda companies actually subsidize soda sales. 

There are literally NO costs the theater can reduce except two:  They can stop cleaning the theaters … OR … they can stop paying film rental. Hard to see how either helps things.

On top of all this, a decision to cut off the theatrical window is what strategic planners (something studios seem to have a lot of these days, most with the world "digital" in their title) call a "point” decision. Once you make it, it becomes irreversible and dictates everything that comes after. The famous business school case involves the Navy deciding on the length of the runway for an aircraft carrier. If you put in this window and it cripples attendance as I believe it will and as most studies suggest it will, the theaters will close and they won't reopen.  

But you sure look smart for being the one to suggest it, don’t you?

Gotta go now, there's a new Blockbuster opening down the street … What?  Where? 

  • Crappolastuff

    ***Reasons WHY people no longer go to the movies.***

    1. COST. It's f**king expensive to go see a movie. For tickets and minor concession purchases, the family of four would have to spend upwards of $70. A 3D movie? Could easily hit $90. Perhaps NATO and the studio heads should step out of their Maserati's for half a second to possibly understand that an average family's entertainment budget for the month might only BE $100. And regardless of how thrilling Thor *might* be, they are probably not willing to blow it all on one night.

    2. SELECTION. Most movies in the theaters suck d**k. Studio heads are so afraid of losing their positions that (generally speaking) they will only green light reboots, prequels, and regurgitated bulls**t. You want people to drop a quarter of their paycheck for this?

    3. 3D. Why do you all keep shoving f**king 3D down our throats? While it is just very *okay* when used in conjunction with today's computer animated fare, it just plain sucks everywhere else. It's ineffective, distracting, and requires the use of f**king GLASSES. Oh, and that will be $6 extra bucks for the privilege to see our s**thole flick with blurry images. And some theatrically released movies don't even COME with the 2D option. You know what we call those movies? Rentals.

    4. PIRATING. So now you've spent $80 mil on P&A for the next Focker flick. Good for you. Not caring to drop a benji on the fam's night out, dad jumps on his Dell and goes to one of a thousand websites that carry your big budget title usually on the DAY it's released. $70 or free dollars? Tough decision there. Dad just burned a blank DVD and now that family of four is watching your movie for the cost of a blank disc.

    ***Solutions?***

    1. Relax on the f**king ticket prices. We were all happy with $10 a pop and you were still making obscene amounts of money. Plus we were able to go out to the movies more often and take chances on smaller and independent films. Yeah I get you need to cover P&A costs, but maybe put a cap on that s**t too. If the movie sucks, no amount of commercials will override our friend's testimony.

    2. Take some chances on new material. Green light some projects that you believe in. If the picture is good, we'll hear about it and come support it. Not everything can (or should) have $40 mil opening weekends. You'll make your return on HBO rights- stop worrying.

    3. STOP IT. You can use this s**tty technology with Kung-Fu Panda 6 and Toy Story 17, but stop it with the live action. Movies are (and should be) exciting enough. If it has a good story line, we'll be engaged.

    4. Get serious about pirating. The music industry didn't and now they are f**ked. Lobby, lobby, lobby, lobby, lobby! Get legislation passed. Get injunctions. Shut down the more popular sites- they are distributing your STOLEN material. Don't just laugh it off and assume you will survive the techno onslaught.

    ***Asides***

    1. FRAME RATE. James Cameron wants to up the frame rate of movies? What a absolute c**k. Have you tried watching a movie on some of the new flat-screens that will up the frame rate of your programming? It makes everything look like that shot it on a Sony HandyCam. Mr. Cameron, there's a reason we still shoot 24p you ego maniacal douche lord; it's because it makes it feel like a movie. It feels ethereal and unreal. We know what real life (and 3D!!) looks like because we're IN IT. Stop trying to f**k up the movie business. Contrary to your own delusional beliefs, you are *not* king of the world.

    2. NO THEATRICAL WINDOW. A movie is *not* a movie unless it gets a theatrical release and the print and advertising budget that goes along with it. If that money is not spent, you won't care about the movie. You won't spend the $30 for a home viewing of Ironman 5 if they don't pump $100 mil into the ad stream to make it worth your while. And THEY won't spend that kind of money on publicity lest it will be shown in theaters. So to the moron(s) who want to cut out the theatrical window and watch a first-run flick on their home system- spend some money on a clue and less on your sub-par home entertainment system.

    I am glad to have fixed the problems of the entertainment industry. You may now go on with your day.

    • Flash-t

      Crapolastuff, you are awsome and have my vote for king of hollywood : )

    • Classic Steve

      I disagree about frame rates. In decades past, would you have complained about movies gaining sound or color because they felt realer that way?

      • A wise friend

        @ Classic Steve: You are a kool aid drinking idiot. The reason that video used to look cheap and unrealistic was because it had a higher frame rate (30fps). 24 frames a second is the closest to the way our own eyes function. (If you don't believe me, stare across a street as cars pass through your line of sight. If you do, you will see that the cars are blurry because, gasp, our eyes send signals to our brains at around 24 times a second. That's why when you watch some of these HDTV's running at 240Hz it looks weird and… (emphasis added here for a reason)… UNNATURAL) That is why movies are so engaging and vivid. That is also why all the camera companies spent billions of dollars in the late 90's and early 2000's and worked out the technology for their video cameras to start shooting at 24. This higher frame rate nonsense is the ravings of an old idiot who thinks his every whim is a message from God. One thing to remember, filmmaking is a young man's game. Don't listen to old idiots like James Cameron or George Lucas about anything. Don't forget that thanks to Cameron we now have to deal with all this crappy 3D nonsense being forced on us right now.

        “In decades past, would you have complained about movies gaining sound or color because they felt realer that way?”

        Remember in the 50s they had 3D which people watched for a while and then rejected? Some movie innovations are CRAP!

        • Balls

          I agree with the above and that is FACT. My old man went out and bought one of those new Sony HD TV's that has a converter in it. We put in the original Star Wars and it looked like shit on something like 32 or 42 frames a second. It looked like it was shot on video for Syfy channel like an old Doctor Who episode. Bottom line, 24 frames is the shit, and it works for the suspension of disbelief aspect. I don't want to feel like I'm there, I want to watch a movie. The only person who shoots digital right is David Fincher. Michael Mann has no idea how crappy Public Enemies looked on digital. But the he and Fincher claim the work load is more managable. Okay. I can understand that, but make it look like a film for christ sake. And digital in a movie theatre is blurred — I watched the last half of 2012 and wondered why Emmerich changed cameras all of a sudden. Even my buddy next to me found it distracting and annoying.

  • Shayde

    Here's a thought. Sell the DVD of the film AT THE THEATER exclusively for like 40 bucks when you buy a ticket. They take a cut of it and therefore they are protected.

  • Zterwe

    I agree with everything above, and it's nice to see in print what I've been saying for the last few years.

    I'm a film professional, working very hard to make these experiences exceptional. And I believe that the experience of seeing a film in a good theater, with the group energy that an audience provides, is a completely different (better) experience than seeing the same film at home.

    But I can't stand the movie theaters, mostly for the same reasons Lorna sites. I've been to ONE film in a theater in the last year – Inception. Sticky feet, parking, bad concessions, and all the rest are such turn offs that the very few things that only a movie theater can provide (and what is that again?) will never again be enough to get my butt in a seat.

    Theater owners have dug their own grave with the cheapening of the experience. They will have to once again design an experience that EARNS the dollars, if they want to survive.

    Exhibition windows? Not the problem.

    • http://www.youtube.com/user/300MediaProductions BigBubbaBacon

      Apparently my theater (and the theater goers) is just really nice, because I have none of the problems you guy are referring to. Granted, I never buy popcorn (why? because it's so blaster expensive!), but in the past year I haven't had one issue of people talking during the movie, texting, being loud, or whatever else have you.

      Also, my local theater is really, really clean, so I've never faced sticky floors before.

  • Baablu

    I agree with you, but, the problem I have is NETFLIX is making it cheep for the public at the lively hood of the Actors, a back stabber by the name of Bob Pasano was involved with Screen Actors Guild contract negotiations for actors to get there residuals, but instead of fighting for the actors he made sure actors got Nothing and Netflix was free to rape the actors residuals and Bob ran to another part of the Industry to continue to screw the Actor out of a Lively hood . So as the news reports the Studios are making Record breaking profit every year and yet you get dirty theaters rude help over priced goodies no one making sure phones are off during the showing of the movie higher priced tickets and actors not being able to make a living acting with out the help of there Residuals, there are Big Stars Making Big Money and as Producers they could care less about standing up for Actors, ALL of the rank and file Actors who have families are not living the Wild life you may think, it is a job and they have bills and try to get by just like every one with a job.

  • Faefefafawd

    If by stealing you mean copying….

  • http://www.youtube.com/user/300MediaProductions BigBubbaBacon

    Actually, you're wrong. Disney, for one example, is looking to release films on disc formats, and VOD, within a twelve week window of them opening in theaters. The current release window is something like 36 weeks.

    After 36 weeks most films are out of theaters anyway, but by twelve weeks? And, of course, if this early release window proves to be profitable, you can be assured they'll start releasing them sooner, and sooner, and sooner.

    Now, if studios were doing this simply to gain more profit from films like, say, Black Swan, Blue Valentine, or other, “niche” hard-to-find foreign/independent films, then I'd be all for it. But we all know how the Hollywood machine works, “if it's profitable for *this*, then it must be profitable for *that*.”

    For example, 3D was pretty much dead in the water, but then Avatar came out; how many 3D films have come out in the past 16 months since Avatar opened? I know I lost count.

  • http://www.youtube.com/user/300MediaProductions BigBubbaBacon

    I went to the movies twelve times last year, and I've already gone four times this year. Granted, I usually go by myself, or with a couple of friends, but, either way, I don't mind spending eight months to see films the way they were meant to be seen: On the big screen.

  • alibird

    Good Grief. You people completely missed the real truth.

    Movies are dying because you can't tell a complex story in 2 hours. TV has finally learned that they can tell a story in a five year story arc, and keep their customers(fans) all the way along. Look at 24, Supernatural, 10 years of Smallville, Buffy, Grey's Anatomy, Lost, etc. Or the new The Killing telling the story of a murder investigation in weeks, not 1 unrealistic hour. Whether you love these shows or not, many people do. The longevity of soap operas shows the love people have for familiar characters and complex stories.

    Movies as an art form are too simplistic for the modern age. Too many are being made, and there's just not enough of an audience for them. Too many stories are told over and over, and remade, and copied, ad nauseum. How much can you do with a 2 hour medium? For 100 years? We're done. Move on.

    Give people characters that they can go along with for the long run, and stories that can be told cheaply. Low budgets can tell the same or better stories. They have much more depth and resonance. I'd rather watch a good tv series and really care about the characters and actors than go to a movie that's quickly forgotten.

    The big screen blockbuster age is over. Look at how many movies are made, and how many actually make money these days. Most are not going to be profitable in the future. TV is where it's at. Studios and theaters are all going away no matter what they do.