| February 21, 2020
There is a disease in Hollywood that is also found in many places, more so in 2019 than in the past… though it has certainly been there in the past as well.
When it’s about someone else, gossip is fun, even if it might be untrue… but if people are saying it, there must be some truth to it. When it’s about Me, gossip is unfair and unkind and why in God’s name don’t They (at least) stick to the facts?
Box Office Reporting, in 2019, is driven as much by gossip as by facts.
There are a series of assumptions that are popular in the media and they color virtually every story written about the film industry, especially in season-end and year-end pieces. Like any good lie, they have a kernel of truth that makes the lie seem more believable.
You’ve heard it. If you are reading this, you surely see this “fact” stated, as a matter of fact, every week.
Motion picture theatrical is dying. Motion picture theatrical is dead.
At the core of this anti-factual fart is — and has been for the last four decades — home entertainment. VHS was going to end the theatrical business. Cable was going to end the theatrical business. DVD was going to end the theatrical business. And now, of course, streaming is the final nail in the coffin of theatrical.
When Blockbuster opened in 1985, domestic theatrical was just over $3 billion. When cable became ubiquitous, 1990, let’s say, theatrical was at $4.4 billion. DVD launched in 1997 when domestic theatrical was $6.1 billion. And when Netflix launched streaming in 2008, theatrical was $9.5 billion. This year, as negative box office story after negative box office story is launching, we are having the #2 all-time box office year in domestic history with $11.5 billion and what may well be the #1 year worldwide in history.
But theatrical is dying.
A lot of this starts with a simple lean into the wrong ideas about what the industry is going through. Yes, there is seismic change… again. But what is the target of disruption? Is it people leaving their homes to go see a movie or is it how we see movies (and other content) in our homes, day after day, on average about 8 hours a day?
I’m not saying that the theatrical window has not been disrupted. But it has been disrupted in a mostly minor way (aside from the relentless negativity in the media).
The same way that Netflix disrupted Blockbuster to death by offering unlimited DVD rentals for a subscription rate of $10 or so a month, less than three Blockbuster rentals, Netflix’s streaming subscription model and the ideas that occurred within it — easy access on multiple viewing platforms, binge viewing, everything on demand, no commercials — first disrupted pay TV and now has launched the paradigm shift that will end cable/satellite as we have known it.
The arguments that so many journalists keep making — they make it so often, they have stopped challenging their own assumptions — are not new. Netflix has not changed that. “It’s too expensive.” “Too many kids behaving badly and interrupting my experience.” “Concessions are too expensive.” “Tickets are too expensive.” “Who wants to leave the house when you can sit at home and watch this beautiful TV of this (currently) enormous size?”
Be honest. If you are old enough to remember, you heard every one of those complaints in 1975, 1985, 1995, 2005, 2015, and even this week.
And along that road (45 whole years), everything has changed in home entertainment at least five times. And indeed, theatrical has changed dramatically at least four times. We went from solo theaters to plexing of the solo houses to multiplexes being ubiquitous to wild overbuilding of multiplexes in the same neighborhoods to closing most of the solo and plexed theaters (via a wave of bankruptcies) and the end of healthy second-run business due to VHS and DVD to another rebuild of the surviving multiplexes into stadium seating to accordion platforming (as I call it… expanding to a huge number of screens to fit demand in multiplexes on opening weekends and sometimes beyond) to the consolidation of screens down to a handful of companies, three of which own almost half the screens in America and define the business model for almost everyone else with their choices.
The last 45 years has changed dramatically multiple times for film and television distributors as well. On the film side, there was a relatively small market for international theatrical distribution in the 70s and 80s. And frankly, I don’t have the resources that properly tracked international numbers through those years because the business was considered minor except in certain cases and often, distribution was primarily through international television, not theatrical. There were movies around, say, 1980, like Mad Max, that made more internationally than domestically. But there were others that had almost nothing on the balance sheet. Now, international tends to be two-thirds of the overall worldwide on big movies and often half on mid-sized films, with bad patches like comedies, which don’t always travel.
On the film side, the only post-theatrical business of note was sales to television and even then, a fairly small payday. When E.T. arrived and blew up the box office in 1982, Spielberg refused to put the film on VHS until 1988, sold about 5 million copies at sell-thru prices, then made a deal to license the film exclusively to Sears for TV for 10 years, starting in 1991, in what I remember as a $20 million deal, which was unheard of at the time.
Cable television became a normal part of households in the late 70s. HBO became available in all 50 states in 1980, though it still only operated from 3pm until midnight. But HBO and its eventual rivals changed the pricing of films airing on television significantly, as well as the number of opportunities to see something. Dozens of replays were available for the first time. And if you had a VHS and you could make the time work, well, you had it made.
Blockbuster hit its stride in the mid-80s (which, going back to E.T., was part of that story, as Spielberg & Co decided to go sell-through, which was not the primary VHS business yet). Rental revenues grew massively as Blockbuster standardized the business, worked closely with the distributors, and became the standard for a moment.
E.T. inspired other highly successful films to go sell-through on VHS, climaxing with Batman in 1989, which broke precedent and was released just under five months after release for $19.95 in most places, thanks to a cross-promotional deal with Pepsi. For the next decade and change, the home entertainment market was bifurcated between rentals and sell-through.
The DVD launched as a commercial product for films in March 1997, with Twister. By April 1998, Netflix had launched, mailing DVDs of the existing commercial library of 925 titles was available. A year later, in September, Netflix moved to their subscription model.
But that was a sideshow, for the moment, as the industry decided that DVD would be a sell-through business with a relatively minor rental side (8% – 17% of the DVD market), and that changed the paradigm yet again. For about five years, from 1999 – 2004, the proverbial idea that “you can’t lose money making a movie” almost became true.
In that period, both the gross and the returns to distributors from DVD grew quickly to be larger than the gross and returns on theatrical. By 2004, the number of DVDs sold and the number of domestic theatrical tickets sold were about equal… but the price point on DVDs was higher and the return to the studio was at least 50% higher.
The end of the “can’t lose” DVD era is marked by Mission: Impossible 3, in 2006, when Paramount declared war on Tom Cruise not because of Scientology or jumping on couches, but because Cruise’s deal sent him home with about $60 million while Paramount took a small loss on the film. Sumner Redstone did not think this was okay. But he wasn’t getting a rebate. (Paramount was also home of one of the worst IP deals in history, giving 88% of returns on Indiana Jones 4 to Lucas, Spielberg, and Ford after paying for the film.)
Then, too, it was fashionable to tout the death of movie theaters. In 2005, the New York Times took a tack on theatrical that it has steadfastly refused to move off of since. It was the year after The Passion of The Christ brought in $370 million domestically in February and March, which had really changed all expectations of what was possible in that part of the year. (The wave is still felt.) When Hitch and Constantine only delivered about $250 million that February, the attacks began. What was happening to theatrical. It was all over. The internet. DVD. Yadda, yadda, yadda. When the box office turned more positive that summer, with Star Wars: Episode III – Revenge of the Sith, Madagascar, Mr. & Mrs. Smith, and Batman Begins (among others), the standard went from domestic grosses to the number of tickets sold, which is an estimated number based on average cost and the total gross. The year ended up being about 6% down domestically, but 2006 would be the 2nd biggest movie year in history, topping 2004’s #2 showing. In the last 18 years, six years would be down from the previous year and the 12 were up. 2007 would see $9 billion for the first time ever. 2009 cracked $10 billion and 2015 saw $11 billion for the first time.
But theatrical is dead.
Also in the late 90s, international grosses for American-made movies passed domestic for the first time. It doubled between 2001 and 2007, representing 2/3 of the total worldwide box office for the first time in 2007. International is close to tripling domestic today. Worldwide box office has doubled since 2003.
The story with the natural competition for Netflix and all the other streamers is not theatrical movies, but cable/satellite TV. We have had easy access to more content than any human could consume since pretty early on in the cable invasion. While there have been some significant shifts for cable/satellite, like High Definition and On Demand. The whole mindset was that cable was installed, city by city, with underbids and negotiated contracts that set standards for the providers.
There was a giant flip in the economics when broadcast networks (and others), who were initially given legally-required access to cable slots, started getting paid by the cable networks (and the satellite companies as well) to keep the channels onboard.
But basically, cable/satellite has stayed in place, not unlike Blockbuster. Comcast grew massively, buying NBC/Universal while AT&T flipped the other way and took on the smaller Time-Warner, including DirecTV. And in the last few years, we saw the arrival of small-bundle streaming packages… most of which have seen their pricing explode in the last few months as the direct threat to cable/satellite became clearer. Sony even pulled their entry off the market.
Cable and Satellite is basically in the business of packaging a wide array of cable and broadcast networks for the consumer, delivered primarily through a hard cable or beamed in from a satellite. And the movement of the streamers is to debundle (for now) and allow the consumer to make a la carte choices that can supplant both the bundle and the still-increasing cost of cable/satellite.
The irony is that as loathed as cable/satellite companies are and who they are seen as money gougers, their offering is still incredibly attractive to most Americans, but it does keep getting more expensive for these providers to deliver. Still, they have been a $120 billion a year-plus industry for a decade while the theatrical movie business in America is an $11 billion business.
And so the question… and think before you answer. Is an average consumer more likely to rebuilt the package of content they get in their homes and either cut budget or expand content access or both every month of their lives OR are they likely to stop going to the movies that they choose to go see a few times each year to cut back their budget?
More in Part 2.
| February 21, 2020
| February 16, 2020
| February 11, 2020
"For the first time in a while, there’s nothing but silence. My eyes are still puffy from the tearful goodbyes that punctuated a historic night, one that ended with six Oscar trophies but surprisingly no karaoke. That night was already far gone for sleep, so I mindlessly went to the beach hoping to watch the sun come up — as if the cosmic win of Parasite could make the sun rise from the west. Instead of the sun on the horizon, I watched the moon fade in and out of the grey brushstrokes left behind by the previous night’s rain. The sky started to pour on our way to the Oscars. Raindrops hit hard against the sprinter bus as we tried to contain our anxious buzz. It was a good omen. After all, Parasite is a rain movie."
| February 21, 2020
February 21, 2020
February 21, 2020
| December 13, 2019
| December 4, 2019
| December 4, 2019