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Movie Industry had Mixed Results in 2004

March 23rd, 2005

The MPAA presented their State of the Industry address last week and looking over the results from 2004, there's at least a little more reason to be optimistic than last year.

The Good:

  • The total box office increased by 0.5% to $9.54 billion. Granted, this is not a big increase, but it's much better than the year before.
  • Production costs were down from $63.8 million per film to $63.6 million per film. Again, that's not much of an improvement, but at least it's something.
  • Foreign box office increased last year as well, and at a much faster rate than the domestic box office. In 2004 the figure reached $15.7 billion, up 44% from the year before. But this has a lot to do with the fall the in American dollar and emerging markets like China and Russia, so the picture isn't quite as rosy as those numbers suggest.
  • The average P&A budget fell 12% to $34.4 million from $39.0 million after shooting up 28% in 2003. Obviously this is a very volatile expense. Normally spending less on advertising would be seen as a bad thing, especially seeing how much hype is involved in the movie industry. However, this is less a case of reduced advertising than a case of switching from high cost advertising on TV and in newspapers towards lower cost advertising on the Internet.

The Bad:

  • Ticket prices increased to $6.21 from $6.03 in 2003, which is a slower rate than the year before (2.99% compared to 3.8%), while the overall inflation rate in the US economy fell to its lowest level in five years at just 2.2%. This means ticket prices are again growing faster than prices in general, which could explain why...
  • Admissions fell for the second year in a row, dropping 2.4% to 1.54 billion from 1.57 billion in 2003. Since there are so many options for entertainment, demand is very sensitive to price changes.
  • Spending on specialty films by such studios as Fox Searchlight and Miramax plummeted last year to just $28.2 million from $46.9 million, while P&A costs dropped from $14.7 million to $11.4 million. I personally feel that the independent film sector is the most important when in comes to creativity, storytelling and developing new talent, which is why I try to add at least one independent film to my DVD collection every month.

The Ugly

  • The gap between costs and revenues for the average film fell slightly in 2004 but is still much too large. So large, and this is a direct quote from the MPAA press release, "Only one movie in ten recoups its investment in domestic theatrical release; only four in ten ever makes its money back."
  • Part of the problem is the total number of films being released; there were roughly 200 MPAA releases last year and 483 total, up 10 from the year before. And that figure is still much too high. The film industry can't support more than 100 saturation releases a year and maybe twice that in limited releases.

The Huh?
Here's a couple of pieces of news that may or may not be good news, it's too early to tell.

  • After dropping for the last two years, the overall screen count climbed this year by 657 screens to 36,652, up 1.8%. On the one hand, this increase is greater than the bump in the box office, which means each screen is bringing in less money on average. On the other hand, it could signal that exhibitors feel the box office will continue to grow for the next several years. On the third hand, if they are wrong, we could see another over-expansion that ended in the recent bankruptcies of several theater chains.
  • A recent poll was mentioned at ShoWest in which two questions were asked: "One, does Hollywood share your values?" and "Two, is Hollywood in touch with the life of the average American or is Hollywood out of touch with most Americans?" The answer to both those questions was overwhelmingly no (70% and 72% respectively). They seemed quite concerned about changing their image, but I think this is foolish for two reasons. Firstly, people lie on polls when they think their opinion goes against the norm or the real answer is embarrassing. Two examples: I was recently asked in a poll how many times in the past 30 days I engaged in strenuous physical activity and I said 15. The real answer was zero, but I have since started a daily exercise regime. (Honestly.) Also, if you ask people if they go to church, mosque or synagogue at least once a month, about 40% will say yes. But if you check the actual attendance, that number is closer to 20%. Secondly, if Hollywood really was that out of touch, the movie industry wouldn't be a $33 billion industry. That figure represents the combined domestic box office ($9.54 billion), home rental ($8.06 billion), and video sales numbers ($15 billion in DVD sales alone). As Bill Maher recently said, "Hollywood isn't America's cesspool, it's its mirror."

How's the outlook for the future?

Both the domestic box office and home rental numbers were relatively flat, but that was offset by huge increases in both the international box office and DVD sales. So the movie industry outlook is relatively bright. But there's some troubling news. First of all, the strong international numbers are partially due to the weak dollar, and the dollar can't stay this low for too long without really hurting the American economy in general. Secondly, while overall DVD sales are increasing, the TV on DVD section is what's fueling the overall DVD sales growth, which doesn't help the movie industry.

But the real scary fact that came out of ShoWest was that less than half the movies produced ever show a profit! That's crazy, but sadly not very surprising.

So, what's to be done? Well, I said it last year, I said it the year before and I'll probably say it next year. Make fewer movies. Stop flooding the market with sub-par products. Of course this is easier said than done. Everyone's been surprised by a big hit, and conversely, everyone's seen a movie bomb that they thought was a sure hit.

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