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Most 2002 Trends Continued in 2003

March 28th, 2004

In his last State-of-the-Industry speech, President of the MPAA, Jack Valenti addressed attendees of ShoWest this week. As with last year there was some good news and some bad news; and like last year, the bad news outweighed the good news by a considerable margin.

The Good:

· The average box office per MPAA movie increased, but the exact figure is somewhat unclear. Best estimate has it between $35 million and $40 million per picture.
· The foreign box office rose 5% to $10.85 billion.
· The number of MPAA movies dropped to 198, (down 12%) while the total number of films released increased from 467 to 473. The number wide releases is still too high, but at least it's moving in the right direction.

The Bad:

· Total Box Office was flat, dropping just a fraction of a percent to $9.47 billion.
· Total Admissions in 2003 dropped 4% from 2002 hitting 1.57 billion. But that's still higher than 2001 by quite a margin.
· Total Screen Count and total theatres both dropped again this year down to 35,774 screens in 6,060 theaters, a lose of 99 screen in 85 theatres. This is not nearly as bad as last year, but troubling nonetheless.

The Ugly:

· Average ticket price jumped by 3.8% to $6.03, almost twice the national inflation rate.
· Average production cost per MPAA movie increased $5.0 million to $63.8 million, about half of last year's increase. However, if the production is split between an MPAA Studio and a foreign operation, then the foreign share of the budget is not included in this figure, so the actual average budget is undoubtedly even higher.
· Average P&A Budget, which dropped in 2002, shot back up in 2003 to $39.0 million, up 28% from last year.
· Total costs to produce, distribute and market the average MPAA film hit $102.8 million, up $13.4 million or 15%. Even with the studios taking an ever-increasing share of the box office, the average film would need to make more than $170 million to make a profit domestically. In 2003 only 7 films managed to hit that figure, and all but one of those cost more than the average, double in one case.
· The gap between costs and revenue rose to roughly $65 million, 15% higher than the year before.

Just a quick look at those numbers and you know something has to be done.

Studios already take so much of the box office that some theatres are closing, so they can't take too much more without putting more theatre owners out of business. The importance of the foreign box is growing, but with so many cultures it's hard to make a movie that translates well across the board. The home market is very important, but there's evidence that DVD sales starting to stagnate and VHS sales are almost insignificant in comparison. The movie industry must either look for other sources of income or reduce expenses dramatically. If it can do neither the movie industry will soon become unsustainable.

Other sources of income could be hard to find. Interactive spin-offs, like video game, are expensive to make and that industry has a hard enough time making a profit without a flood of poorly made movie tie-ins. Traditional merchandising is already done beyond the point of reason, and mostly focuses on one market anyway (kids.)

So the obvious solution is to reduce expenses. But how?

I said it last year and I'll probably say it next year. Make fewer movies. There's very little correlation between movies made and total box office. So if there were fewer movies made each one would get a larger share of the total box office. Also, if there were fewer movies there would be less demand for actors and other high price talent, which would significantly reduce the costs of making a movie.

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