Film, Radio and TV - 9
The number of movie screens dropped dramatically in the 1950s, largely due to the impact of television. (The term "screens" is used rather than "theaters," since theaters can have a dozen or more screens showing different films.)
However, after this major slump and after some target audience and content adjustments by Hollywood the number of screens started to steadily increase. In 1970, the number was about 10,000; in 2001 it was about 25,000. Most of the new theaters (multiplexes) are in suburban shopping areas.
But, for the major theater owners there's a problem.
Film Profits Drop
Even though both the number of screens and the revenues have increased steadily over the past five years, because of the debt incurred from building additional megaplexes, overall revenues for all four of the biggest theater chains dropped.
The green area represents the average decrease for the four major theater chains in the mid-1990s. For AMC Entertainment, the drop was $55.2 million in 1999; for Carmine Cinemas, $19.9 million, For Lowes Cineplex Entertainment, $51.4 million and for Regal Cinemas $88.6 million. Several major theater chains even declared bankruptcy in 1999 and 2000.
But things were about to change.
Recessions Help Ticket Sales
One of the few positive things about economic downturns is that a greater number of people go to the movies to try to escape their problems.
This happened again in 2009, when theater attendance jumped 16 percent and ticket sales jumped 17.5 percent to $1.7 billion -- the biggest jump in two decades.
Moving away from somber films to comedies such as Paul Bart: Mall Cop, was a part of this.
Several 3-D films, most notably the The Dark Knight, Johnas Brothers Concert, and Monsters vs. Aliens (depicted above) also helped.
Although the number of theaters offering true, 3-D projection was still limited in 2009, the extra cost of tickets (up to $15) helped boost revenues.
As we moved into 2012, the novelty of 3-D had diminished somewhat, even with the masterful 3-D rendering of the original hit, Titanic, which was re-released in April, 2012. It appeared that nothing could equal the interest in 3-D that Avatar had created two years before. At the same time another element was encroaching on theater attendance: high-definition home video.
High-Definition DVDsIn 2006 we began to see "home theaters" centered around high-definition DVDs with large flat-screen displays and 5.1 (surround) sound.
With images that rival or exceed those in theaters, many people at least those who can afford home theaters now find little reason leave their homes to see a movie.
Instead, videos are rented, either at the local video store or (more and more) via the Internet with services such as Netflix. In fact, with services such as Netflix, movies can be called up and viewed on demand via the Internet.
At the end of 2007, there were two major competing and incompatible DVD high-definition standards. There was the HD-DVD format led by Toshiba consortium and Blu-ray backed by a Sony-led consortium.
By early 2008, after several major motion picture studios backed away from HD-DVD, Toshiba conceded that Blu-ray (and Sony) had won the HD format competition. The public had also become aware of the picture quality advantage of Blu-ray, as shown in side-by-side comparisons of the technical quality of different video formats.
The cost of movie tickets continues to increase at a faster rate than box office revenues. This is largely due to the cost of labor and special effects.
Labor issues represent one of the reasons that so many U.S. films are now being done outside of Southern California—so called runaway productions. Florida and Texas are popular "runaway" destinations.
Labor costs can be saved by using non-union labor and shooting in foreign locations—even when a foreign locale isn't dictated by the story line. England, Canada, and Australia have been popular with producers. War stories have been shot in Ireland and the Philippines.
In the past, elaborate settings would have been built in studio lots around Hollywood to represent many of these foreign settings. The Casablanca-era films are good examples.
By 2006, California had partly reversed the exodus by providing various incentives to keep the highly-lucrative production projects in California. By this time even CSI New York was being shot in California.
Thanks to the help of computer generated settings, today, many scenes are shot against a solid blue or green background, and the desired setting is electronically added. This process, which saves considerable time and money, is discussed in more detail here.
Then there is the cost of another type of "labor." The salaries of stars (and a few producers and directors) that can exceed $20 million a picture. Even so, producers feel that paying a star like Julia Roberts $20 million for doing a film can translate into more than $20 million in profits—or at least they hope it will.
Often, producers have to make creative decisions based on financial trade-offs. They might ask the question, "Should we drop some of the special effects we want in favor of having a top star, or will the special effects do more for the picture?"
Then here is the delicate balance between movie attendance and the cost of tickets.
If the price goes up at the same rate as production costs, fewer people will be able to afford to attend films—thus, reducing revenue. In particular, the younger audience will be affected.
Have you ever wondered why the price of popcorn, hot dogs, candy and soft drinks is so high at theaters? Theaters depend on the high profit in these sales to pay for a significant part of their operating expenses.
Tickets Don't Pay For the Movies
This is another way of saying that "the tickets don't pay for the movies"—even if they do represent a key indicator of their popularity.
So, what does pay the costs of producing movies?
Most of the revenue comes from ancillary rights (revenues from non-box office sources). Today, these profits come from 10 areas.
Without these ancillary profits the film industry couldn't exist—nor could producers expect to fund new projects.
The exception to the heavy emphasis on ancillary profits is represented in independent films, which, as we've noted, are generally made for a fraction of the cost of studio-backed films. These are typically financed by the individuals who believe in their ideas and don't mind the risk involved -- typically producers, directors and even the stars involved with the project.
The Future of the Film Business
The film business should remain at least stable—and will probably even expand—for six reasons.
World-wide, the pirating (illegal copying and selling) of films represents billions of dollars of lost revenue each year. This graph shows the six countries most associated with pirating.
The Harry Potter movie released in late 2001, for example, was available on DVD in Asia for about one dollar a copy—only two days after the film debuted in U.S. theaters.
It may come as a surprise to some that at least one country produces more films each year than the United States. We'll cover the international dimension of film in the next module.
The next matching quiz will be after Module 10.