Is this the Beginning of the End for Movie Theaters?

$7.50 – Price for a matinee movie ticket (before 6pm) at a rural theater in the Midwest

$9.50 – Price for an evening movie ticket at a rural theater in the Midwest

$12.50 – Price for a midnight premiere (in 3-D) movie ticket for the same rural theater in the Midwest

For a family of four to go to the movie theater on a Saturday evening, buy some popcorn and soft drinks, the cost exceeds $50.

On the other hand:

$1.00 (plus tax) – Price to rent the same movie from Redbox three months later. Popcorn and soda bring the total cost to $10 if each person gets their own Big Gulp.

Box office numbers this summer seemed like specs of unattainable rocket fuel painted across the sky. $750 million for the new X-Men movie. Almost $650 million for Guardians of the Galaxy, the surprise hit which set an August opening weekend record. The new Transformers movie raked in more than $1 billion worldwide, far and away 2014’s highest earner. But there’s growing evidence that the world’s largest movie audience may not continue to flock to the theater.

Through September, 22 films have grossed more than $100 million domestically in 2014, compared to 35 last year and 31 in 2012. Judging by the slate scheduled for this winter, the number likely won’t exceed 25 and certainly won’t hit 30.

The number of tickets sold will likely decline for the ninth time in twelve years on a year-over-year basis, despite 2014 being the fourth year in a row with more than 600 films on its schedule. Include the fact that the average ticket price exceeds $8, it’s increasingly likely that the current business model may not last.

How could this have come to pass?

Primarily, movie studios have opted to maximize profits at the expense of creativity. Much has been written on this subject — including here and here at this blog — that suggests the rise in sequels and franchises has come at the expense of more original and adventurous filmmaking. This was predictable once studios realized the potential of largely untapped foreign markets.

This progression has led studios to green-light films with more international appeal, though with limited market research, it’s led to what’s worked in the past: explosive action films and franchise blockbusters. Of Transformers: Age of Extinction‘s $1.1 billion haul, 77% came overseas. For X-Men, it was more than 60%. Even Guardians of the Galaxy, which was thought to be more of a domestically-driven film given its source material, made more money internationally than it did in the US. Of the top 20 movies in 2014, only January’s Ride Along grossed less than $100 million in foreign ticket sales. $134 million of the film’s $153 million total came from the States.

But these are just numbers. What the studios and production companies do with these numbers will ultimately signal in which direction the industry will turn. Mining the current environment for all its riches would lead to a lot of franchise tent-poles with international appeal, leaving independent and crowd-sourced financiers to support smaller films. Even though the studios currently take a smaller cut on international grosses than domestic returns, the glut of overseas film revenue seems too lucrative to pass up.

Eventually, audiences will (likely) suffer from franchise fatigue which would force studios to adapt, but it may be too late. Consumers have had the luxury of watching second-run films at home just months after they appear on the silver screen via a variety of devices, from HBO to Netflix and even basic cable. In recent months, video-on-demand (VOD) has become a viable option for many lower-budget films to be available in homes while simultaneously premiering on the big screen, though the caveat is that few of these movies are widely released in theaters and expected to draw massive audiences in their opening weekends. iTunes, Hulu and the ill-fated Redbox Instant could distribute films as well. For budget-conscious or preoccupied consumers, the bevy of home-entertainment options means the movie theater has lost some of its appeal. And now, it’s likely to lose even more.

Netflix has announced that it will distribute the sequel to Crouching Tiger, Hidden Dragon and signed a four-picture deal with Adam Sandler to premiere his new films exclusively on its service platform. The moves come after a recent string of success — Emmy-Award-winning original shows, documentary distribution and plans to create an online talk show for Chelsea Handler. While the specifics of the deal were not yet known, Netflix is in an interesting position. The company is under no mandate to release its viewing metrics (which Netflix holds dear), at least partially so it’s seen within the industry that they come from a data-driven place of efficiency. If Netflix believed that no one would watch the Sandler movies, it wouldn’t have made the deal. It’s not a stretch to suggest that its algorithms have identified Sandler’s particular penchant for flatulence-laced comedy as a lucrative market to explore.

On its own, the deal is rather nondescript, since it’s impossible to quantify its success and it won’t immediately lead to other companies signing similar deals with aging movie stars. But it does signal that Netflix can — or will be able to in the future — distribute a film of a significantly larger scale: Sandler’s last starring role, Blended, had a production budget of approximately $40 million (and grossed $127 million, a certifiable hit). Grown Ups 2 cost Happy Madison and Sony $80 million to make (and it also netted a sizable profit). If this move pays dividends, it’s likely that Netflix will look to expand its production empire as it fully morphs into HBO — there’s been chatter that with second-run distribution fees climbing, in addition to Netflix becoming a player in feature films, that there’s an expiration date on Netflix having access to back catalogs of other studios’ films and television shows.

As it stands today, a whole month of Netflix costs less than a single movie ticket. So why would anyone still go to the movies? For starters, even as home theaters have dramatically involved, they still cannot compete with the ambiance of an actual movie theater. The sound, the screen, and even the audience (which can elevate the humor in a comedy or the suspense in a thriller) are exponentially bigger at the local cineplex. A movie can also be a rather inexpensive opportunity to escape — for parents, children or even just for a date — that the home viewing experience simply cannot (yet) provide. And while the boundaries have begun to dissipate, movie theaters still remain the first opportunity to see a film, often months before it arrives in iTunes or at Redbox.

For filmmakers and movie studios, Netflix may be an avenue that gets the most traffic for a particular film, but opting for a wide or limited theater release still remains a better option for most. For starters, the Oscars may not recognize films originally premiering on Netflix as eligible for the awards, though that would likely change over time. Still, the prestige of the Oscars or the Golden Globes has the ability to increase box office sales after the awards show airs, though again, it’s likely the same would be true if a Netflix-distributed film struck gold on the awards circuit.

Movie theater economics being what they are — lower foot traffic, higher prices — should have theater operators wish Netflix or a similar company thrives in the online-only distribution method. Theaters will likely pursue a strategy that keeps the larger, blockbuster films premiering on their screens while leaving the possibility that indie films could use the theater as a second-run option rather than the other way around.

Like cord-cutting for cable television, the decrease in viewership should be a concern for movie theater owners and operators. They need to think about how to draw audiences back in, even if the most “obvious” change — lowering prices — is next to impossible. Some options include re-running popular, older films that premiered earlier that year or in previous ones. Theater operators could even take a cue from television and run back-to-back showings tied around particular themes, such as a Valentine’s Day special showing popular romantic comedies from the past few years. Establishing a better return on investment — especially with movie run times inching toward 90 minutes or lower — could lead to more ticket sales, even if results are only anecdotal.

For the industry as a whole, there should be an emphasis on trying to create the next franchise from scratch, rather than rigidly relying on readily-available source material. The boom-or-bust mentality already exits, but even hitting on one new blockbuster each year would likely pay for the flops. In addition, production companies should explore all avenues of distribution, even if it’s at the expense of movie theaters. The current iteration of the multiplex will live on — even a drastic change would take years, if not decades to metastasize — but it’s no longer the lucrative cash cow it once was. Between 4k televisions, surround sound and giant screens, it’s almost more enjoyable to watch a movie at home. It’s certainly less expensive.

 

 

Against the Ice: Puck Possession in the NHL’s Analytics Mindset

It seems almost unnecessary and somewhat obtrusive to rehash this point again, but Moneyball didn’t argue simply that walks were to be desired, but rather that baseball put an undue premium on batting average that devalued on-base percentage, allowing the astute (Billy Bean in this instance) to acquire above average players for below-average-player prices.

While the book – and the subsequent movie – were not the impetus for the rise of analytics in professional sports, they’ve served as a foundational pillar for the average fan’s acceptance and belief in their “mysterious” and “mythical” powers. While baseball has garnered the most attention, basketball may be the most advanced with camera technology that can actually track every single player’s movement on the court in real time. The NFL’s “All-22” game film allows for a similar dissection, though its constant moving parts and detailed play schemes suggest a greater gap between advanced statistics and the public’s acceptance of such.

Of the four major sports, the NHL seems to lag behind. Recent analytical history has concluded that the “best” way to ensure long-term success (as much as any analytical tool can), is to possess the puck. This seems like hockey’s best John Madden impression – “to win the game you have to score the most [goals]” – but the sport’s pace, on-the-fly substitutions and varying rates of scoring opportunities make deeper dives extremely difficult.

Read about hockey over the summer and the term CORSI likely made its way into the article (and every journalist’s lexicon). The statistic is a simple measurement of puck possession where no precise measurement is available. A CORSI above 50 means that this particular player or team attempted more shots than the opposition when this player (or team) was on the ice. As of now, it’s impossible to track granular puck possession down to the second – at least until the NBA’s cameras invade the NHL – so CORSI serves as a decent substitute. Fenwick – CORSI’s younger brother – applies the same formula, but removes blocked shots in an attempt to decipher those shots that have a chance of finding the back of the net.

Regardless of one’s feelings on analytics, the movement’s most important feature is its verifiability. Studies have confirmed that attempting more shots than the opposition has a positive correlation with winning. This was the holy grail of the industry – the discovery of a crucial component of success. But it’s just the start of what will hopefully be something much greater in scope.

We know what good teams do that make them good, but we don’t know how those teams do what they do. Tracking CORSI or shot-suppression or shooting percentage or anything else shows after-the-outcome effects that can be used to predict future success. But it’s like saying that a MLB player who racks up seven WAR in one season will automatically do it again, simply because he just did. How did he get there? What makes those particular skills – desired by advanced metrics – stand out above the fray?

Simply put, why are the players who consistently post incredible CORSI percentages able to possess the puck longer than their teammates or opposing players? What types of offensive and defensive systems produce the best results? Most importantly, if every team now understands that puck possession is a fundamental key to success, what comes next?

If the NHL becomes more homogenous – a potential result of general managers identifying players who portend puck possession success – where will the next market inefficiency be? A recent study held up as an analytic bullet point suggested that carrying the pick into the offending zone leads – on aggregate – to a higher likelihood of scoring. Therefore, most teams will likely look to improve in this regard, like a chess game designed with a trap door. Defensive systems have likely already planned to counteract this shift, creating more neutral zone turnovers until the entire game is played in the 50×85 center portion of the ice.

Ex post facto analytics can only scratch the surface. What the sport needs are dedicated people that can blend the research with understanding of hockey system functions in order to explain how players such as Jonathan Toews and Drew Doughty excel. Justin Bourne – a former player turned writer – has been instrumental into looking at organizational philosophies that may dictate why their possession numbers skew one way or the other. Tyler Dellow – a former lawyer turned blogger – did so as well, but his blog archives and future studies were purchased by the Edmonton Oilers in an effort to limit the negative feedback to the organization’s servers. Others, such as Corey Sznajder, have opted to manually track individual games, in hopes that providing the necessary data leads to a wave of innovative uses.

Most organizations, at least after this summer’s influx of analytics hirings, have an idea of where to turn next, how to blend the statistics into their scouting departments to create projectable reports for amateur and current major league players. But we’re not yet at the point where analytics have overtaken old-school mentalities, in large part due to the former’s fallibility when it comes to  understated variability. If you know the end result, why should you even play the game? For those invested in advancing hockey toward its sabermetric future, the how is just as important as the why.

A Letter to My Future Unborn Children About the Value of Respect

September 9, 2034

 

Hey guys,

It’s probably not cool to say “hey guys” in 2034 (or 2014 for that matter), but whatever. There’s no good way to start a letter like this. Man, physical letters totally won’t even exist when you’re reading this. And I’ll be 45. Try to forgive me for buying that sports car last year. Your mother knew what she was getting into.

Given that you come from a long line of Norwegians, Irish and Italians, you – my collective children – are likely comprised of at least one boy and one girl, likely more than one of each (hence the sports car and grey hair). I believe that this message, cryogenically frozen and brought forth twenty years into the future, is extremely important now and will likely be just as important to you as you approach your most informative and important years.

I’m writing you this letter because society in 2014 has begun to undergo a cultural shift over the past decade or so. Racism is still alive, but its social acceptance has all but vanished. Homophobia has experienced the same public undress, though lags behind racism as the disgusting parts of religion still infect so many who choose to hate rather than to love. If nothing else, remember that I will always love you and will embrace whoever you choose to love, provided of course they don’t root for the Green Bay Packers. Your uncles have already been banned from the house on Sundays for this very reason.

I wanted to write this letter because I’m afraid that while we’ve seen a cultural shift in acceptance, the underlying values of hatred will permeate in our society as you’re growing up. You’ll probably have racist or homophobic friends, and you’ll have to make decisions on who you’ll want as friends and lovers. You may not know their feelings on these issues until years from now, when a throwaway comment catches you off guard and sends chills down your spine. You may already be dealing with this type of dilemma. I hope you feel comfortable in who you are and what you believe not to take any abuse directed your way for your lifestyle or with whom you associate. Though I understand that doing so may be difficult. It certainly is in 2014.

Sadly, I can almost assure you that you will have friends who are sexist. People who don’t value men and women as equals, just as they may think white people shouldn’t have to coexist openly and honestly with black people. I know this because I currently live in a world that subversively thinks it’s ok that women earn 80% of what men do for the same job. That our colleges and businesses should be run by men. That women belong in the kitchen cooking dinner. I may share in that last sentiment to a small degree – I apologize if your mother hates cooking as much as I do. I’ll learn how to make something other than soup or frozen pizzas eventually.

Not only do many men believe that they’re superior to women, but some women actually agree with them. Don’t get me wrong, many women are empowered and forceful and rightfully speak up when their rights are valued at a disproportionally low rate, but women outnumbered men by more than 7 million in the United States as of 2009. None of them should feel pressured to stay quiet. But they do, in part because men are bigger and badder and meaner and stronger and are full of testosterone and could just snap at any mo—-

Stop. There is no reason for you to stay quiet if you feel unsafe or hurt or pressured or scared.

I feel so strongly about this now in 2014 because I look at the country and don’t like what I see. I see abusive men, such as Baltimore Ravens running back Ray Rice, who knocked his fiancée unconscious but initially skirted by on the underhanded nature of his attrition and his value to his employer. The wrong was righted (partially), due to an overwhelming outcry of anger and derision at his initial punishment. But he was still acquitted by our legal system, a lower rung of the very same oligarchy that believes racism is dead.

In the aftermath of this brutality, I hope we took the time to realize that we’ve fostered a culture that not only treats male superiority as a foundational pillar of excellence, but has replaced the idea of equality with something like an applause meter. If the noise reaches a certain level, only then will the powers that be act in their entrusted capacity. Only once a secret wrong is exposed does it have a chance to be rectified. This needs to change.

To my darling daughter(s) [insert trendy name(s) here derived from popular visual internet program], I hope you understand that you deserve to be respected and treated with kindness and compassion by all who you encounter, so long as you act accordingly in return. I hope you feel confident and strong enough to pursue any career or passion you desire. Unless that means playing for the Green Bay Packers. Your uncles will have to run their Christmas gifts by me from now on.

If we can take only one principle from Christianity – and perhaps we should take just one – it’s that you should treat others the way you would like to be treated. If you abide by this principle, you’ll have everything you need to be successful. You already have your mother’s looks and intelligence.

To my charming son(s) [insert popular name from the 1970s because I secretly lost a bet], the same rule applies for you, as well. Treat women with respect and you’ll receive it right back. It really isn’t that difficult to understand. I’m not asking you to put women on a pedestal, to fawn over their explicit beauty or nurture their every whim, but simply be respectful. Listen when they speak and communicate honestly in a civilized tone. Your friends and girlfriends will appreciate this. They will love you for it.

And maybe, just maybe, you can take the time to show your friends this letter. Maybe they can show theirs. Social equality shouldn’t carry with it the same third-rail animosity that socialism or a social economy does. I hope you read this, even if by the time you do, you won’t even know what a Green Bay Packer is.

Don’t Compare Ray Rice to Josh Gordon

Reports this Wednesday morning indicated that Cleveland Browns’ Wide Receiver Josh Gordon’s one-year suspension from the NFL would be upheld; Gordon’s appeal would go for naught. Gordon was suspended for violating the league’s collectively-bargained substance abuse policy for a third time, reportedly for marijuana use after a test showed levels of THC in his body slightly above the maximum threshold allowed.

The punishment is stiff, but according to the rules the NFL Players Association agreed to, fair. One could easily make the argument that the punishment is too severe in a country where marijuana is legal in two states home to NFL franchises, but that’s a different question. Personally, I would prefer to see marijuana treated as alcohol in the NFL – perfectly legal to consume, but any public bad judgment that results in an arrest may be subject to punishment from the commissioner’s office. With the amount of punishment these players take — both short-term and long-term — marijuana should be the least of the league’s worries.

A common reaction to the suspension being upheld is to compare it to the two-game ban Ray Rice received for assaulting his then-fiance. Two games for female abuse, but a whole year for weed would, on the surface, put the league in a farcically poor position. How could such a violent and abusive act — caught on camera, no less — warrant the  metaphorically-in-poor-taste slap on the wrist?

The issue lies with Roger Goodell, who was correctly ridiculed for his lenient Rice suspension last month. Rice should have been forced to miss the whole year — the crime is far more severe than Michael Vick’s canine torture. Many derided the punishment as light at the time and it looks even worse today, even though Gordon’s crime is judged on a much different scale than Rice’s.

In collectively bargained, or unionized, companies (of which the NFL is one), the employees must reach an agreement with their officers in order to go to work. Unions should be encouraged to flourish, especially in a enterprise that raked in $6 billion in revenue this past season. Players must speak up for their rights to long-term benefits, a must given the science that correlates the hits they sustain with brain damage and CTE later in life. They have to fight for a fair wage since combined they only see half of the revenue, if that. And, as it pertains to Gordon, they must make sure that cheaters cannot prosper and use that competitive advantage to take another player’s job and salary.

Again, while some (including yours truly) may believe that the crime not only doesn’t fit the punishment, but it should be permissible, the fact remains that Gordon violated the terms of the substance abuse policy. The players bargained for this policy to keep their game as clean as possible, with escalating suspensions for continued or relapsed use.

Rice’s crime was reprehensible, but it wasn’t subject to the CBA. The next lockout — it’s definitely happening — may spur the players to push for Goodell’s power to subjectively punish to be transferred to a third party. It may remove marijuana from the list of banned substances. Josh Gordon knows what he signed up for as a member of the NFLPA. It’s just that the NFL’s personality problem will suffer regardless.

Comcast, Customer Service and the Benefits of a Monopoly

Between buying companies and burying its own customers, Comcast has dominated the cable industry news over the past few months. Reports have shown just how evil the cable giant truly is, pushing sales tactics on its customer service employees, charging customers for unwanted services and simply engaging in despicable corporate behavior that shouldn’t be tolerated by anyone.

Except that despite the recent exposés on Comcast’s business practices, nothing will change. There is no need for remorse, contrition or changing values. Comcast will continue to print money, buy other media empires and control television programming uncontested.

How could this be possible? After a disgruntled customer recorded his call with Comcast customer service two months ago, the backlash was severe. But people already hate Comcast, and yet revenues continue to grow. Report after report indicate that Comcast’s customer service is atrocious, but according to their second quarter earnings report, Comcast added more than 200,000 high-speed internet customers, the best second-quarter growth in six years.

Even worse, Comcast is in the perfect position to grow even stronger. Understanding the utility of the internet shows just how powerful Comcast may become.

*     *     *    *     *

Television as a medium isn’t dying, but it’s hurting. Cord-cutting is a legitimate concern, but not because people have stopped watching media on their television. Instead, consumers have switched to third-party applications like Netflix which don’t require a cable subscription to authenticate.

As that model evolves, more and more content providers will opt to split from their bundled old-world ways, leaving cable and satellite television providers with little recourse but to either demand lower subscription fees from networks…or pass along those astronomical costs to subscribers. It’s not unfathomable that by 2030, ESPN will become a subscription service, either via customer demand or government action; eventually the $5-$6 sub fee cash cow will run dry.

But these subscription services all rely on the exact same utility to function: the internet. And who owns the internet? Comcast.

See, as the internet evolves, it will have the power and access to expand its content offerings across the country (and the world). Fifteen years ago, you needed an AOL CD just to access dial-up speeds, now gigabit-per-second speeds don’t even seem unfathomable. Faster speeds mean more capabilities, such as streaming media and teleconferencing. The applications for the interconnectivity the internet provides are likely in their infancy compared to what’s coming. Most businesses at least have an online presence, but may not have figured out how to maximize their online efficiency. Third-world nations will eventually “connect” as well, it’s just a matter of time.

All this bandwidth places a premium on speed. A premium on resources. Most of which will be funneled into Comcast’s metaphorical hands.

Even if the merger between Comcast and Time Warner doesn’t go through, the former has the market share and lobbying power to ensure its requests are met. That the FCC is even considering changing its “net neutrality” laws – which would likely provide additional revenue streams for internet service providers who could then extort their clients – shows just how powerful Comcast already is.

As access and speeds increase, those with the capability to not only provide the bandwidth but upgrade it stand to benefit the most. Comcast will always face competitors in the sector – AT&T’s DSL internet often undercuts on price, but severely lags behind in speed while Google and Verizon may eventually become the preferred providers with their fiber optic networks, but those are years away from availability across most of the United States.

For most businesses, Comcast (or high-speed broadband internet) remains the de facto choice. Mobile carriers could have cornered the market for individuals, but opted to cap their data plans for fear of overuse (which could cause intermittent network shutdowns if the servers couldn’t handle the workload). Companies such as Verizon and AT&T could have leveraged the rise of mobile data use into even greater price gouging than they already do, but with data limits here to stay (at least for some time), individuals unload as much of their data usage to home or public wireless networks. This has allowed companies like Comcast to expand their empire – throttling does exist, but the limit is exponentially higher than the standard 2 gigabytes offered on a cellphone.

With its market share likely only growing, Comcast has little financial incentive to augment its business practices. Locking in customers now gives the Philadelphia giant a better chance at retention because of its “fair” cost (compared to competitors). More importantly, the internet’s function as a utility means that like water, heat and electricity, once you have internet, you’re likely not going to cancel it. With federal regulations forbidding high-speed cable competition, there are no true adversaries that offer both comparable network speeds and prices.

Comcast can do what it wants, when it wants and how it wants. There will likely be long-term effects from poor consumer confidence and customer service, but for the time being, owning the keys to the internet ensures that Comcast has no incentive to stop.