$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.