Why are Movie Theatre Revenues Declining?

[David Farber <dave () farber net>]

Begin forwarded message:

From: Barry Ritholtz <britholtz () maximgrp com>
Date: July 19, 2005 2:32:15 PM EDT
To: "Dave Farber (E-mail)" <dave () farber net>
Subject: Why are Movie Theatre Revenues Declining?


Hey Prof,

For IP, if you like . . .


Why are Movie Theatre Revenues Declining?
http://bigpicture.typepad.com/comments/2005/07/declining_movie.html

There's been plenty of chatter about declining movie theatrical  
revenue. You just know the MPAA is itching to tie this onto piracy  
somehow and thus get some favorable legislation.  Let's nip this one  
in the bud, shall we? 5 factors are hurting theater revenue:

    1) Social factors eroding theater environment (talking, cell  
phones, babies crying, etc.);
    2) Sacrificing long term relationships with theater goers for  
the increase in short term profitability (commercials, no ushers, etc.);
    3) Higher quality experience elsewhere (Home theater);
    4) Declining quality of mainstream movies;
    5) Easily available "Long Tail" content alternatives (Netflix,  
Amazon).

While content quality has indeed worsened over the years, it  
shouldn't be much of an issue this Summer:  As of late, there have  
been a spate of movies which have been either well-reviewed (Batman  
Begins) or had good word-of-mouth (Wedding Crashers) or incredible  
special effects perfectly suited to the big screen (Revenge of the  
Sith, War of the Worlds).

So what else might be the source of declining theatrical fortunes?

How about the movie-going experience itself? The adventure of heading  
to a cineplex is becoming a less and less pleasant ordeal. Many of  
the headaches involved have been painfully detailed by Bob Lefsetz'  
readers (see below).

Note that we are not even discussing content quality at this point.

Then there are the adverts. A recent L.A.Times article -- Now  
playing: A glut of ads -- points out that even studio executives were  
stunned by 15 minutes of commercials theatre goers had to endure  
after paying their 10 bucks:

"As head of production at New Line Cinema, Toby Emmerich is not your  
typical moviegoer. So when he wanted to see "War of the Worlds" the  
other night, his choice was between seeing the film in a theater with  
a tub of popcorn or watching it in a screening room at Jim Carrey's  
house, with a private chef handling the culinary options. Despite  
this seemingly loaded deck, Emmerich opted for a real theater.

"I love seeing a movie with a big crowd," he says. "But I had no idea  
how many obnoxious ads I'd have to endure - it really drove me crazy.  
After sitting through about 15 minutes of ads, I turned to my wife  
and said, 'Maybe we should've gone to Jim Carrey's house after all.' "

When DreamWorks marketing chief Terry Press took her young twins to  
see "Robots" this year, she said, "My own children turned to me and  
said, 'Mommy, there are too many commercials!' Now, when the lights  
go halfway down, I'm filled with dread. The whole uniqueness of the  
moviegoing experience is being eroded by all the endless  
ads."  (emphasis added)


So while the industry laments piracy, consider if you will why going  
to the theatre has become so much less enjoyable than watching DVD  
films on your own big screen in the comfort of your home theatre.

The theatres have adapted Radio's disasterous Hamburger Helper  
approach: Short term increases in profitability in exhcange for  
alienating your core audience, who eventually seek out a better  
substitute. Quite frankly, I'm astonished the film industry has  
(contractually) allowed theatre owners to degrade their copyright  
protected product by diminishing the experience so dramatically.

As Radio has so painfully learned, the end result is a big fat Buh-bye!

To a large degree, this is  a zero sum game: The theatre chains  
losses are Best Buys' gain; Is it any surprise that high quality home  
sound systems and large screen TV sales have gone through a ginormous  
growth spurt over the past 5 years? Even as the lowest common  
denominator productions falter, Netflix (and its rivals) allow home  
theater owners to enjoy a Long Tail orgy of content.

Yo, theatre owners, when a segment of retail electronics called HOME  
THEATRE explodes in sales, that is your wake up call. You seem to  
have been oblivous, and missed the bell ringing.

Good luck getting the toothepaste back in the tube!




Sources:
Now Playing: A Glut Of Ads
The Big Picture
Patrick Goldstein
L. A. Times, July 12, 2005
http://www.latimes.com/business/custom/admark/la-et- 
goldstein12jul12,1,35978.story

Lefstz Letter
June 5, 2005







Barry L. Ritholtz
Chief Market Strategist
Maxim Group
405 Lexington Avenue,
New York, NY 10174
(212) 895-3614
(800) 724-0761
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Big Picture: Macro perspectives on the Capital Markets, Economy,  
and Geopolitics
http://bigpicture.typepad.com/comments























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