In my last post I concentrated on cost trends in TV and cable advertising, showing the relationship between those two entities. Next I’d like to take a look at movies and some of the pieces that make up the bigger picture of the movie industry. Let’s start with a graph illustrating US box office gross over time (data was derived from the National Association of Theater Owners):
Looks promising right? The curve is steadily going up, all must be well in the film business! Well… not quite. The past year, like all recession years, has been a good year for theater going. When money is tight, people typically look for less expensive forms of entertainment, which often results in increased movie attendance. Last year also saw the release of Avatar, the highest grossing movie of all time (it was released in December though so most of its earnings will fall in 2010). Both of these factors play into 2009’s surge in box office gross. When I was researching this project I was very curious to find out how many movies are released in theaters each year. I was anticipating a gently rising curve similar to the one in the box office graph, but that is not the case. The following graph shows how many movies are released in the US each year:
In general the curve is pretty flat, there was an increase in the number of films released in 2006-2008 but 2009 shows a noticeable drop. So, just to recap, more money is being made off fewer movies. Fine. This is a culture of blockbuster movies, so it is plausible that a few giant hits are making up the majority of the box office pie. Another factor to take into account at this point is the number of movie screens in the US. We are surrounded by giant multiplexes filled with the latest that Hollywood has to offer, perhaps the increase in revenue is a result of more screens showing more movies. This graph shows the number of indoor movie screens in the US:
The number of movie screens increased over the past two decades but is now leveling off and may start going down. Movie theaters are not the big winners in the movie business, in general they make more money off the popcorn that people buy than they do off the movie tickets. It’s kind of like restaurants making the best profits off the sales of alcoholic beverages. Increased sales of high definition big screen TVs have cut into the profits of movie theaters as more people choose to watch movies on home theater systems in their living rooms. Theater owners are located at a very vulnerable point in the entertainment food chain, they are fed product created by someone else, which they turn around and feed to the theater going audience. In the past, the theater was the only place to buy the experience they were offering, that’s not the case anymore. Avatar is worth mentioning again here since for theater owners it represents a triumphant beginning of a new “only in theaters” experience (until the price of home 3D systems becomes more affordable…).
So where are we? More profits, fewer movies, about the same amount of movie screens. Maybe more people are going to the movies? Let’s look at the number of tickets sold each year:
This curve looks a lot like the curve for the number of movies released per year. It has gone up gently over time, but more recently the number of tickets sold per year has dipped. Ticket sales are pretty flat. This is something that is very worrying to theater owners – fewer people buying movie tickets also means fewer people buying popcorn and other concessions, it eats into the heart of their business. Fewer tickets being sold also worries the people making movies. Hollywood studios and independent producers spend a lot of money each year making the movies that get shown in theaters. The next graph shows trend of average production costs over time:
This is a textbook example of a steadily rising curve. This graph looks more like the box office curve (at the top of the page) than any of the other graphs we have looked at so far. It makes sense that movies are getting more expensive to make as time goes by, technical innovations have increased production quality exponentially paving the way for mind blowing visual effects. Each year millions and millions more are spent on everything from special effects to A-list salaries in a constant effort to grab and hold viewers’ attention. But if we look back at the numbers of tickets sold it we see that people are not responding to film makers efforts by rushing to the movie theater. Audiences have become very sophisticated when evaluating the quality of a film’s visual effect, they just won’t put up with what they used to put up with in the past. Until very recently movie distributors had an enormous amount of control over information about the films being released. A bad movie could still do well if it was packaged correctly since word of mouth took some time to spread. Social networking tools like Facebook and Twitter now allow movie goers to post instant reviews to their extended network of friends, spreading news about bad movies faster than ever before. In 2009 this networking effect destroyed the opening weekends of several big films on which studios had pinned high hopes.
So if audiences are getting pickier and they are not flocking to the movie theater in increasing numbers, and movies are getting more and more expensive to make, how are they making money? I think this next graph is my favorite one of all so far:
This curve shows the increase in ticket prices over time, a steady rise that is getting steeper and will keep getting steeper if the rumors about new prices for 3D tickets are true (3D tickets are already more expensive than regular movie tickets, there has been some talk recently about those prices being raised to $25 in some cities). Box office revenues are not the only source of revenue for the film industry. In fact, a major part of film industry revenue comes through meticulously structured contracts for distribution to home video, cable, and network TV after market outlets. The thing is that the internet is starting to encroach on all of these outlets as well in the same way that is has allowed for shotgun blast movie reviews: it’s instant, it’s packed with information, and it’s accessible from anywhere. DVD sales are dropping, in New York City (where I live) since Virgin and Tower Records both closed you can barely even buy them at all. Wal-Mart is phasing out DVD sections in their stores. That leaves TV outlets to make up the lost revenue (circling us back around to the ad revenue issues from the last post), and of course… people buying movie content online. We’ll go there next.
Some closing thoughts and questions for this post: It is not unusual for an industry to pass costs onto the consumer, especially if you have something really desirable. But what if they don’t want your product anymore? Or if they don’t want it the way you are delivering it? How can the network of movie theaters adapt to viewers’ new watching habits? Community Supported Movie Theaters anyone?
Ok, I’m going to start looking at some slices of this big picture, one slice at a time. I would like to start with something that appears to be happening, and seems to have been happening for some time before the advent of internet media, in the realm of cost trends for TV advertisements. I have made some graphs using data that I found on the Television Bureau of Advertising website. The graphs below represent data for network TV Primetime viewing, which includes the hours between 8pm – 10pm, Monday – Sunday. For those of you reading outside of the US, network TV is composed of advertising supported channels and is free for all viewers. The first graph shows the advertising cost trends over time:
As you can see, even though there has been fluctuation over time, the general trend in network TV advertising costs has been upward and significantly so. The free broadcasting model of network TV means that advertisements are more expensive than they are on cable TV which has the benefit of an alternative revenue stream in the form of viewers’ subscription payments. The problem with these rising costs is that they are not being supported by an expanding viewership. The next graph shows the trends in the average number of minutes that a household spends watching in Primetime:
TV watching overall is still very high, but as this graph shows it is moving away from network TV. Some shows like American Idol and Dancing With the Stars still command huge audiences and the high advertising rates to go with them, but the era of “must see TV”, when shows like Seinfeld and Friends dominated TV watching is history that will most likely not be repeated. During the time when Primetime TV was the centerpiece of the American evening, it made sense to have high advertising costs – the opportunity to reach a reliably huge audience was an opportunity worth competing for and worth paying for. The problem is that the audience isn’t there in the same way now, but the costs are. This graph is a good illustration of the current state, where it is getting more and more expensive to reach fewer and fewer people through network TV:
What does this mean? It means that things are topsy-turvy in the network TV world, similar to what is happening to newspapers across the country as advertisers abandon the printed format. So far many advertisers are still sticking with network TV, but the networks are struggling to find their footing and keep audiences tuning in – resulting in the death of soap operas that had been on the air for decades, and wild experimentation such as NBC’s failed attempt to move Jay Leno’s late night talk format into Primetime. The following graph shows cable TV ad expenditures overtaking network TV ad expenditures:
In systems thinking, this type of behavior is labeled “Success to the Successful” – a situation where two parties are competing for the same limited resources. In this case the two parties are cable and network TV competing for advertising dollars and viewers. The usual outcome, if the situation goes un-managed, is for the successful party to starve the other party of its resources. If this was all the information we had, we might conclude that cable is going to win this race, but there are other layers of variables that can and need to be layered on at this point. The internet is the wild card that joined the running seriously in 2006 with the launch of YouTube, gained ground in 2008 when Hulu went live, and has solidified its standing with seamless video streaming services like Netflix. It’s the dark horse that everyone is either betting on or running from, it’s why cable TV needs to keep looking over its shoulder, and it may end up giving network TV a second wind.
I’m going to leave it there for now – other slices of the pie coming soon: the effects of the internet on cable TV, the current state of movie watching, and monetizing trends and opportunities for content on the internet.
So, what is happening in the film industry and how can we tell?
Why am I even talking about this? In a way I feel like this topic chose me. In July of 2000 I was hired to work on a Woody Allen movie through a loose connection from a previous job. I had a background in set design for theater so I felt like working in the art department on a movie wouldn’t be too much of a stretch. I was only a little bit right. The art and design of theater proceeds at a measured, deliberate pace, allowing the whole to be assembled in bits over months, with room for constant improvement even once the show opens. Film design, although also an art, is more of a breakneck race to amass objects that will fill a microcosm to the gills in a frantic effort to cover every possible angle where the camera might look. It is one part interior design, one part traveling circus, and one part game of chance. This cocktail is what got me thinking very early on about the way work flow and communication are managed in the film industry.
‘Uncertainty’ is the film business’ middle name. The intense planning, working, rushing, and last-minute guessing keep film industry workers’ attention focused on the short-term, job to job, leaving them without time or energy to consider the whole. The number of projects ebbs and flows, influenced by factors far beyond their reach. It is something you get used to, you even look forward to periods where you float for a little while before picking up a project, and you trust that the work will eventually come in one wave or another as if some kind of natural cycle were at work.
Back to what is happening, or what I think is happening and why I am doing this project. Film is an art and an industry born of technology and has been buffeted by it from the beginning. Each wave of technological change washes over and through the existing business model leaving a slightly different shape in its path. Right now the film and TV industry is colliding with new methods of media distribution now available on the internet at low-cost to almost anyone. For one hundred years media production and distribution was controlled from within the industry, and now those walls are coming down. The number of people watching TV and movies in the traditional manner is still substantial, and will probably remain that way for some time, but the evolution of internet viewing feels like the tipping point of the movement towards consumer choice that has been building since the advent of home video. DVD sales and home theater systems have been eating away at theater audiences for years. If all of those systems are suddenly being fed an infinitely diverse menu of content directly from the internet, how does the film industry keep a finger in the pie? That’s the thing about the internet, things happen very suddenly, before the kinks have been worked out, before established systems can plan how to navigate the change. Remember the music industry and the newspaper industry? The film and TV industry has an opportunity to learn from mistakes already made but it needs to act fast.
These trends have been evolving for years and I am not the first person to notice them or to speak up about them. Advertising sales, box office receipts, and ratings are a constant obsession for producers and executives from coast to coast. The growth of internet viewership is not being ignored. However, I do feel like I am in a minority that are trying to frame the change in media consumer behavior in terms of the potential effects it may have on the jobs and livelihoods of hundreds of thousands of film professionals (2.5 million American jobs). In addition, these people represent an immense pool of talent and experience, re-inventing the wheel of media production and distribution without them might not be impossible but it would be an incredible waste.
As media outlets have begun to develop on the internet questions have begun to arise: What are people going to want to watch? Who is going to pay for it? How will people find what they like? Will traditional formats endure? What will be sacrificed? What are the legal boundaries? How will the ratings system work? What opportunities are waiting to unfold?
There are many more. My purpose here is not to answer them all but to start talking about them, figuring out relationships and imagining positive possibilities that might be coaxed into being.
Over the past 6 months I have been on a somewhat winding path of discovery in relation to my practicum project, a culminating independent study for my MBA program. This is not an unusual circumstance for people in my program since the boundaries of the project are unlimited in terms of the topic. Ambitions tend to be set very high at the beginning and evolve into more realistic shapes as time tunnels toward the deadline. I started out somewhere completely different from where I am now.
My first thoughts for my practicum were concerned with micro-finance, specifically in relation to artists, a population that I believe is financially under-served and discriminated against. I wanted to develop a way for artists to have access to small loans, to improve their financial literacy, and their financial legitimacy. I still feel attached to this topic and believe it deserves more attention, but playing catch-up with the history and the future of banking was a bigger job than I was able to undertake at the time so I decided to go another way.
I turned to a system that I am more familiar with, that I had already done some work on for school, and that has significant meaning to me. I’ve spent the last 10 years working in the film industry. A fact that is surprising to me when I think about it. I have never felt completely comfortable within its confines but it has treated me extremely well most of the time (despite all my complaints!). The way things work in the film industry has always been a source of frustration for me and something I have turned over in my mind often over the years, trying to see if there might be another way. Now it seems that environmental forces may be the impetus for other ways to emerge, even if a lot of people really don’t want them to. Some of the environmental forces in this case are the Internet, streaming video, changing habits of viewers, and a generation of digital natives. All of these factors and more are poking at the boundaries of the traditional film and television industry, some have even begun to penetrate like waves of digital barbarians threatening the security of the traditional media empire.
In this blog I’ll be looking at what these changes are, where the industry has been, where it may be headed, and if there are opportunities for ways of doing things that haven’t been made explicit yet. There is a technical angle to my work on this – I’m using a tool that I learned in school to help me navigate all of the variables involved. This tool is called Systems Mapping, it’s basically a way of drawing systems to see what is related to what and how that makes the whole behave. Right now all I want to do is start a conversation around some of the thoughts and ideas that have come out of my research so far. If it makes sense to include some of my diagrams I will, and I will try to make them as clear as possible.
If things don’t make sense please let me know, I’m hoping that this conversation will help me clarify my ideas and the direction of my project in the next 5 weeks before I have to make my final presentation. I’m looking forward to it!