Wow... that's called burying the lead!
Dawn C. Chmielewski at the LA Times did a story today that is, perhaps, the most important story to the film industry in the last two years. Stop obsessing on frickin' 3D and the overhyped box office boom and take a look at this.
Let me step backwards for a second to let you know why I see this as a huge landmark (which I am embarrassed to say I didn't know about for 6 years and 12,900 kiosks that this company has been in operation).
The economics of a movie are;
Theatrical = the most dollars per pair of eyeballs
DVD sales = a stable price per sale, with unknown # of eyeballs per sale
DVD rental = a stable price per sale with maximized numbers of eyeballs per sale, but in some cases, revenues returned to studios on a formula that approximates a per-rental basis.
Pay-Per-View = a strong number for each sale, but very, very limited number of buyers
Internet Free Stream = no revenue except for savings from unions & ad sales
Internet Paid Stream/download = smaller than PPV revenue per unit and even more limited sales
Other Ancillaries = getting smaller every year
What percentage of the pie each area has made up has changed year to year. There was a period during which DVD sales were significantly higher than theatrical revenues... and then added more dollars from the rentals. But as DVD sales have dropped for theatrical movies - and please, keep in mind that this is not this year’s issue, but a 3 year trend for theatrical films while TV series kept overall DVD numbers looking strong – rentals have gone up a touch, but theatrical revenues have once again become the top single revenue source for most individual studio movies.
Some people will want to argue about which delivery system is now delivering the most revenue per film… and it could still be DVD by some single-digit percentage, just as theatrical would only lead now by a single-digit percentage… but that’s really not the argument that matters right now.
Regardless of which are is on top, as when people were pooh-poohing theatrical as a marketing tool for DVD, the “other” revenue stream is still terribly important. One big advantage for theatrical revenues is that the ticket price and returns to studios on that gross revenue is stable on a per-unit basis. It may creep up 15 cents on average a year, but that $10 (or $12 or $8.50) is not a flexible number. This is not true of DVD and, to me, this is the greatest threat to the film industry right now.
The market for DVD and following in its wake, all other post-theatrical delivery systems, is much more of a problem because of reduced price point than because of shrinking numbers of purchases. All businesses mature. And DVD has, uncomfortably, matured in a coincidental timing with a worldwide recession. But the maturation should not be a surprise. What should be a surprise, however, is that studios have sold their libraries quite short by allowing a constant trend toward lowering of the DVD price point.
Given the proliferation of DVD players in America and the world, all post-theatrical pricing follows the DVD price point. If you can purchase and own a movie used at Blockbuster for $6 within 6 weeks of release, how many people would actually rent it for $5 with the real threat of late fees once in a while? If you can get all of the latest titles from Netflix for $20 a month and keep them in your possession for as long as you like, why would you ever buy a $15 for a newly released DVD? Etc…
But this is becoming an even bigger issue as more delivery systems are added to the mix and built up over time. What will be the workable price point for each of those systems? How can it be higher than DVD sell-thru or DVD rental?
$1 a day rentals is great for the consumer… and death to the studios as we now know them. And if it continues as it has – and who the hell was at sleep at the wheel as this company grew to be ubiquitous outside of NY and LA? – it will infiltrate all post-theatrical pricing. Deals that the studios made with Blockbuster and Netflix for returns on wholesaled DVDs will be broken and flipped in both company’s favors, not matter who the studio pays off in highest level of those companies. PPV will be decimated and forced to reduce its pricing down by half or more. And revenues will shrink drastically.
The thing is, revenues are already shrinking and will continue to shrink, no matter how much the media hypes theatrical grosses and misses the bigger picture. Studios are not firing people because they are evil, greedy corporations. They are firing people because their parent companies are not satisfied with the return on investment that is low for an industry where there is real risk involved. Many people – often led by media misreporting that is generated by studios hyping their goods and futures – think that money falls out of the sky for studios with a few big grossing movies a year. But it is not that simple. And even the huge amounts of money that go to movie stars and others, while enormous for any one person or family, are nothing to multi-billion dollar corporation.
None of this is to say that I am up at night weeping for this industry. Greed got us to this moment and absolute necessity will be the only thing that shrinks most of the excesses. I am, sadly, estimating that industry expenditures will shrink by at least 30% in the next three to five years. That means that $150 million movies and the marketing and overhead behind them will become $105 million movies… and that no small part of that reduction will come out of the pocket of people you and I might consider working stiffs… professionals who either lose their jobs or see their $80,000 a year jobs become $50,000 a year jobs… non-professionals whose jobs simply disappear. No one will be crying for a big movie star working for $10 million instead of $20 million… or for 25% of net against $5 million instead of 6% of gross against $18 million. But those are the stats you see… the casualties are not public faces.
And what I am saying is that this reduction is coming no matter what happens next. It is inevitable. It is the busting of the DVD bubble and it is a ferocious reality.
But… if DVD rentals for $1 start to become the level expected by a public that cares a lot less about bells and whistles (in all but a small percentage of cases) than the Home Entertainment divisions convinced themselves was the case, you are looking at another 10% - 25%, roughly, that is going to come out of the pot. And that is when you see 1969 all over again.
Now, some would argue that the end of the old studio system was good for movies. I would argue that the Vietnam War and the deaths of Kennedy/King/Kennedy were more responsible for the quality of the work in the early 70s than studios dying. But regardless of where you stand on this, how do you feel about another death of the studios taking place forty years later in 2009 (or 2010 or 2011)?
I keep hoping that the sky isn’t actually falling… that it will not all be television… that there is an answer in technologies that I think are overhyped (though sometimes excellent), like 3D or IMAX… but this $1 rental kiosk and the industry’s failure to stop it is exactly the kind of thing that makes me despair.
I look to Europe and filmmaking countries around the globe that are not as excessive as “Hollywood” and make what critics think of as better and more challenging films… and I don’t see any of them finding an economic solution that works any better.
Maybe the future cannot be stopped. Maybe hoping for some stability in what is now set up, anticipating a natural correction to come that will be painful for many, is being a Luddite. No doubt, movies will survive this – whatever this becomes – as it did the end of the studios… as it did television and sound and color…
But do we want to go through The Depression to get to whatever is next? Do we want to see an empire fall to get to whatever comes after?
It didn’t start with $1 rentals… and it won’t end with $1 rentals. But the suction.. oh, how the suctions grows stronger… dollar by dollar… injury following insult… onwards…
Read the complete post at http://www.mcnblogs.com/thehotblog/archives/2009/03/the_day_the_mov.html