March 10, 2006

A very smart young journalist wrote and asked whether I thought that 2006 was a make-or-break year for Hollywood. This was my response...

First, there is no such thing as a make or break year... obviously. 1969 was a make or break year and we're still here writing about this stuff.

The upside of 2006 is a big summer schedule. And the downside is that it is probably overloaded.

The irony is that the media will report gross numbers as though they mean something... and they are as irrelevant if up as they are if they are down. So, when May 2006 blows 2005 out of the water and may challenge 2004's record, there is the distinct possibility that a film like Poseidon will do over $100 million and essentially be $40 million or $60 million short of what it might have done given more space than to be in between MI:3 and X3. The bottom line IS the bottom line and like the week-to-week obsession last year, the reporting tends to hook into a single idea and to lose perspective.

Hollywood has more revenue coming in than ever in history... even when you do all that wacky adjusting for inflation. Not all of it is from theatrical. But things shift. There was a time when E.T. was worth $20 million per screening on CBS, sponsored by Sears. Those deals went away. Video was a rental only business, then sell-thru, then an afterthought. DVD sell thru was unstoppable, then in-mail delivery came, now DVD is maturing, and the next generation will be delivery by wire into the DVR.

The trouble in Hollywood is not grosses, but costs of production and advertising, which has changed the model, so no matter how inexpensive a film might be to make or acquire, distribution is still unbelievably expensive. And what is so often missed is not that you CAN'T find alternative delivery modes, but that you have to find someone willing to pay for them.

If you take The Passion of The Christ out of last year's equation, the drop was the same as it has been annually for years in the video and then DVD era... around 2%. There is a lot to feel good about. Worrisome is the lack of a successful middle class... $80 million to $130 million is not where many films end up anymore. So there are more hits with more than $130 million domestic than ever before... and things are great with films that used to be $30 million grossers than now do $50 million or $60 million. But the films that do "okay" and then drop off in anticipation of the DVD market is the one real red flag. Brokeback Mountain is one of those films. The phenomenology was not enough... people who aren't seeing it in theaters will see it on DVD... and they are at peace with that.

The biggest struggle in the new marketplace is that the demand for seeing something NOW is almost exclusively a teen thing. And even in that quadrant, it is diminishing. The one advantage the film business has IS theatrical exhibition, which is an expensive, time-consuming, unique opportunity... which is why a certain percentage of people are so committed to it. And by the way... that's not new. The exhibition business, since television, has forever been driven by a small percentage of people who go more than 5 times a year. People over 25 were never going to the movies all the time.

Piracy is a real issue. And again, theatrical is a shield against the problem. There need to be technical solutions. But the tipping point for the recording industry is likely the same one for the movies...people who feel they are being ripped off tend to lose their inhibitions about piracy. And when you pay a lot to go to the movies and you still have to watch 10 minutes of commercials, it feels like double dipping. The price of concessions often feels like a rip off... and with so many theaters next to Starbucks and other food retailers, the "you can't bring it in" thing is onerous. Etcetera.

Then when you get to Home Entertainment, which is where piracy starts to be a real issue, the bar for ownership - now on DVD - has been set at $15. So studios are going to have to deal with that reality. It's not going to go up. There is too much competition. And there is simply too much product in the marketplace. So new models need to be created so consumers have the opportunity to receive materials on all forms of media for one price. The idea that people will pay $2 a pop for a broadcast TV series in large numbers is silly. But, $30 for a season of a show you love, delivered to your DVR perhaps a day early, also downloadable for your iPod, and for another $10, delivered to your house on DVD... that is possible. Likewise, the entire ABC schedule, for instance, similarly available - perhaps $20 for whatever you want DVDs of - for the HBO price of $15 a month, is the kind of possibility I can imagine. That said, if people start paying for specific kinds of TV delivery... and/or movie delivery... there is less money in the pot for lower priority channels. So while an average cable bill might be able to jump from $85 to $120 a month, as it eliminates bills for DVD rentals, say, and offers improved services, the number is not going to jump from $85 to $170. Consumers won't go there.

Yet, there is a group that will pay $10 a ticket and spend a lot more on top of that to go out and have a theatrical experience for a price... and that is why movie theaters customers are SO valuable. As the bad guy in The Incredibles says, "If everyone is special, no one is special." If delivery systems make everything equally accessible, then the ability to differentiate is dramatically reduced.

EMe.