Week Of April 3, 2006 - Mon / Wed / Fri

April 5, 2006

Life In The Bubble

The echo chamber does not exist exclusively in the entertainment media. We are simply a reflection of the industry we cover.

The very nature of the beast - and it's been this way forever, whether we like it or not - is that the quality of the work is defined by dollars and not sense. Over the decade and change I have been covering this business and surely in the years before, how many dollars define success have changed.

A $300 million domestic gross for a movie is a very rare thing, really. There are only 21 in the history of the industry. 12 of them have occurred in this millennium.

After Star Wars became the first $300 million movie, followed by ET in 1982, there was an eleven year wait before the next $300 million grosser came to theaters.

What was the problem?

Well, the culprit may have had a lot to do with raised expectations and the VCR rental explosion. Video was the hot new revenue stream and the industry maximized its returns. Video sales were minimal because the industry decided that the return $89 price point, which video rental business were forced to pay, was the best choice. But the shelves filled up and the rental stores got a lot more selective.

By the time we got to 1989's Batman, the industry found itself a new way to slow theatrical, the video sell-thru and to increase revenues. The film grossed $200 million in 37 days, which was then a record by more than a week. ET took 66 days to get to $200 million… and hit $300 million on Day 184. Things had changed dramatically in 16 years and there was no Day 184 in theatrical release for Batman. Day 143 marked the last $100,000 box office day for the film… not coincidentally, this marked the last weekend before the movie went on sell-thru video for just $19.95. The cash flow, even with massive returns of unsold product, was astounding.

Corporations were taking over Hollywood and that big chunk of money waiting just two quarters from the release of a mega-hit was too intoxicating to let pass by. Opening weekend became more and more critical because maximizing theatrical revenue before video release, where the window was not shrinking as much as in is nowadays because there were gentlemen's agreements about such things, was critical.

In 1996, Independence Day would make $200 million domestic in just 20 days, nearly cutting Batman's achievement, seven summers earlier, in half. It barely got to $300 million. A summer later, Men In Black would get to $200 million in 30 days… and would barely get to $250 million.

In the four years after Men In Black, only Star Wars: Episode One and Titanic could crack $300 million domestic.

Video sales were weak and video rentals started to sag, so what did the industry do? It flooded the major rental companies with massive numbers of copies to assure that video release opening weekends would be able to service most of the demand… then allowed the rental houses to sell the used copies for less than $10 a unit, killing off video sell-thru once and for all.

So was the lesson learned?

Well, in a way.

When DVD started coming on, the industry made a decision to make it a sell-thru business. Blockbuster and the others could rent the films, but there was more revenue for the studios in selling to the consumer than renting to them and then getting nothing but scraps as the leftovers were sold off at a deep discount. Blockbuster put up a fight, but DVD would be a sell-thru business and business was good.

With the even greater temptation of DVD revenue, the once inflexible Home Entertainment window started to close. Six months… five months… now, four months, occasionally less.

The result was somewhat counterintuitive. In the last five years, we have had the greatest run of mega-hits since $100 million was the standard. Thirty-three $200 million-plus films in the last five years.

But there was more going on, bubbling just below the surface. There were a lot of high grossing titles, but almost exclusively in kids films and sequels/remakes/franchises. In the last five years, My Big Fat Greek Wedding, Signs, Bruce Almighty, The Passion of The Christ (which could qualify as a franchise film), and Wedding Crashers are the only films that crossed the $200 million line and weren't in one of the aforementioned power genres.

In the five years before, there were twenty-two $200 million-plus films… and thirteen of them were not in those power genres. But the more the industry increased the emphasis on opening weekend, the more difficult it became to hit big numbers without the kind of opening that only a known quantity could provide or the legs that family films still allowed.

In 1992, Aladdin had twenty-two $1 million dollar weekends… in 1996, Twister had sixteen… in 2000, Mission:Impossible 2 had nine, in 2004, Harry Potter & The Prisoner of Azkaban had eight, as did War of the Worlds last summer.

Not only had the industry pushed opening weekend to the point where only one fluke title could crack $200 million each year, but the cost of getting there was growing. In the decade before DVD, as the obsession with opening weekend intensified, marketing costs grew. In the DVD boom era, not only were marketing costs moving faster than ever, but competition in the DVD business was forcing the marketing costs in Home Entertainment though the roof as well.

It's hard to argue that there is a lot more that the marketers can do. They make mistakes, no doubt. But there were fifty-four movies that opened to more than $15 million last year. More than one a week. Twenty titles opened to more than $30 million.

Movie stars are nearly a dead commodity. Of the twenty titles that opened to more than $30 million, only Pitt/Jolie and Will Smith were star driven vehicles. $20 million to $30 million turns up titles with stars that seem to have found near perfect concepts to their talent for results that may be tough to replicate, like Wilson/Vaughn and Vin Diesel, and strong names like Jennifer Lopez and Kidman/Ferrell that were not quite as strong as the hype might argue, though Ashton Kutcher star seems to still be rising. But it's still just eight of the thirty-nine top opening titles. And films that opened under $20 million? Only Million Dollar Baby and Fun With Dick & Jane opened lower than 20 and hit $100 million.

DVD is also forcing us to consider whether another boom is about to go bust. The home video business drove the value of libraries through the roof in the 80s and 90s. DVD raised that bar further. But as DVD sales mature and start to sag, particularly in the library of older films, how many more times can the industry get movie lovers to pay for the same movies?

The industry wants to simply keep rolling along… keep maximizing… keep filling gaps with bubble gum and hype. New technology has jumped, in the moment of DVD slowing, from danger to savior. But the realization that the next bi step in technology is not a DVD level leap or a music industry series of issues, but a much more dramatic leap indeed. The definition of ownership is going to change. And a lot of people are bouncing around in the bubble, acting a whole lot like the Boys of Enron, arrogant and disbelieving the short-term nature of bubbles.

The industry has forgotten that it is playing a long game of chess. Technology is brilliant, but it is not conscious. It exists for its own sake. And how it is used determines its power. Thinking two moves ahead is ok for starting players. But if you are in a billion-dollar-a-year-plus business and you aren't six steps ahead, you are doomed.

READER OF THE DAY: THE AV RABBI writes: "Yes, I use wi-fi at McDonald's simply because it's almost free and I hate mayo. If you're a Pacific Bell/SBC/AT&T DSL customer, you can add the FreedomLink option to your DSL account and use wi-fi hotspots at many McDonald's, Barnes &Noble and UPS Store/Mail Boxes ETC locations for $1.99 per month. You read it right, $1.99 per month for unlimited wi-fi. No contracts required, you can cancel at anytime without penalty, unlike DSL. As for DSL, I only pay $14.95 per month, but that's elusive as I find many have different prices for DSL from SBC that it must depend on the color of the sky the day you call to order in relation to the price you'll pay each month.

Back to McDonald's...Granted, on my many, many visits to McDonald's, I have observed only once where another customer was on-line at the same time I was. This tells me that either nobody knows about the McDonalds's option, doesn't have FreedomLink, or doesn't want to pay whatever McDonald's charges for wi-fi by the hour. My gut is that not many know about it the McDonald's option, and the younger folks don't want to be seen at McDonald's and would rather hang-out at Starbucks. Frankly, you have a larger area to work from table size wise than at Starbucks and I can get a cup of coffee for about a buck and no one hassles me on time limits. I believe McDonald's is a little hidden gem right now for wi-fi. I have never tried The UPS Store (no place to sit down), but Barnes & Noble is a good alternative to the higher prices charged by Starbucks and others.

As much as many seem to beat-up the local incumbent telephone company SBC/AT&T, $1.99 per month for wi-fi isn't such a bad deal. Saves bucks over wireless wi-fi options from Cingular, Sprint, T-Mobile and Verizon,

No, not pushing AT&T, rather, just looking for the best deals and I came across the wi-fi one by accident. SBC/AT&T really don't promote it, but if you're already a customer, you can add the Freedom Link option to your account on-line.

Panera Bread offers free wi-fi and no minimum purchase.

Any questions?"

E Me: On Friday, I'll try to break the bubble... a little. How would you break your bubble?