Is the movie industry dying at the hands of home theaters, Netflix, Redbox, LoveFilm, and Amazon Instant Video?

Jack Valenti, former President of the Motion Picture Association of America (MPAA) once said, “I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.” That was a controversial claim but it helps highlight the fears that emerging technologies can cause amongst those with an interest in the status quo. In this instance, the underlying concern was that VHS-enabled time-shifting meant that viewers could not only copy and distribute copyrighted broadcasts, but also fast-forward commercials, which could discourage advertisers.



During the so-called Betamax case, which saw Sony challenged by Universal City Studios in 1983-84, the US Supreme Court ruled that copying from TV onto video cassette constituted fair use, and thus was permitted. Things could’ve been so much different in the entertainment industry today had the ruling gone the opposite way.

The subsequent proliferation of home video players actually gave the movie industry a much-needed shot in the arm, given that a film’s lifespan could be extended far beyond its theater release-window, with fans able to purchase or rent their own copy to watch at will. And yes, record from TV too.

Moreover, movie theater attendances were dwindling in many markets anyway, but either through coincidence or some other indirect knock-on effect, this case seemed to herald a reversal in fortunes for some movie theaters.

In the UK for example, cinema admissions had fallen from around 200 million tickets sold per year in 1970, to 54 million in 1984. Since then, sales have risen gradually to a point where they’ve pretty much plateaued in recent times, with sales typically remaining between 150m and 175m admissions per year. In fact, 2012 saw the second-highest number of tickets sold in the UK since 1971.

So what’s all this chatter we keep hearing about the movie industry dying at the hands of home theaters, Netflix, Redbox, LoveFilm, and Amazon Instant Video? It has been repeated so many times, that we might actually start believing it. Before we look at where the humble movie theater may be 5 or 10 years from now, here’s a quick snapshot of cinema attendances from around the world in recent times.

Cinema attendances: A global perspective

Cinema attendances in Europe fell by 0.9% on average between 2011 and 2012, according to estimates from the European Audiovisual Observatory.

That’s not a massive drop, you’ll no doubt agree, and if we dig deeper into the numbers, some countries actually demonstrated gains – including Finland (+19%), Russia (+5.9%), Turkey (+3.9%) and the UK (0.5%). Bosnia & Herzegovina actually saw the biggest climb overall (+37.9%), while Bulgaria saw the largest drop (-12.9%).

The top four EU cinema-going territories – France, the UK, Germany and Italy, which account for almost two-thirds of all EU movie theater admissions – fell by 2.8% last year. While Northern Europe generally showed big increases in tickets sold, Southern Europe saw the opposite effect, with Cyprus (-5.7%), Spain (-6.5%), Slovenia (-8.3%), Italy (-9.9%) and Portugal (-12.3%) all falling. Among the factors blamed for this drop was the recession and a shortage of locally-produced movies, while a rise in online piracy was noted as a possible contributor.

That, of course, was just one year. What did the past decade look like? A decade that saw DVDs cement their place in livingrooms around the world, not to mention Blu-ray and streaming? Well, the picture hasn’t changed all that much – as you can see here things have fluctuated a little, but it has largely remained around 900m-1bn annual admissions.

Looking at year-to-year ups and downs doesn’t really tell us much. Sure, 2012 might have been slightly down on 2011, but it was actually quite a bit up on admissions in 2005 and 2006.

Reports from other regions around the world were positive too, with China rising by 36%, meaning it edged Japan into second place with its mere 7% increase. And the USA – the largest movie theater market in the world – gained around 6%. It’s worth noting here that revenues and admissions generally matched each other %-by-%, as you’d perhaps expect, and the average cinema ticket price remained about the same.

Indeed, as the Motion Picture Association of America reports, total international box office revenues grew by 6% between 2011 and 2012, with Europe the only region not experiencing growth last year.

Taking things back a little further, global box office revenue was up 32% compared to five years ago, with the likes of China, Russia and Brazil driving this surge. And as you can see in this graph courtesy of The Numbers, tickets sold each year in the USA may have fluctuated over the past couple of decades, but there hasn’t been a seismic shift in any one direction.

2011 saw the least number of admissions in the US since 1995. But if you look at the figures between 2000 and 2005, sales varied wildly from 1.39 billion up to 1.58 billion and back down to 1.39 billion. The point is, exponential growth isn’t really possible year-on-year, and a multitude of factors affect the number of people who visit their local movie theater, such as the economy (recessions actually help), movie-selection and even the weather.

There’s nothing to suggest – at the moment at least – that Netflix is eating into the silver screen’s attendances.

What 2013 holds, remains to be seen. Some early reports suggest the recent growth will continue, while otherssuggest it will drop. In many ways it doesn’t really matter, because year-on-year fluctuations are normal. What we’re more concerned about here is the bigger picture over the longer term, and what the future holds for cinema.

The big threat: Home entertainment

If you can pardon this blatant truism, home entertainment is getting better. Scratch that, it’s becoming phenomenal.

3D TVs, ultra high definition TVs with mesmerising 4K 84-inch screens, wireless surround-sound speaker setups, Blu-ray players and home console systems with Netflix built right-in. Maybe not affordable for every household, but they certainly pose some form of threat to movie theaters.

Sony recently planted tiny adverts on a tennis player during Wimbledon to showcase the clarity of picture in its new line of high-resolution 4K TVs. There are even smartphones capable of shooting video in 4K, while the soccer World Cup in Brazil next year will be produced in 4K, with FIFA currently discussing public viewing venues and cinema screenings. Presumably for the majority of people who evidently won’t have 4K TVs at home by then.

The BBC has already been trialling Super Hi-Vision technology too, which offers 16 times the resolution of standard HD. However, it’s thought this won’t be publicly available until around 2020.

Everything is trying to pull us away from the outside world, and deeper into our sofas. But this has been happening ever since the dawn of television, VHS, DVD and on-demand streaming. Yet cinema attendances haven’t been massively affected in recent years – they fall, sure, but then they rise again.

Adam Leipzig, former Senior Vice President at Walt Disney Studios, former President of National Geographic Films, and current CEO of Entertainment Media Partners, has been a producer, distributor or supervising executive on more than 25 films, including March of the Penguins, Honey, I Shrunk the Kids, and Dead Poets Society, garnering somewhere around $2 billion in revenue along the way.

Earlier this week, we spoke with Leipzig about his thoughts on how technology is disrupting entertainment, including the impact home entertainment is having on the silver screen.

“The quality of the in-home experience has really increased – both in terms of picture quality, sound quality and also the quality of content,” says Leipzig. “It’s completely competitive with what we might see in a cinema. In fact, I’d argue that the best writing and the best character development is generally happening on Web series, or televisions series. I would include shows created by Netflix, or by cable networks – there’s better character work and better writing, than we see in most studio movies.”

By way of example, Netflix has moved beyond a simple video-on-demand (VoD) and into the original content realm, launching its first original series — Lillyhammer — in February 2012, followed by House of Cards and Hemlock Grove. And they have mostly achieved wide acclaim for the quality of these shows. As a side point, they also serve as massive incentives for would-be subscribers to opt for Netflix over a rival. HBO too has drawn plaudits in recent times for the quality of its output.

So the home entertainment ‘draw’ is clearly there and growing. But why aren’t movie theaters serving up similar engrossing content?

“Because studio movies are big economic plays – most summer studio movies cost $200m to make, and another $200m to market,” says Leipzig. “The day that they open, the studio is risking $400m on that opening weekend. There is a propensity to play it somewhat safe.”

While it is, of course, a generalization to say that there are no quality movies hitting the big screen, the big blockbusters – the crowd-pleasers that people typically go to the cinema for – maybe aren’t what they once were. It would certainly explain the plethora of sequels and remakes we see these days – it’s all about playing it safe.

“The golden thread for most studios is the franchise, because with a franchise, you don’t have to spend many millions of dollars in marketing to tell people what the story is about,” continues Leipzig. “The story has pre-awareness, and that makes it easier for audiences to decide that they want to go and see the movie. At the same time, it also make movies repetitive and less innovative, and I actually have begun to sense audiences growing tired with franchises and reboots because they all feel so similar.”

So is there a direct correlation between the rise in quality of home entertainment systems – and content – and the fall in people’s desire to visit the cinema? Will having Netflix or Amazon Instant Video plugged into a super-duper, high-def, 3D wonder box really replace the cinema experience? Perhaps only time will tell for sure, but there’s one key factor that’s worth bearing in mind when considering this question.

Photo credit: Living Puyallup

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