Wednesday, April 30, 2008

Why The Exhibition Industry Is Doomed

(I wrote this in the middle of my tenure at a mega-multi-cine-plex I worked at 2 years ago. I have since escaped.)

Movies are better than ever nowadays. No they're not, they're worse than ever. I don't know. Actually, when you pull out a newspaper that's 20 years old or so, it turns out most movies then were bad, too. We remember the "The Godfather"s, the "Casablanca"s, but never the "Enter Laughing"s or the "Force of One"s ("Forces of One"?). These are the "Little Nicky"s of the past. They've gone the way of the 8-tracks, in the dustiest corners of the video store, unrented, unasked for, and never replaced when they get broken or lost.

No, it's not the films that are in trouble (although they are). It's the exhibition industry itself. Movie theaters are a $20 billion dollar industry, with 37,000 screens showing over 1000 films every year. But it's all balancing on stilts that are threatening to collapse at any moment.

TOO MANY SCREENS

The big players are building more multiplexes every year. More screens under one roof means they can show more films...or more copies of the same film, with the same staff, one rent, and less down time. In 1978, the entire crew waited around 2 hours until "The Omen" ended. Then they would clean up and get ready for the next show. Not in 2006. Now the crew's busy with the other 10 screens all the time.

And all these screens have to be filled. Hollywood welcomed the multiplexes, since it resulted in a growing thirst for product, which to a certain extent it engendered. If there's room to play the lowliest Whoopi Goldberg comedy in the dead of March, might as well produce it, keep production costs down, and make its small nut back, with a tidy profit. Everyone's happy with half a million in their pocket. The only people who lose in this transaction are the customers who actually paid to see it. Enough of these might make them consider if going out to films is still worth it.

But generally the trend is that more screens show less films every year. Multiplexes play it safe. "Mission Impossible III" showed on almost 3000 screens when it opened. If it starts every 15 minutes, the customers don't have to consult the newspaper. So they don't. And they just walk in, never a sold-out night, and it easily makes $60 million in 3 days. So as your ability to see a film on opening weekend increases, the selection narrows. A wide selection means it takes work - to produce it, to book it, to schedule it, to figure out when you're gonna go see it.

It's the tyranny of the popular. They certainly don't want you to be turned away - if you have to come back, you might catch wind of the bad word of mouth the following Monday, and decide not to go next weekend.

Of course, this means grosses drop by 60% the following week, as everyone is sated in a very short period of time. Six weeks after a film has opened, it's gone from theatres and on the way to DVD. Consider the cost of this business model:

Each print costs upward of $6000 to print and ship. A big film may typically ship at least 2000 or more prints, ultimately costing $12m in hard print costs alone (a number easily quadrupled by advertising expenses). If the grosses drop by 50% the next 2 weeks, assume half these prints go off service and end up in the landfill or as guitar picks by week 3.

6 weeks later they're all off service, and while that $12m, or $48m, may have paid for itself, it may have not left much more for profit, salaries, and other costs. In the old days a print would be in service for a year, and be re-released 2 years later. Nowadays, a film that won't work ("Poseidon," anyone?) may actually go out with an increased number of prints, to collect the money that much faster before word-of-mouth kills it...which will happen faster, since there's more prints out there spreading the news, show by show.

Shipping new films in, shipping them out, updating websites, schedules, changing everything for the new titles, all costs money. If there were less screens, quality would account more for what films were worth holding onto. But in an environment of "infinite" screens, films are considered disposable and interchangeable.

THE HELP

A movie theatre job is an entry-level job, and therefore pays minimum wage. You get what you pay for.

This is no the way to attract quality staff members. Starbucks pays almost $10 to start, and even offers benefits. They aggressively attract and accept people with a certain amount of taste and style, not to mention common sense. Which means those people aren't applying at your local multiplex.

No one with any sense of finance, or true customer service skills, needs to work at a theatre (Starbucks is serious and will pay you for your customer service skills, as you need to be on your game to sell $5.00 cups of coffee to people.).

But what theatre staff members must be willing to do is clean up vomit in the restroom. Okay. So the hiring threshold becomes higher to get people who will clean up vomit for minimum wage. What possible kind of service can be expected beyond that is purely accidental. Is this any way to run a railroad?

COMPETITION

It's actually encroaching into the very theatres themselves. There are ads for television shows on screen before the film, not to mention posters or standees for shows on HBO (which pays handsomely for such preferential placement in lobbies filled with young entertainment consumers) or PlayStation games. Even the arcade subtly reinforces the idea that there are cheaper, more instantly gratifying ways to get visually and aurally stimulated, while it collects quarter after quarter.

WASTE

A lot of money goes down the drain at a movie theatre. Soda and popcorn are thrown away or wasted by the trash-can load, but I guess it's so inexpensive it doesn't make much of a dent on the bottom line.

All those large drinks, nacho trays, and monster popcorn specials are ordered, but people don't finish them. Your eyes are bigger than your stomach, and untold tons of cups and trays half-full also are thrown away. How much less expensive would it be to process the waste, recycling it, etc, if everyone ordered as much as they wanted, and it didn't all come in monster too-big trays? It costs money to have garbage taken away, but people will pay you to take away your recycle.

Do the customers feel mugged when they order things in sizes too large, and don't finish them? Will they do it next weekend? And the next?

But that's not the worst part. Hollywood studios also do their part to clog up the landfills. Those large cardboard standees are sent to theatres unrequested, sometimes about 10% the total domestic screen count, numbering in the thousands, depending on the marketing strategy. These have got to cost a couple of hundred dollars each to print, not to mention another $200 to ship (usually UPS or FEDEX), and I would guess 25% best are actually displayed in a timely fashion or at all (the complicated-to-build ones probably have a lower percentage, especially if they're sent to busy theatres. Who has time to spend to build these Rube Goldberg contraptions up? The "Cars" one took 2 ushers over 6 hours each. We can't afford that when there's vomit to clean up).

So where do 75% of these $400.00 cardboard standees end up? Out back in the dumpster, or maybe the recycle bin. The hanging banners, which are also sent to hundreds of theatres, many without lobbies designed to accommodate them, also go straight into the landfill. Someone should get fired for this. I could have saved Paramount $10 million in marketing costs alone last year.

Of course, the studios pass the costs of all this down to the theatres (in stiffer rental terms for the films). So who do you think has to pay? Would you like a large drink with that, sir?

PIRACY

Go to any flea market this weekend and marvel that dozens of the venders already have DVDs of this week's theatrical releases.

Of course, they aren't legal. An unscientific sampling over the last 8 weeks revealed that all of the 12 major and minor new films that opened were available on home-made DVDs, mostly for about $5 (or 3 for $10). 8 of the ones I've seen recently were inside jobs; in other words, they weren't camcorder-in-the-back-row jobs, but duped from actual work prints, perhaps from the lab, perhaps from a studio insider.

A very sophisticated network we don't have access to disseminates these digital copies within 24 hours of release for big money to mass duplicators, pirates, and other off-the-grid distributors worldwide. As the copies are passed down to smaller players, the amount of money is less, but the distribution widens exponentially. By the time it gets to the local flea market level, each DVD is selling for a couple bucks, but there are estimated to be as many as half a million copies out there.

Sure, "X-Men 3" isn't the same at home as it is on the big screen with 6-track stereo, but then, if you were only curious about it (and not a rabid fan), wouldn't seeing it at home satisfy your curiosity? If a single bootleg copy of a film is estimated to be watched 6 times as it is passed around, that's about 3 million potential customers per title that will not buy a movie ticket or order a large Coke.

THE AUDIENCE

Who puts up with this? Well, the movie-going public is predominantly 16 to 35 years of age, young couples without major commitments, and that aren't loyal to any way of doing things and are the first to adopt any new technology. Indeed they're being drawn away from theatres with TIVO, video games, the internet, BitTorrents, and a hundred other entertainment options as their attention is further diverted and split. While the industry earnings seem to be growing by single digits each year, the actual attendance last year went down by about 10%. The difference was made up in higher prices and ancillary revenue streams.

Can the industry survive 10% dips in business each year indefinitely? Can Hollywood make films that will compel the same amount of people to pay more to come out and see them?

Not reliably. The audience who abandons the movie-going experience needs to be replaced by a new generation who are as likely to spend money to go out, and if the experience deteriorates or is made redundant, that won't happen either.

2 comments:

Avatar of Avatar said...

Great analysis. What do you think theater companies should do to survive?

Roger Leatherwood said...

We may be in a self-feeding and endlessly recursive loop. The theatre chains that can offer a new and valuable experience for movie goers (you know, like the old days?) may manage to create niches valuable enough to survive.

The boutique and high-end theatres opening in major areas (LA, SF, Denver, Boston) have already figured out that avenue. But so far, at a dear cost. It'll take time to let that market develop properly.