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Six Reasons Why Hollywood Box Office is Dipping, from Avatar vs. Tron to Snow vs. Netflix

Six Reasons Why Hollywood Box Office is Dipping, from Avatar vs. Tron to Snow vs. Netflix

After the MPAA released its latest figures Wednesday, in a conference call acting chief Bob Pisano and National Association of Theater Owners chief John Fithian tried to make the best of a bad situation. As usual, the MPAA blamed piracy on declining admissions (down 5% to 1.3 billion in 2010), while both hailed premium digital 3-D revenues and the continued expansion of 3-D screens and production. Sure, with 25 films released in 3-D in 2010, up from 20 in 2009, 3-D has temporarily staved off disaster at the box office. But despite Fithian’s insistence that revenues are what count, a downward slide on admissions is not a good thing.

I highly doubt, for example, that the “cyclical” nature of box office accounting will prove to even things out in the long run, as Fithian hopes. This time, declining admissions really do portend real changes in moviegoer behavior. And the studios’ tentpole-franchise-brand-chasing flight from hungry adult audiences who flock to see word-of-mouth hits such as The King’s Speech, The Fighter, Black Swan, True Grit, The Kids Are All Right, Inception and The Social Network–Oscar contenders all–is wrong-headed. Because guess which demo is fickle, falling for competitive online alternatives such as Netflix streaming and video games? Young males, the very demo GQ’s Mark Harris defines as the studios’ sweet spot in “The Day the Movies Died.” According to the MPAA, while young people 12 to 24 still represent nearly one-quarter of moviegoers (nearly one-third of tickets sold), in 2010 fewer tickets were sold to 18 to 24 year olds, while the next age group, 25 to 39, increased its attendance, up to 25% of tickets sold.

Anthony D’Alessandro digs into the six key factors behind the 2011 box office decline:

What are the factors behind the 2011 box office lagging behind last year’s record start by 24%? Through February 22, Box Office Mojo shows that this year’s receipts, inclusive of the New Year’s Weekend total of $1.27 billion, are a far cry from the $1.67 billion deposited by distributors and exhibitors over the same frame in both 2009 and 2010.

And 2011’s box office gap with 2010 is expected to widen even more in the upcoming weeks as comparisons to last winter’s record performer Alice in Wonderland  ($116.1 million opening, $334.2 million) loom. Unless a spate of commercial animated films–including Rango, Rio and Hop— picks up the slack, by the time summer arrives, it will be impossible to catch up to 2010.

Like most industry trends, there’s no single reason why there’s less cash in ticket takers’ drawers in 2011. But add up six and you have one big problem. 
1. It’s the weather, stupidIf the weather is severe during the first quarter of the year, it will impact business. “During the week of February 1st, the whole country couldn’t move,” says Landmark Theatres CEO Ted Mundorff, whose chain has been seeing weekend-to-weekend upticks due to the boom Oscar season – except for that one snowy frame, when they were off by 2% from the previous year. Films typically perform better in the summer, not only when the prime under-25 movie demo (16.9 million people per the MPAA’s 2011 Theatrical Market Statistics Report) are available, but when it’s easy for folks to get to cool theaters. Thus, studios aren’t going to book their priciest pics during the period when chances of people making it to the theater are the most slim. 
2. Winter is a time for cheap B-fare, not high-quality films:  Oscar fare aside, which adults always flock to during the first quarter, Winter hits are by default sleepers such as Taken ($145 million), Cloverfield ($80 million), or Paul Blart: Mall Cop ($146.3 million), which all cost less than $30 million; these flukes paid off in spades. Winter is never hit-driven: it’s clearly when studios can safely release low-budget programmers and dump weak entries. This year’s wide releases such as Season of the Witch, The Rite and The Roommate each cost under $50 million and thus offer a strong chance of recouping during the snowbound school months. The studios save their most expensive winter fare –such as The Green Hornet (cost $130 million, $95.7 million domestic B.O.) and Just Go With It ($80 million, $65.7 million)–for holiday weekends, when the kids are back in town. As younger demos return to the market over Christmas and summer vacations, budgets and playability go up.
3. Avatar: This year’s deficit isn’t just about missing $408.4 million of blue-alien carryover cash.  We were already set to trail 2010: it’s not every year that a movie shatters the all-time domestic record. Moreover, Avatar made moviegoing a habit again, across all demos. “There was a momentum last year because of that film,” compliments a non-Fox distribution exec. “Moviegoing feeds off itself.  And when there’s a film like that, distributors want to throw their trailers on it.  The film stirs a ‘need-to-see’ attitude among the audience and rubs off on other films.”  Another exec theorized that if last year’s Presidents Day hit Valentine’s Day ($63.1 million four-day bow, $110.5 million domestic) was released in the current marketplace, it would never post the numbers it did a year ago, simply because there aren’t any signature films driving audiences to the cinema. 
4. Tron: Legacy:  Don’t 2011 clunkers The Tourist ($67.3 million) and Little Fockers ($147.7 million) also shoulder some blame for the B.O. shortfall?  A bit, but Tron gets kicked because it was conceived as a mega tentpole. Disney made all the right distribution and marketing moves on Tron, which landed Avatar’s pre-Christmas slot. Disney promoted the film a year in advance like it was a major event, complete with Tron Preview Day. The studio made sure to hit every marketing impression it could on the Disney Channel, theme parks and Billboard charts, with Daft Punk’s soundtrack. 

But Tron‘s failure is inherent in its DNA. It played as a sequel to a Z-grade cult film, not the first chapter of a franchise. Disney wisely opted against re-releasing the original Tron on DVD in order to pump up interest in the property. Rather they pulled all copies off the store shelves, fearing that crowds would be put off by the 1982 version. Was Tron expected to break Avatar records?  No, but Disney certainly didn’t commit to Tron thinking that they would end their domestic run at $170.4 million. With its slick sci-fi VFX, their aims for Tron were closer to Transformers‘s $300-million. And if Tron had turned that virtual estimate into a reality, 2011’s box office wouldn’t be falling so far behind 2010.
5. Exhibitors have overpriced 3-D tickets: Who wants to pay exorbitant prices if a film isn’t an event or doesn’t jive with 3-D?  That may be hurting Green Hornet’s chances of propelling past the $100 million mark: audiences really don’t see the need for 3-D. What also hurts is that exhibitors maintain their pricing in subsequent weeks; and distributors can’t tell them what to do. In its sixth week, a suburban theater matinee for Green Hornet can cost $41 for an adult and two kids. Even though exhibitors such as Regal Cinemas boast frequent-moviegoer programs, they don’t dispense free tickets to 3-D films. When it’s too expensive to go to the movies, why not stay home? That’s where most cinephiles are these days.
6. Free online streaming and rental DVDs: Home entertainment revenues are on a steep slide largely because studios have yet to perfect a replacement business model.  Film libraries are licensed out and late fees are no longer built into the rental revenue formula. According to IHS Screen Digest director/U.S. principal analyst Tom Adams, the average U.S. TV home “consumed 200 pieces of content (i.e. Hulu.com, YouTube.com, DVD, VOD) in 2010 – a figure that use to number at 30 pieces during the ‘90s.”  In addition, DVD rentals have showed signs of recovery thanks to the subscription VOD model of Netflix and the $2.10 Redbox kiosks.  As a result, rentals, which peaked in 2001 at 3.1 billion units and fell to 2.2 billion in 2007, have made single digit gains, numbering 2.4 billion last year.  Home Entertainment analyst and consultant Roger Smith confirms that “Netflix is attracting the higher income consumer away from the cinema, while Redbox is catering toward the lower income, particularly since the attractiveness of watching a movie at home is increased by the embrace of HDTV.” 

Can the middle be far behind?

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