Good article yesterday by Slate's Hollywood-economist Edward Jay Epstien.
In The Iger Fatwa: Does it mean goodbye to the movies?, Epstein argues that Robert A. Iger, the soon-to-be head of Disney, advocating realigning the traditional "windows" of the Hollywood studio system could portend the end of the theatre movie business. "Windows" are the system of time periods between a movie's theatrical release, and when it goes to DVD, or pay-per-view, or network TV. These windows protect theatre owners by creating "going-out" demand through supressing home availability. Iger publically said that, "Windows need to compress. ... I don't think it's out of the question that a DVD can be released, in effect, in the same window as a theatrical release," a bombshell for this industry. The president of the National Association of Theater Owners responded to this suggestion by saying such a proposal was a, "death threat to our industry." So clearly it wasn't taken lightly.
Epstein goes on to make the point that the theatre business is very different than the movie studio's business:
The multiplexes make almost all of their money from selling tickets—from which they split the proceeds with the studios—and from selling popcorn, soda, and other snacks, from which they make as much as 90 cents of profit on every dollar spent. ... This flow of revenue—especially the lucrative popcorn traffic—is threatened whenever ticket sales decline. As theaters cannot cut their major costs, such as rent, insurance, and debt service, they cannot maintain their profitability. A 6 percent worldwide attendance drop between 1999 and 2001 left nearly half the theaters in the world seeking bankruptcy protection.
On the other hand:
Studios, for their part, are involved in a much more diverse enterprise than theater owners. American movie theaters account for 7.2 percent of the studios' total revenue, and world theaters only 14.2 percent of their revenue. The rest of their profit comes from people watching DVDs, TV movies, and other studio products at home. And no wonder: Fewer than 2 percent of Americans now go to movie theaters on a given day, while more than 95 percent watch something at home on TV. To ensure access to this home audience, the corporate parents of the studios own all six television broadcast networks, as well as most of the large cable networks.
I think the best evidence of Hollywood's shift in focus from the actual movies, to the wide range of economic interests is best displayed in Epstein's simply incredible, corporate-speak statement:
Unlike the bygone studio era in which the job of the legendary studio heads was to produce box-office hits, today's studio CEO is expected to optimize the deployment of the studio's assets across the whole spectrum of the entertainment economy.Optimizing deployment of assets across the spectrum of the economy...and we're talking about the movies??? Yep, the movies are such big business these days, that it's simply no longer about making good films.
[T]he huge amounts of money Disney would receive [from compressing the windows] would go directly to its bottom line. In this context, Iger's statement that "windows in general need to change" was not so much a death threat as a wake-up call to a new reality in which theater owners will have much less of a protective window against digital competition.
Epstein also argues somewhat persuasively that the "make better movies" argument may not be a realistic alternative. He points out that from 1963 to 1973 more than $1.4 billion in theatre admisions a year were lost - while classic films such as The Graduate, The Godfather, 2001: A Space Odyssey, Bonnie and Clyde (among others) were released. Personally, I believe that is quite misleading, because this ten year time period was a transition from big studio drivel which the public was rejecting, and the New Hollywood which was emerging - the New Hollywood which pulled the business out of its doldrums - the New Hollywood which each of the films above influenced or were a part of.
At the end of the day, the industry is changing, and it cannot continue to pour such an abundance of dollars into the blockbuster theatre experience, when the profits are coming from the home theatre experience. There is an evolution going on.
See my other posts about movies and the movie industry here:
It's not as bad a slump as it appears...
Post-Easy Riders and Raging Bulls...
100 Favorite American Movies (this has not updated since 2003)