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Despite Lousy Summer Box Office, the Sky Is Not Falling

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Alarming press reports that summer movie box office fell 21 percent suggest a death knell because consumers are infatuated with digital media ranging from smart phones to video-on-demand. The 21 percent drop in ticket revenue to just over $3.8 billion translates to around $1 billion less in box office than a record summer haul last year.

That box office drop is painful, but cinema has suffered through dry spells over the years and bounced back. Unit ticket sales range from 1.3-1.5 billion per year recently, after cinema was said to be in a death spiral in the 1970s due to inroads from TV viewing. Admissions had been under 1 billion and falling before rebounding.

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Certainly, the media marketplace is more competitive these days and audiences fragmenting as digital media options proliferate, which is a concern. But the situation is not dire because:
  • Year-to-date (meaning as of January), domestic box office is down just 5 percent, meaning comparative box office was actually higher in the winter and Spring of 2014. But those gains were more than erased by a lousy summer -- and summer is the peak season for cinema.
  • Some of the decline can be traced to non-recurring circumstances. A few big-budget films were pulled from summer release, particularly Fast and Furious 7 because of the car-accident death of co-star Paul Walker (now rescheduled for next April). If Fast and Furious 7 had premiered in July as originally planned, that alone would have added around $200 million to domestic box office. World Cup soccer was also a drain this summer, which won't be a factor in 2015.
  • Cinema is a rare movie window where Hollywood knows its films don't get overexposed, so film distributors continue to support this release window. Each ticket entitles the buyer to see a movie once at a specific time, which means no mass viewings that can happen with the same movie on TV.
  • Movie theater companies continue to build new facilities or refurbish old ones in the U.S. and Canada, reflecting a confidence in cinema.
Another reason not to hit the panic button is that the cinema window accounts for just 20% of major studio revenue. The cinema window publicity sets up movies for bonanzas in video-on-demand, DVDs and TV.

While I'm pushing back at the Cassandras of doom, certainly the cinema window is under pressure -- but that points to erosion and not collapse. Consumers know the same movies playing at a theater near you will be available a short time later on TV and other outlets. I expect that smaller films suffer the most in cinema. The big, glossy mainstream films are must-see because of buzz. This summer, Disney's comic book adaptation Guardians of the Galaxy grossed a sizeable $281 million domestically (the U.S. and Canada) and Paramount's Transformers: Age of Extinction took in $244 million to lead summer box office -- which is not shabby.

What worries me most is that movie theaters are raising ticket prices too aggressively. I was in a small-town Carmike theater recently that charged $10.25 -- which seemed high for "recorded" entertainment like a movie. I would think a ticket price benchmarked by the federal minimum wage of $7.25 is more appropriate in low-wage rural areas (and higher in wealthier big cities). I've heard cinema operators compare their venues to concerts with $50 tickets, but I think consumers attach a much higher value to concerts with live performance...the same thing with pricey sports events.

Another pressure on cinema is that film distributors are eager to launch films in DVD and video-on-demand to thwart piracy, because making films available legitimately online dampens the appeal of unauthorized versions. This won't go away. But as long as piracy is "manageable," cinema will endure. Remember, piracy impacts a host of industries including computer software and designer apparel, which suffer but don't collapse.

Those drawbacks are worrisome in the long run but the numerous "pluses" carry more weight for the foreseeable future. Cinema should be fine at least for the next few years.