Wednesday, September 18, 2013

The Existential Crisis in the Feature Film Business

You may have heard that this summer set a record for domestic theatrical box office. That is indeed true. But if the celebration seems muted, it may be because it’s getting harder and harder for Hollywood to find good news in the feature film business.

Despite the great summer, 2013 ticket sales – a better measure of the industry’s health than box office – are still down 2% from 2012. And this just continues a decade long decline – from 1.58 billion tickets sold in 2002 to 1.36 billion in 2012. That’s a 14% drop.

In fact, the theatrical feature film business is in the midst of an existential crisis. For the first time, industry insiders are starting to wonder if the theatrical feature business might actually cease to exist in its current form. Steven Spielberg and George Lucas’s much discussed conversation at USC simply put voice to what studio execs have been worrying about in private. Let’s look at some of the disturbing signs.

Making and marketing movies has gotten extremely expensive. The MPAA used to release the average costs for studio movies, but they stopped in 2008, perhaps because it was too depressing. In 2007 the average production cost was $65 million and marketing was $35 million. It’s undoubtedly a lot more now. This means that failures are disastrous and hits make less.

Remember, box office is not the same as profit – exhibitors usually take between 40 and 50% of domestic box office and sometimes over 80% internationally. On the other hand there are ancillary markets like home video and TV that bring in revenue. So it’s complex, but a commonly used rule of thumb is that the worldwide gross must be twice the film’s budget to break even.

That means if we guess that the average budget of a studio film today is around $100 million (a fairly conservative guess), the average film needs to make $200 million worldwide to break even. But bigger films will need even more to make up not only for bigger budgets, but also for bigger marketing spends. And this summer many have not, and sometimes in spectacular fashion.

Disney is expected to take a write-down of between $100 million and $190 million on The Lone Ranger – only a year after taking a $150 million write-down on John Carter. After Earth grossed $183 million worldwide on a budget of $130 million plus likely over $100 million in marketing. RIPD did even worse, grossing $61 million worldwide on a similar budget to After Earth. Other expensive failures this summer include Percy Jackson: Sea of Monsters, White House Down and Turbo.

Meanwhile, moderately successful movies like The Wolverine and Pacific Rim will make a teeny-tiny return-on-investment due to their high cost. Of course, studios could make lower budget movies. I’ll get to why they don’t in a bit.

Another cause for concern: the audience is aging. The cliché of the blockbuster era, basically dating from Jaws in 1975, is that big studio movies are made for teenage boys. But last year only 12% of tickets were purchased by teens 12-17 years of age (male and female combined). Even the kind of big action-adventure stuff that theoretically targets teenage boys is skewing older. The audience for World War Z was 67% over 25. Man of Steel’s audience was 62% over 25.

This is troubling because an aging audience has a predictive quality – if young people today do not develop a movie-going habit, where will the industry be in twenty years?

The business has been here before. In the sixties Hollywood lost touch with the youth audience. The movies were stuffy and old fashioned. Attendance dropped. And this led to a renaissance in filmmaking when the studios had no choice but to start taking creative risks. The seventies are widely regarded as a “golden age” of studio films as a result.

Some, including me, have held out hope that the same thing could happen now. But there are frightening differences between the world of the early seventies and the world of today. Back then there were only three television channels. Their programming was even more old-fashioned than the studios’ and they showed mostly reruns during the summer. Few people had VCRs and few movies were available on video. If you wanted to see a new, filmed story in the summer, you had to go to the movie theater.

Also, a “big screen TV" was 27 inches and standard definition. Video games were primitive. There was no Internet or texting or social networking. No iPads or Angry Birds. More people had black-and-white TVs than had access to a computer.

The world today is very different. Movies are still a reasonably inexpensive form of out-of-home entertainment, but they have to compete with an unbelievably massive amount of in-home and mobile entertainment. It used to be movies could brag of higher quality in the theater than on your home set. But in the current golden age of television, there are more quality hours on TV than all theatrical movies combined. Whether anyone really needs to go see a movie in a theater is a very real question today.

And it’s now easy to see the best movies from any era, any time. Counter-intuitively, this means the ancillary value of new movies is shrinking. Matthew Blank, Showtime’s CEO said in the Hollywood Reporter, “We see cases of a great library movie title that may perform almost as well as all the great first run titles. By the way, we want to have more movies on Showtime in five years – just not necessarily first-run ones.”

Screenwriters are fond of blaming producers and executives for the sad state of the business, but the “suits” are caught between a rock and a hard place today.

All these pressures mean the variety of types of movies is narrowing. Studios have abandoned many genres, particularly those in the mid-budget range. Who needs to go to the theater to see a courtroom drama or detective story when there are so many high-quality versions on television? How many feature dramas can match the quality of Mad Men or Breaking Bad?

This is a major reason studio films are becoming so expensive. The one thing Hollywood has always been able to count on as their trump card is spectacle. Spend enough money and you can put something on the screen that can’t be seen anywhere else. As competition has increased, so has the studio demand that movies be spectacular.

But now they’re even losing that battle. Visual effects are becoming cheaper and easier. It’s no longer impressive just to see a building blow up – a talented high school kid can make that on his home computer. TV shows like Game of Thrones regularly pull off amazing visuals. And every summer blockbuster is full of routine CG spectacle. Studios are realizing they can no longer spend their way to success.

If the studios are going to survive, they’re going to have to think about what will convince people to leave their giant TVs, Netflix, X-Boxes and iPads. It won’t be more buildings getting destroyed.

And screenwriters who want to write theatrical features need to think about this, too. What material has a shot in the marketplace? More importantly, what material will have a shot ten years from now? Are you building a professional identity that is viable for the long haul?

For many writers it may be time to consider whether features are really the best place for the kind of stories they want to tell. Recent statistics from the WGA are revealing: There were 25% fewer writers employed writing feature films in 2012 than in 2007. There are multiple reasons for the drop, but the biggest is simply fewer films getting made. On the other hand, TV employment is growing and new media residuals went from $6 million to $16 million in the last year. The flip side of Warner Brothers’ film studio needing to compete with Netflix is that Netflix is now hiring writers (and actors and directors).

But don’t fall for all the hype about the democratizing power of the Internet. Look at the shows Netfilx has produced. All feature stars, veteran creators, or both. Amazon Studios is making very traditional looking sitcoms. There is more creative opportunity, to be sure, but that doesn’t mean the barriers for entry have vanished.

It’s enough to make a screenwriter’s head spin. Remember, the saying, “May you live in interesting times,” was meant as a curse.



Kris Bock said...

Great food for thought!

Unknown said...

Interesting post! I wonder if movie theaters might eventually go the way of live theater... kept alive not by a general audience, but by the people who most love telling and being told stories in that medium.