Business

Downturn gives Hollywood bad dreams

  • 18 February 2011
  • From the section Business
Scene from Toy Story 3
Despite the success of Toy Story 3, US cinema attendance fell last year

Hollywood likes to think of itself as the dream factory, but for studio bosses, 2010 was something of a nightmare.

Like the hapless victims of a horror film, the movie moguls faced financial attack on all sides.

From falling US cinema attendances, to lower DVD sales, increased competition from television dramas, and the seemingly relentless march of piracy, last year was one to forget.

And the situation doesn't look like improving any time soon.

"It is a perfect storm of circumstance," says Mike Goodridge, editor of trade paper Screen International. "They [the Hollywood studios] are really struggling."

A look at 2010 cinema ticket sales in the US and UK puts last year into perspective.

Cinema attendence in the US in 2010 totalled 1.35 billion, a 5% decline from 2009, and most importantly the lowest level since 1996.

In the UK, the number of cinema-goers last year fell 2.4% to 169.2 million.

At the same time, annual box office receipts in the US declined from $10.6bn (£997m) in 2009 to $10.4bn in 2010, despite the huge popularity of blockbusters such as Toy Story 3 and Iron Man 2, as well as cinemas charging more for 3D releases.

The six big Hollywood studios - the likes of Disney and 20th Century Fox - would probably counter that this still makes 2010 the second-highest grossing year of all time at US cinemas.

But pressingly, all declined to be interviewed about the current financial health of their industry.

DVD 'collapse'

For Mike Goodridge, the problem of falling cinema attendances is amplified by the big decline in DVD sales.

Mike Goodridge
Mike Goodridge says Hollywood is not enjoying a creative period at present

"The DVD business has essentially collapsed around the world and television stations have stopped buying movies like they used to," he says.

"And these are the things that used to buoy up the Hollywood studios and buoy up their financial model.

"So now they are left spending hundreds of millions of dollars making these films, and hundreds of millions of dollars marketing them, and they haven't got that backstop of DVD and television to bring them into profit."

As a result, Mr Goodridge says Hollywood is becoming increasingly risk-averse about what films it makes, choosing to focus more and more on blockbuster sequels or comic book adaptations.

He says such films are the most popular with the main cinema-going demographic - teenage boys and girls - and therefore seen as a safer investment.

However, Mr Goodridge says the effect is that it is now "a very boring time creatively" at the film studios, with the challenging dramas that they used to make - and their older audiences - having now moved to television channels such as US cable firm HBO.

HBO is home to such award-winning dramas as the Sopranos, The Wire and Deadwood.

Parallel businesses

But are things really that bad for Hollywood? Movie industry veteran Jonathan Taplin says the US film industry always bounces back from any tough times.

Jonathan Taplin
Mr Taplin says the US film industry ultimately remains in good shape

"You know, sometimes it takes Hollywood to crash before it can be picked up again," says Mr Taplin, whose numerous film credits include producing the Martin Scorsese classic Mean Streets.

"Right now we are in one of those periods where there is a lot of sequels being made, and a lot of big budget movies being made, and they are doing reasonably well.

"And there is a kind of parallel independent business that goes on with things like Winter's Bone and 127 Hours, those kind of things. So Hollywood exists on two levels right now.

"I would say the business in Hollywood is in reasonably good shape. There are amazing movies being made and the audience is still there for those kind of films."

Popcorn sales

With movie piracy now costing the US film studios $25bn each year, according to the Motion Picture Association of America, they are hoping that legal internet film streaming will replace DVDs as a strong revenue earner.

Yet this is so far not proving to be the case. Mr Goodridge says the problem is the delay between a movie being shown at the cinema and then being made available for legal home viewing.

Young audiences are not prepared to put up with this wait, he says, and instead choose to download films illegally.

Entrance to open-air cinema in India
Cinema ticket sales are growing strongly in India and other developing countries

So why doesn't Hollywood simply rush-release new films on legal movie websites? Because it would cause a massive spat with the companies that run the cinemas.

Although cinema owners make most of their money from popcorn and other concessions, they still need bums on seats, so they want films to be confined to the big screen for as long as possible.

"You can't just change release patterns overnight," says Mr Goodridge. "And establishing the correct pricing structure for films on demand is proving a problem."

Bric boost

While Jonathan Taplin agrees that US cinema ticket and DVD sales have fallen, he says this decline is being offset by a big growth in overseas demand for American films, most notably from the Bric countries - Brazil, Russia and especially India and China.

"You have all these foreign markets which are just exploding. Chinese box office is up 60%, Russian box office is up 56%, Indian box office is up 43%," says Mr Taplin, who is also a professor at the University of Southern California.

"Because you have all of a sudden a lot of people coming out of poverty into the middle class, or lower middle class, who have for the first time in their life some discretionary income.

"And one of the things they like to spend it on is going to the movies, which is still a relatively cheap piece of entertainment."

Mr Taplin adds that the big US studios are now going one stage further, and investing in Indian and Chinese films rather than simply exporting American movies to those markets.

"All the growth in the global entertainment business is outside of the US," he says.

"The growth is going to be in the Brics, that is really where the investment is going to."

Back in Los Angeles, this may not offer much solace to the thousands of people who have lost their jobs as the big studios have cut costs in recent years, but it shows that despite its troubles, Hollywood is moving with the financial times.

"Hollywood is not going to close down any time soon," says Mr Goodridge. "It is still the best film-making machine in the world if it can deploy its talent effectively."

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