Hollywood Faces Business Model Fears

Monday, 25 Feb 2013 12:41 PM

By James Hirsen

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This past Sunday, as the 85th Annual Academy Awards Ceremony was taking place right in the heart of Hollywood, an anxiety was growing within the entertainment business.
 
Despite the much-ballyhooed box-office figures, the traditional movie business model is facing a grim prognosis in terms of its ability to generate future revenues.
 
After sinking in 2011 to the lowest movie audience tally seen since the mid-1990s (1.3 billion), the industry shifted into panic mode. Then last year’s box office numbers managed to provide Hollywood studios with some relief, thanks to a number of blockbuster hits including “The Avengers.” Audiences grew to 1.36 billion and gross revenues hit $10.8 billion.
 
The simple truth, though, is that in business profit truly matters, and despite the penchant that film studios have for making highly visible “tentpole” pictures, the growth rate of profits has been taking a pounding.
 
The profits of the six biggest Hollywood studios (Disney, Universal, Warner Bros, Paramount, Twentieth Century Fox and Sony) have been slowing, particularly when compared to their sibling television and cable divisions.
 
According to Morgan Stanley, the movie studios currently bring in less than 10 percent of the parent companies’ profits and will account for only 5 percent by 2020.
 
While independent filmmakers embraced new technology as a means of lowering costs, the budgets of the big studio franchise films have ballooned. Celebrities have experienced a decline in salaries, but there has been simultaneously a lavish use of state-of-the-art digital effects and mounting marketing costs, which in many cases have pushed the expenditures of a big release beyond the $200 million mark.
 
Additionally, executives have been living through a horror tale when it comes to the falling sales of DVDs. Since 2004 the sales of film videotapes, DVDs, and Blu-ray discs decreased by more than a third, according to IHS Screen Digest. Streaming services such as Netflix and rental booths including Redbox have altered forever the distribution model and lowered overall studio revenues.
 
In a desperate search for new revenue sources, Hollywood turned to foreign markets, China’s in particular. Box-office revenues outside America are growing two and a half times as rapidly as they are domestically. However, the problem once again is with the bottom line numbers, and despite an increase in overseas ticket sales, Hollywood’s take has actually gotten smaller.
 
In China, American studios receive approximately half of the profits for the same box-office grosses obtained in the U.S. The studios also have to deal with an imposed quota in the Chinese film market of 34 foreign films a year. Piracy also devours a large part of the revenue in many overseas markets, including those of Russia and China.
 
In light of the changing media technology, the traditional activity of attending a multiplex is not viewed by analysts or film executives as a growth industry. In 2000, almost a third of Americans ventured out to see a movie once a month. By 2011 monthly multiplex visitors had dropped to 10 percent.
 
Hollywood’s angst is becoming more manifest as a fewer number of movies are being made, and industry executives are tending to favor the perceived safe bets of sequels, prequels, reboots, and comic book adaptations.
 
James Hirsen, J.D., M.A., in media psychology, is a New York Times best-selling author, media analyst, and law professor. Visit Newsmax.TV Hollywood. Read more reports from James Hirsen — Click Here Now.
 


 
 
 

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