The Death of the Entertainment Industry (or at least Movies)

As people here may have guessed, I love watching movies. What might not be as obvious is my enjoyment of the field of economics; for several months last year, I was looking up various numbers for movies individually and as an industry on Box Office Mojo, reading articles on the financing and economics of film, etc.

After doing so, my conclusion was simple; in the year 2010, movies are a fundamentally money-losing industry, and while its "death" will be slower than that of the music industry, it is every bit as certain. What new form movies, their financing, and the public consumption will take is anyone's guess, but it won't go on much longer.

Major studios are going bankrupt left and right, even in this relatively prosperous period (economic depression always corresponds to an increase in movie popularity as escapist entertainment and cheap entertainment good), but this link should crystallize matters;

<a class="postlink" href="http://www.boxofficemojo.com/" onclick="window.open(this.href);return false;">http://www.boxofficemojo.com/</a>

In 1982, the first year with full data, there were 428 movies that made $3.455 billion domestically, at an average cost of $11.8 million per picture. Notice this represents a significant loss right there, only offset by the VHS market and worldwide revenue.

In 2003, the last year with full data, when things were better than they are now, there were 506 movies that made $9.240 billion domestically at an average cost of $63.8 million.

Not even counting the increase in number of movies, that's an increase in revenue of (off the top of my head) roughly 2.7 times, while the cost has gone up roughly 5.3 times! In other words cost has grown double what the revenue has in those 20 years.

And really, this corresponds well with out intuition; movies are becoming more and more expensive to produce, but they're making a lot less money, regardless. As more and more studios become bankrupt, and Hollywood desperately re-makes and adapts everything under the sun in the hopes of turning a modest profit, the writing is on the wall.

However, I don't think this phenomena is solely limited to film. Music is essentially finished as an industry and has been for a few years now, and while less obvious, the same thing has begun to happen to games.

Video games have also become drastically more expensive to produce, (now between $20 and $40 million, and over $100 million in the case of the newest GTA) but are also consistently disappointing with their sales. They're treading the same road as the other entertainment industries, although it will take longer to get to the final destination.

What is the reason for all this? I think it's extremely simple; there are just too many entertainment options out there.

Back in the 50s, what could you do? There were very few theaters, so you watched whatever they were playing. There were few major picture releases, and no DVD or even VHS. Television was crappy, and only had a few shows. There were no video games, and you bought music at the local record shop.

Nowadays? There is an insane amount to choose from, most of it free. Forget the influence of pirating brand-new entertainment releases; I can watch a bunch of free old movies, either downloaded or online, watch stuff on DVD, at a friend's house from his computer, play tens of thousands of free games on the Internet, play thousands of older games on the Playstation, Super Nintendo, etc., download any popular book ever written in seconds, etc.

With so many options, it's no surprise that any one group of an industry (the brand new entertainment options, that cost money) is going to suffer.

Yeah, there is Internet advertising, but the click-through rate for ads has fallen continuously and precipitously, and people have learned to ignore them. So what next?

Focus-

Discuss or disagree with the death of the entertainment industry from too much choice by the consumer.

 

I largely agree that entertainment needs to be reinvented and that the old media channels are dying a slow death.

Technology is the key to both keeping these media channels alive as well as killing them. Digital download services such as Graboid allow me to watch any/every subscription television channel as well as recently released movies all in HD and all for less than a single trip to the movies each month.

On the flip side Kindle and the B&N reader have spiked downloads of books and are increasing the volume of books sold each month. Since it costs very little to publish digitally the publishers and author should be reaping larger profits. Consumers also pay less as I can download a book that just came out in hardcover for approximately 1/4 the price.

The funny thing is that while the public clamors for big budget movies in 3D they're also perfectly happy to watch slightly lower quality "free" entertainment online. With digital recorder, server, and streaming technologies ever improving I'm surprised we haven't seen a true "break out" show that is produced with nothing more than consumer level electronics and published exclusively online.

 

How much of this do you think is directly or indirectly correlated with the shit companies keep putting out?

I can honestly say that within the past 3 years I haven't seen a single movie advertised that I ABSOLUTELY had to see. There were a few funny movies that I enjoyed, but none that were truly memorable on anything other than a superficial level.

With games, I've stopped buying shitty games and I actually go out and pay for the ones I enjoy.

With music, there is so many variables that affect its sales it is truly mindboggling. I think artists who actually have true talent or put some soul or put something new into the music are going to start coming out of the woodwork and get more exposure moreso than before. The hacks and greedy assholes are the ones who really suffer in the end. Examples off the top of my head: Although I have personally heard stuff like Girl Talk since the mid 90s, it was relatively unknown in the mainstream previous to his albums. NIN was giving away their album for free but gave fans added value when they paid whatever they actually wanted to. People like these guys are going to succeed because again, they bring either talent, something new, or just put on a really good show.

 

I think a lot of fat can be cut when it comes to the actual production of the movie. I have acted and worked on independent films, and while none of them would win an oscar, it was 10X more efficient than the way that they do things in Hollywood.
And why do we need to keep paying these big name actors so much? Fuck 'em. Most of them suck anyway.

Also, can we please get rid of the fucking MPAA? Do you know how much it costs to have them review/rate a movie? And if you don't have it done, no one will distribute your flick.

 

Cosign. And it goes for the other media mentioned as well. I think the entertainment business in general is coming off an extremely long-lived bubble. People still like catchy tunes and watching things happen on a screen, but the cost of producing high-tech spectacles and multi-millionaire stars was probably never sustainable.

For anyone who's interested and hasn't read it, Kevin Kelly's "1000 True Fans" rant... well, methinks the math is a little rough, and it's drawn a lot of skepticism, but there are a lot of ways the entertainment business can work without owning skyscrapers and jets.

I don't need the hottest new teen idol to unplug my toilet. I think someone making $60K a year can probably make me dance. I guess watching Miley Cyrus clean a toilet might have it's appeal for some people.

 

Five hundred and two movies in 2003? Holy fuck. I'm assuming that's counting loads of b-movies and straight to dvds, but that number makes me think of the quality argument.

Every year it seems like there are about ten to twenty Must See Movies. (That's debatable. But you get the point, hundreds every year are godawful, and there are a lot inbetween.) Generally I only see those really good movies in theaters.

Why? Because the rest of the decent movies will trickle down eventually to dozens of different mediums. I'll see it at some point, but I have no burning desire.

I'm guessing that's a large factor in the current state of the movie industry. It's not that there used to be less shit; there has always been shit. But people used to actually go watch that shit because, as you mentioned, they had a lot less choices.
And even decent throwaway comedies and action movies aren't selling me a ticket, at best they might get a spot on the Netflix queue.

But I really hate to call that the death of the entertainment industry. At least for movies, I see it as a positive thing. People are no longer satisfied to see a shitty movie. (At least at the theater). The cream of the crop remains as wildly profitable as ever. If a Pixar movie ever flops at the box office, then we can be worried.

Question: Anyone know of any genuinely quality movies that performed poorly? I'm not well informed on the numbers game. All I can think of is Watchmen, which I liked, but I know had issues with critics and mass audiences alike.

 

This is an interesting topic, KI, I never really thought about it that much (or looked at the numbers).

The entertainment industry has been focusing on secondary aspects of films far too much. As special effects technology, for example, has advanced, movie people say "great, let's put more explosions in movies!" Similarly, "let's pay that famous actor $30 million to be in the movie!" and "let's see if we can pump out 20% more movies this year and get 20% more profits!"

But the essence of the story is essentially the same now as it was when Shakespeare's plays were being performed at the globe theatre 400 years ago. Captivating stories, complex, interesting characters, witty humour, meaningful social commentary, etc. etc.--THAT'S the foundation of it all. While all the new technologies are great to supplement good story telling, by no means can they act as a replacement. You can't just keep adding filler, at some point you have to add material as well. Unfortunately, getting [big name actor] to star next to [big name actress] in a dime a dozen romantic comedy is easy and formulaic, and businesses like that.

So, in terms of the focus, "Discuss or disagree with the death of the entertainment industry from too much choice by the consumer," I sort of agree. 506 movies is one year does sound a little ridiculous, but how many of those were movies were essentially carbon copies of each other with a few superficial changes? An industry can't sustain growth by pumping out copies of old material.

 

I knew I forgot to address something important in my original post!

Your question goes to the heart of the problem; when film studios produce good or even great films, they lose money. When they produce shitty adaptations/remakes/pointless sequels pandering to the lowest common denominator, they can (almost) break even.

No; those 502 films are ones that had theatrical releases in the United States. Straight to DVD doesn't count. And the vast majority of them are not B movies, since that era died a few decades ago, but arthouse.

Ed Wood, Moon, The Hurt Locker (before the awards buzz), The White Ribbon, Crank 2 (crazy fun!), Citizen Kane (and all of Orson Welles' films, really), Defendor, etc.

Among major releases, I think the answer is "a lot". Among the lesser known arthouse movies (many of which are dreadful garbage too, don't get me wrong), "not that many".

Ultimately, I think a poor mainstream entertainment product is more a symptom of the problem than its root cause.

 

I've often wondered how long it will be before America has enough bandwidth that TV's don't broadcast on a schedule anymore and everything is served streaming or On Demand.

 

I blame the death of the industry on two things: The Lowest Common Denomintor and the fact that there's nothing else we can do to be eccentric. The stupidification that pop culture and it's audience has taken in the last ten years is head-shaking. Every second movie is based on a comic book- something that kids read- and geared at adults. Nowadays, if movies don't feature half the earth's populace getting annihilated by natural disasters or superheroes beating the shit out of zombies it won't sell. Look at how much money No Country For Old Men made in the theatres. Now look at how much Meet the Spartans took in. Now tell me people give a shit about what they're going to see, if they go and see it instead of illegally downloading it for free on the internet.

Eccentricity is something that always was a seller, but nowadays being eccentric is the norm. Back in the 50's, Burgess Meredith would dress up in drag and people watching would laugh themselves sick. Today, we have shows were contestants marry each other for money or eat the dead, bloated stomach of a rat floating in sour milk. It's bad enough that the internet gives anybody with a computer unlimited access to the bizarre, we just simply have nowhere to go.

In the end, it saddens me because I love movies so much. If you look at how many genuine four-star movies were made in the 70's (probably 25) and compare it to the Decade from Hell (two, maybe three) you can see that the movie industry is in a downward spiral and just does not care about itself. Nobody is ever going to make another Citizen Kane or Godfather. Sooner or later, Scorsese is going to be dead and we're going to be left with Michael Bay and Louis Leterrier. Good times.

 

That's been taken care of since the $20 million upfront deals are now basically dead. It's now strictly based on the gross, so if you draw you make good money, but there is no more coasting on past success. There will be a few exceptions for big name sequels or someone like Will Smith in a big action film. Hollywood has learned some of the lessons from the music industry in that today's audience has little loyalty to any particular stars. There are no Clint Eastwood or Harrison Ford types coming up who can carry a film based strictly on their marquee value. Teens like seeing Robert Pattison and Kristen Stewart in the Twilight series, but the other movies they have made since becoming big names in Twilight have been middling at best.

My predictions for the movie industry is that their will be more concentration on the big spectacle films and on the films that star bankable stars who can bring a film in at a reasonable budget. Stars are still going to have their vanity projects, but they are going to have to come in at a low budget or be heavily financed by the star or some other backers.

The foibles of the music industry are already well known and don't really need any rehashing. I will mention that I looked at the most of the tours this summer and again seem to be either nostalgia based acts with strong followings or festival offerings with many different bands. There seems to be no new bands coming up who seem to have the kind of longevity as their predecessors had. It will be interesting to see when these nostalgia bands start retiring, if there will be anyway to replace those dollars on the touring circuits.

The future of the entertainment industry lies in giving what the consumer sees as a good return of their entertainment dollar. The consumer will still spend their money, but they aren't going to accept whatever crap the entertainment industry throws out there. They need to accept that everything has changed and adopt accordingly instead of constantly trying to turn back the clock to how things used to be instead of how things now are.

 

Fuck yes.

The vast majority of big name actors basically play a version of themselves.
How often do they actually own and immerse themselves into a role where you see them as the character they are portraying.

Take someone like Nicolas Cage , other than a couple of off beat kooky roles he generally sucks big donkey balls as an actor.

 

I haven't really looked into the numbers much, but I think this type of thing is the key, right here. I don't think it's so much a death of the entertainment industry as it is a death of the old methods of distribution.

For any industry to remain viable, it has to evolve with the times. The drive-in died, and home rental picked up. CD sales flagged, downloadable music stepped in. It may come to a point that theaters in general die out, and everything is released into your home in an On-Demand style service. I know that's how I watch most films already.

 

I have been wondering lately just how much of an effect the PVR/DVR craze has had on movie marketing. Since I purchased my PVR receiver, I would be surprised if my wife and I watch more than 10 minutes of commercials a week. Trailers on tv used to be my #1 medium for keeping informed on upcoming movies, but since I no longer watch commercials, i no longer have any idea on what is coming out, with the exception being movies surrounded by major industry buzz. I know I could keep current on the internet however, I can't be bothered to put in the effort. I don't know what's coming out so I don't go see any new movies.

Another factor I believe to be important is the wide availbility of movie reviews on the internet. If I do happen to hear about a new movie, I go to IMDB, Rottentomatos, etc. and check the ratings. If it is badly rated (which a large majority are, rightfully or not), I don't bother, instead planning to watch it when it is available for free viewing on one of the movie channels. Prior to everyone having an opinion on the internet, I only had word of mouth to go by and I would most likely go see the movie based on the trailer alone.

Plus, porn is free and available 24-7 in the comfort of my own home. For my money, it doesn't get any better than that.

 

Your point is a good one, but "No Country for Old Men" made WAY more money than "Meet the Spartans". It's $171 million compared to $84.6 million.

I disagree. The quality of movies has not suffered (I can easily name 15+ amazing movies from this decade, not just two or three), but rather, as you noted above, what is the best doesn't correspond as strongly to what is the most popular.

That's an interesting effect that we also see in music and other industries, but again, this is merely the symptom of the problem, not its cause.

I mentioned it above, but "Citizen Kane" was a financial disappointment in its own time.

Or maybe he gets replaced with Chris Nolan and Paul Thomas Anderson, in addition to a bunch of great directors presently in their fifties? (Like the Coen Brothers)

I figured a lot of people would concentrate on this, but really, I don't believe that this economics problem is linked with quality at all.

Edit-

The only surprising thing is that this method isn't more widespread and developed already. (individually order every channel you want, with programming tailor-made to your brand of interests) It is definitely the future, and will serve to fragment the market even more than it is right now.

 

I think that from the early days of Hollywood onwards , alot of shit movies have been made , its just that over time most of them have simply been forgotten and only the good stuff has stood the test of time.

I want to see this film ....

 

You all have a very poor understanding of Hollywood Studio economics. Since TV was invented movies became a long term investment for studios. Before TV all most all of Studio revenue came from the box office, as TV gained in popularity so did income generated from TV royalties by the 80s this split had settled at close to 50/50 between box office revenue and royalty revenue.

With the invention of VCR's, DVD's and the creation of Pay-TV even more slices were added to the pie until we have today were Box Office revenue accounts for something like 15% of Studio revenues. Looking at the decline in box office revenues as being meanful is pointless as it is just one slice of the pie (Studio Revenues).

As recent as 2008 nearly all films could achieve true break-even within five years. This meant after this point everytime it was played on TV or Pay-TV and every DVD sold was pure profit. Studios could take early hits on movies because they knew long-term it would be profitable and short-term they could rely on their library to keep revenues coming in. The big problem studios will now have is massively declining DVD sales and potential declines in their TV and Pay-TV revenues. Throw in Actors, Directors and recently Writers all wanting bigger residues of films Studios are also seeing attempts to shrink their split of the long-term revenues of which they once had absolute control.

 

Residuals obviously...

 

Huh? Guess I didn't get the memo.

The big blockbuster, super star albums are taking in less money, but it's not because the industry is dying, it's actually because it's growing. Technology is advancing to make production costs much cheaper (you can get by with a Macbook Pro), and distribution costs are down to almost nothing thanks to digital stores like iTunes and Amazon. It's now incredibly easy to produce an album and sell a few copies. But, because thousands of bands are selling a few copies each, there's less money to be spent at the top.

Focus: As for movies, I think we're going to see a similar shift towards the long tail. Production costs are still very high, but as downloading movies picks up, it will be easier for indy movies to get wide distribution.

What will be really interesting is if CGI gets to the point where it's cheap and easy enough for a few people in a garage to make full length feature film on a tiny budget.



Okay, the fake punches are pretty lame in that video, but if that's the quality of amateur special effects, I think in the next 10-20 years we're going to see a huge drop in production costs.

[Edit: I replaced the first video with one that's a little less lame. If you go to the end you can see just how ghetto their green screen is.]