By: Sarah Torgueman  | 

The End of the Movie Industry?

When was the last time you took a trip to the movie theater? People are less interested in going to the movie theater than ever before. As a result, movie theaters across North America are experiencing significant declines as the film industry is being forced to revolutionize itself. The domestic box office has seen lousy returns this summer, indicating the dire need for Hollywood to take action. According to the media measurement company comScore, North American box office revenues were down more than 14% this summer compared to last year. For the first time since 2006, movie ticket revenue during the summer failed to top the expected annual $4 billion, according to Box Office Mojo. This slowing movie market has resulted in consequences across Wall Street, as well. Fortune’s technology newsletter reported that stock prices for America’s top three movie theater chains have plummeted by the end of summer 2017. It indicated that AMC Entertainment’s stock dropped by almost 56%, Regal Entertainment dropped by 33%, and Cinemark dropped by almost 23% since the start of Hollywood’s summer season, which spans from the first Friday in May through Labor Day weekend. Further, the IMAX company has plummeted nearly 40% over the same period of time. This summer’s box office disappointments substantiate the growing trend of fewer people buying movie tickets or going to movie theaters. To compensate for low movie ticket sales, movie theater chains have been raising ticket prices over the past few years. The Motion Picture Association of America indicated that the average movie ticket price jumped 60% since the year 2000. The increasingly higher prices have resulted in even fewer ticket sales.

The film industry has contributed significantly to the overall United States economy. According to the Motion Picture Association of America, the industry contributed $131 billion in sales to the overall U.S. economy in 2015. Moreover, its research pointed out that as an American dominated industry, film and television production has been one of America’s most powerful exports, with nearly $18 billion in worldwide exports in 2015. These figures represent sales generated by various distribution channels for film and television. They include box office sales, which continue to diminish over time.

Modern film has been revolutionized while movie theaters maintain their traditional movie model. In the past, films would open in theaters for a few weeks, then they would be distributed as VCR tapes or DVDs, and later they would be exported for international showings. In the instance that the movie would evolve into a media franchise, producers would release additional movies such as prequels, sequels, or reboots and those would undergo the same process as the traditional model. This was the single most popular movie distribution channel as of about a decade ago. This movie paradigm is characterized by distinct steps and movie theaters haven’t budged from it.

Media technology has and continues to develop in the new digital age and has changed movie distribution tremendously. Movies began bypassing theaters altogether as producers released their films directly to television outlets like Video-On-Demand. Most notably, movie producers have been distributing films to the streaming service, Netflix, where consumers view movies and television series through the application on a subscription basis, as well as to other streaming services such as Hulu. Streaming services have replaced the almost extinct DVDs that used to be a mode of distribution after a film’s theater debut. Producers have bypassed movie theaters, showcasing their films directly on streaming services, too. Additionally, Netflix has produced its own media for its subscribers. It aims to have its forty feature films lined up for release by the end of this year.

The new age of media technology has created substitutions for film distribution and diminished the relevance of movie theaters. By competing in the crowded media marketplace with Netflix and other digital entertainment options, a movie at the movie theater doesn’t seem as attractive anymore. While movie theater chains try to compensate for declining sales by raising ticket prices, streaming services have expanded their market share by providing more cost-effective options. For example, according to the Motion Picture Association of America, the average adult movie ticket at the AMC Entertainment chain is almost $14, while the monthly subscription fee for Netflix’s “Standard” plan is about $10 with unlimited access to Netflix’s digital media selection of movies and television shows.

The steps within traditional movie distribution have also changed due to piracy. Illegal distribution of recently released films has aggravated declining box office revenues. When a movie is pirated, it is copied and distributed illegally and people almost everywhere have access to viewing, usually for a fraction of the price or even for free when uploaded online. The traditional method of showcasing a movie in theaters and only then moving to other distribution channels hurts the movie. Instead, shortening the film’s transition time between its showing in theaters and its showing through other distribution outlets may generate more sales for the film and diminish piracy benefits, according to Vulture Entertainment News.

Another way the film industry has been revolutionized is the availability of equipment today. It’s cheaper and easier to produce and shoot a standard film today. What used to require tens of thousands of dollars to purchase movie equipment about 10 or 20 years ago is now only a few thousand dollars to produce a quality film ready for the big screen. These films tend to be distributed directly to streaming services, while bigger film production companies such as Sony Pictures and Warner Bros. maintain agreements with theaters.

Digital media distribution makes it easier to distribute and switch films at almost no cost. Producers used to ship physical copies of their movies to the box offices. However, that is not the case today. Films are sent through a click of a button. This allows for flexibility with substituting relatively unsuccessful movies with successful ones based on revenues generated by the film. Streaming services change their selection of films relatively often, while movie theaters have been sticking to outdated distribution methods, continuing to showcase films that appear to be unsuccessful on opening weekends. Globally recognized for his extensive research on the film industry, Professor Abraham Ravid, Sy Syms School of Business’s Chair of the Finance Department, provides insight:

“In principle, I think that they could and should change this [the traditional film model] and do a much more dynamic flow of films. If I open a new film and no one comes to see it, I should be able to close it the same day and if I see people want to see another movie, I should be able to just close another and show this one, instead. This is a revolution that hasn’t happened yet and the main reason is because of the agreements between theaters and studios that haven’t been revamped the way they should be.”

While modern entertainment channels have been continuously emerging, they open the door to uncertainty. Producing a film has become increasingly difficult with these new distribution channels, especially streaming services. Due to the fact that streaming services are relatively new to the movie industry and some don’t have a sufficient infrastructure yet, producers aren’t certain of the projected income for their films that are distributed via streaming services. The uncertainty from streaming services has made estimating revenues unreliable, which has in-turn made financing and budgeting films difficult tasks as well. Additionally, since many of the production companies are publicly-owned, the increased uncertainty has affected how public market investors view their prospects.

While box office ticket sales were significantly slow this summer, the film industry has been undergoing much change throughout. This has required Hollywood and movie theater chains to adapt and remodel their distribution structures in reaction to ever-expandingding world of digital media technology. If these efforts are successfully implemented, the movie business may experience a comeback and regain its stature as an important business and cultural industry within America.