A Notable Film Business Occurrence in ‘09…..
Posted by Jim on Wednesday, January 20, 2010 in Author • Ellen Pittleman - Veteran Studio Acquisitions Executive • Film Blogs • Film Revenue & ROI • (1) Comments • Permalink •
With more than a decade’s worth of experience as a studio executive in the home entertainment and international theatrical divisions, it’s interesting to review how the relationship between feature films and home entertainment is shifting in the changing world of film in 2009. Having this overview has always provided me a solid foundation for evaluating a film’s value because of the way in which the two distribution platforms are inextricably linked.
As most of you probably know, theatrical performance drives revenue for most of the traditional distribution platforms because of the extraordinary awareness and subsequent interest and demand that many films generate. Consequently, historically the home entertainment business accounted for approximately 60% of a film’s overall value and moreover, most executives use box office performance as a benchmark for video projections. As audiences’ time gets diverted to other entertainment options and ways in which one is able to view filmed content have increased, the relationship between the two platforms becomes far more complex as those home entertainment revenues get splintered.
2009 brought great news for the theatrical business. There was record revenue and increased admissions for the year. Sequels performed exceptionally well with “Transformers” ($835MM), “Harry Potter” ($929MM), “Twilight” ($685MM), “Star Trek” ($385MM), “Ice Age” ($884MM), “X-Men” ($373MM) and “Night at the Museum” ($413MM), among others all making profits. Global box office surpassed $21B this year and looking at the domestic top ten releases, only “The Hangover” ($459M), “Star Trek” and “Monsters vs. Aliens” ($381M) performed better domestically than they did internationally. This supports the recent studio strategy of focusing resources on tent pole event releases while making fewer films. Hollywood blockbusters still dominate the worldwide box office but when looking for alternative entertainment, audiences seem to be gravitating to films that reflect their own cultural sensibilities as the increased success of local language films in many territories demonstrates.
The US market can be illustrative in looking at this theatrical/video relationship. US Box Office represented $10.6B in 2009 while home entertainment logged in at $20B in consumer spending. That is compared with the peak 2004 DVD market of $24.9B when domestic theatrical revenue represented $9.45MM.
Though home entertainment consumer spending declined in 2009 another 5% from 2008, consumer transactions actually increased (3.5% to just under 5B) according to Adams Media research. There was growth primarily in the area of Blu-ray ($1.5B), with Blu-ray sell-through up 70% ($1.07M) and Blu-ray rentals up 48% ($428.6M) respectively, and Digital Delivery ($2.1B) also up 32%. Overall DVD rentals were up this year as well but primarily because of the growing success of low cost rentals like Redbox and all you can watch subscription services like Netflix. Many of the subscription services now also offer a digital streaming opportunity and an increase in the number of digital homes and the broader availability of day-and-date video-on-demand most likely accounts for this rise in digital delivery.
It’s interesting to note that digital revenues surpassed Blu-ray revenues and that Wal-Mart has reduced its DVD shelf space by 30% last year. This leads one to believe that Blu-ray may never eclipse digital distribution if digitals’ growth continues on its current path and retailers are pulling back from what was loss leaders pulling traffic in to their stores.
This raises the question of whether or not digital revenues or even digital and physical home entertainment device revenues combined will reach the heights of the peak of the DVD business as the price of transactions continues to fall? Or rather, is the marketplace now benefitting from closer scrutiny of theatrical releases, as those releases have had to become more accountable for their own profitability?
Given it’s the latter, independent producers need to consider these new realities of the marketplace. Furthermore when one is evaluating an offer, be clear about what one’s objective may be. If there is a genuine concern to be responsible to one’s investors, keep in mind that the traditional path is no longer littered with gold so the theatrical market must be evaluated in a much different way especially for smaller releases.
With the Sundance Film Festival at hand that becomes very important but the reality is, one never knows for sure. Look at 2009 Sundance dramatic favorite “Precious” which has now grossed more than 2004 comedic favorite “Napoleon Dynamite.” It’s a bit counterintuitive as comedies typically outperform dramas. That said, one could argue that “Precious” had some star power where “Napoleon” had none. However, “Napoleon’s” production budget was 4% of what “Precious’” was. Which investment would you recommend?
Ellen Pittleman, http://hybridentus.com, is a veteran studio executive based in Los Angeles. Most recently, she served as SVP, International Co-Productions and Worldwide Acquisitions for Paramount Pictures. She also launched the DVD Premiere group there, with films including Jonathan Demme’s “Neil Young: Heart of Gold” and the sequel to the $100MM+ “Save the Last Dance.” Working from a marketing and distribution perspective, she consults on strategic planning, deal negotiation, acquisitions, film library valuation and feature development with clients from Rio to London to Beijing. She’s also currently developing a feature on George Foreman’s comeback years, among other projects.
