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Six Reasons Why Hollywood Box Office is Dipping, from Avatar vs. Tron to Snow vs. Netflix

by Anne Thompson and Anthony D'Alessandro
February 24, 2011 11:38 AM
10 Comments
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Thompson on Hollywood

After the MPAA released its latest figures Wednesday, in a conference call acting chief Bob Pisano and National Association of Theater Owners chief John Fithian tried to make the best of a bad situation. As usual, the MPAA blamed piracy on declining admissions (down 5% to 1.3 billion in 2010), while both hailed premium digital 3-D revenues and the continued expansion of 3-D screens and production. Sure, with 25 films released in 3-D in 2010, up from 20 in 2009, 3-D has temporarily staved off disaster at the box office. But despite Fithian's insistence that revenues are what count, a downward slide on admissions is not a good thing.

I highly doubt, for example, that the "cyclical" nature of box office accounting will prove to even things out in the long run, as Fithian hopes. This time, declining admissions really do portend real changes in moviegoer behavior. And the studios' tentpole-franchise-brand-chasing flight from hungry adult audiences who flock to see word-of-mouth hits such as The King's Speech, The Fighter, Black Swan, True Grit, The Kids Are All Right, Inception and The Social Network--Oscar contenders all--is wrong-headed. Because guess which demo is fickle, falling for competitive online alternatives such as Netflix streaming and video games? Young males, the very demo GQ's Mark Harris defines as the studios' sweet spot in "The Day the Movies Died." According to the MPAA, while young people 12 to 24 still represent nearly one-quarter of moviegoers (nearly one-third of tickets sold), in 2010 fewer tickets were sold to 18 to 24 year olds, while the next age group, 25 to 39, increased its attendance, up to 25% of tickets sold.

Anthony D'Alessandro digs into the six key factors behind the 2011 box office decline:

Thompson on Hollywood


What are the factors behind the 2011 box office lagging behind last year’s record start by 24%? Through February 22, Box Office Mojo shows that this year’s receipts, inclusive of the New Year’s Weekend total of $1.27 billion, are a far cry from the $1.67 billion deposited by distributors and exhibitors over the same frame in both 2009 and 2010.

And 2011’s box office gap with 2010 is expected to widen even more in the upcoming weeks as comparisons to last winter’s record performer Alice in Wonderland  ($116.1 million opening, $334.2 million) loom. Unless a spate of commercial animated films--including Rango, Rio and Hop-- picks up the slack, by the time summer arrives, it will be impossible to catch up to 2010.

Like most industry trends, there’s no single reason why there’s less cash in ticket takers’ drawers in 2011. But add up six and you have one big problem. 
 
1. It’s the weather, stupidIf the weather is severe during the first quarter of the year, it will impact business. “During the week of February 1st, the whole country couldn’t move,” says Landmark Theatres CEO Ted Mundorff, whose chain has been seeing weekend-to-weekend upticks due to the boom Oscar season – except for that one snowy frame, when they were off by 2% from the previous year. Films typically perform better in the summer, not only when the prime under-25 movie demo (16.9 million people per the MPAA's 2011 Theatrical Market Statistics Report) are available, but when it's easy for folks to get to cool theaters. Thus, studios aren’t going to book their priciest pics during the period when chances of people making it to the theater are the most slim. 
 
2. Winter is a time for cheap B-fare, not high-quality films:  Oscar fare aside, which adults always flock to during the first quarter, Winter hits are by default sleepers such as Taken ($145 million), Cloverfield ($80 million), or Paul Blart: Mall Cop ($146.3 million), which all cost less than $30 million; these flukes paid off in spades. Winter is never hit-driven: it's clearly when studios can safely release low-budget programmers and dump weak entries. This year’s wide releases such as Season of the Witch, The Rite and The Roommate each cost under $50 million and thus offer a strong chance of recouping during the snowbound school months. The studios save their most expensive winter fare --such as The Green Hornet (cost $130 million, $95.7 million domestic B.O.) and Just Go With It ($80 million, $65.7 million)--for holiday weekends, when the kids are back in town. As younger demos return to the market over Christmas and summer vacations, budgets and playability go up.
 
3. Avatar: This year’s deficit isn’t just about missing $408.4 million of blue-alien carryover cash.  We were already set to trail 2010: it’s not every year that a movie shatters the all-time domestic record. Moreover, Avatar made moviegoing a habit again, across all demos. “There was a momentum last year because of that film,” compliments a non-Fox distribution exec. “Moviegoing feeds off itself.  And when there’s a film like that, distributors want to throw their trailers on it.  The film stirs a ‘need-to-see’ attitude among the audience and rubs off on other films.”  Another exec theorized that if last year’s Presidents Day hit Valentine’s Day ($63.1 million four-day bow, $110.5 million domestic) was released in the current marketplace, it would never post the numbers it did a year ago, simply because there aren’t any signature films driving audiences to the cinema. 
 
4. Tron: Legacy:  Don't 2011 clunkers The Tourist ($67.3 million) and Little Fockers ($147.7 million) also shoulder some blame for the B.O. shortfall?  A bit, but Tron gets kicked because it was conceived as a mega tentpole. Disney made all the right distribution and marketing moves on Tron, which landed Avatar’s pre-Christmas slot. Disney promoted the film a year in advance like it was a major event, complete with Tron Preview Day. The studio made sure to hit every marketing impression it could on the Disney Channel, theme parks and Billboard charts, with Daft Punk's soundtrack. 

But Tron's failure is inherent in its DNA. It played as a sequel to a Z-grade cult film, not the first chapter of a franchise. Disney wisely opted against re-releasing the original Tron on DVD in order to pump up interest in the property. Rather they pulled all copies off the store shelves, fearing that crowds would be put off by the 1982 version. Was Tron expected to break Avatar records?  No, but Disney certainly didn’t commit to Tron thinking that they would end their domestic run at $170.4 million. With its slick sci-fi VFX, their aims for Tron were closer to Transformers's $300-million. And if Tron had turned that virtual estimate into a reality, 2011's box office wouldn’t be falling so far behind 2010.
 
5. Exhibitors have overpriced 3-D tickets: Who wants to pay exorbitant prices if a film isn’t an event or doesn’t jive with 3-D?  That may be hurting Green Hornet’s chances of propelling past the $100 million mark: audiences really don’t see the need for 3-D. What also hurts is that exhibitors maintain their pricing in subsequent weeks; and distributors can't tell them what to do. In its sixth week, a suburban theater matinee for Green Hornet can cost $41 for an adult and two kids. Even though exhibitors such as Regal Cinemas boast frequent-moviegoer programs, they don’t dispense free tickets to 3-D films. When it’s too expensive to go to the movies, why not stay home? That's where most cinephiles are these days.
 
6. Free online streaming and rental DVDs: Home entertainment revenues are on a steep slide largely because studios have yet to perfect a replacement business model.  Film libraries are licensed out and late fees are no longer built into the rental revenue formula. According to IHS Screen Digest director/U.S. principal analyst Tom Adams, the average U.S. TV home “consumed 200 pieces of content (i.e. Hulu.com, YouTube.com, DVD, VOD) in 2010 – a figure that use to number at 30 pieces during the ‘90s.”  In addition, DVD rentals have showed signs of recovery thanks to the subscription VOD model of Netflix and the $2.10 Redbox kiosks.  As a result, rentals, which peaked in 2001 at 3.1 billion units and fell to 2.2 billion in 2007, have made single digit gains, numbering 2.4 billion last year.  Home Entertainment analyst and consultant Roger Smith confirms that “Netflix is attracting the higher income consumer away from the cinema, while Redbox is catering toward the lower income, particularly since the attractiveness of watching a movie at home is increased by the embrace of HDTV.” 

Can the middle be far behind?

10 Comments

  • Anthony | March 5, 2011 6:48 AMReply

    Steve and Louis,
    In terms of P&A spend and production budget combined, Tron cost $300 million. In terms of estimated theatrical rentals, Tron pulled in $86 million domestically (figured at 50% of the domestic B.O.). and about another $89 million in foreign rentals (figured at 40% of the overseas B.O.) -- in sum a total of $175 million that Disney deposited into its bank account. Conclusion: Tron was a loss on the theatrical side. And it is completely fair to compare Tron’s potential success to Transformers. It doesn’t matter that one title was released at Christmas and the other at summer. Avatar showed that more moviegoers can come out to the theater during the holidays, than in the summer – hence Tron could have bested or matched Transformers’ numbers. Kids were off from school, and there was a 2 week frame when everyone could go to the movies.

    As I mentioned, Disney did a great job marketing Tron as though it would be an event, but moviegoers didn’t see the film that way. I can’t imagine, especially with the passion that Disney executed in marketing this film over the last year, that they wanted to see Tron post less-than Pirates of the Caribbean-B.O. results.

    In addition, movie-licensing $ figures are typically held from the press. Hence, there’s no hard $ evidence that Tron toys were a success. Occasionally, Lucasfilm will blow their horn about how much their toy franchise is worth. It might appear that Tron was a hot toy, however, Toys R Us was having a fire sale on both Tron and Megamind toys over the holidays: They needed to rid themselves of such product since the prime time to sell them is when both films are in theaters. After that window, nobody is really interested in picking up a Tron or Megamind action figure. While Tron toy shipments led over the holiday season, they trailed those of Shrek 4. In total, all movie merchandise was down during December http://www.hollywoodreporter.com/news/analyst-tron-toys-top-holiday-58015.

    As far as the Tron videogame, it failed to crack 1 million units sold – a benchmark for vidgame sales. Disney Interactive laying off their game unit also doesn’t indicate that Tron was a success. http://www.latimes.com/business/la-fi-ct-disney-interactive-20110126,0,1232607.story

    But all my analysis aside, Steve, I must confess: I loved Tron. I saw it twice in the theater. I really hope Disney makes a sequel; one that clicks at the B.O.

  • Louis | February 27, 2011 10:50 AMReply

    I agree with steve, if you're gonna compare Tron's performance to a movie compare it to another december movie like King Kong (218M domestic) and not a big summer movie like Transformers.

    And even that is a bit unfair, it is King Kong after all in Peter Jackson's follow up to the LOTR trilogy.

    Tron Legacy didn't have a lot of selling points besides the visuals, and that's why it is considered a success.

  • CarlP. | February 26, 2011 11:34 AMReply

    None of that is the reason for the loss. The movies being released are trash. The weather can be perfect and no one will go see most of these. Online pirating is also a huge problem. There are movies online that haven't hit the theater yet. The last problem is marketing and budget. They are out of hand. Last but not least, it's the economy stupid. It cost at least forty dollars to take a family of four to the movies in most states. That is not counting snacks. That is money that many people can use towards electric or grocery bills. Fix any of those problems and things will be back on track.

  • Steve | February 26, 2011 6:19 AMReply

    Hate to rain on Anthony D’Alessandro's parade, but TRON was anything but a failure. World-wide, the movie nearly pulled in 400 million dollars, extraordinary for a sequel to a movie that is close to two-decades old.

    Plus, the revenue Disney dug up off toys and other TRON merchandise such as video games was even more extraordinary. If anything, we're likely to see another Tron film sometime in the future.

    Pretty spectacular for a failure that he claims is responsible for sinking the entire movie business. Don't blame pieces of shit like Marmaduke for people not going to the movies, blame the movie people actually saw. Good strategy.

  • Don Hyde | February 26, 2011 2:03 AMReply

    Movies for the most part suck. Quarters and dollars add up. Anyone that wants to make a film that costs over a 100 million should be shot along with the bankers and bastards that brought the studios.

  • Brian | February 25, 2011 4:47 AMReply

    "Transformers 3 breaks avatar
    Transformers top box office 2011 all of time"

    Not a chance. Megan Fox ain't in it. No Fox, no sale.

  • sp | February 25, 2011 4:30 AMReply

    I agree mitkid !

  • mitkid | February 25, 2011 3:47 AMReply

    Give me well acted, smartly written movies (I saw all seven you mentioned at the beginning) and I'll go the theater. Give me the choice of a bunch of crap and I'll stay home. It's just that simple.

  • Cotty | February 25, 2011 2:35 AMReply

    Sure would have appreciated a link to that Spotlight: Demographics chart. Did it come from an available report? I can't find it on the natoonline.org site.

  • david | February 25, 2011 1:09 AMReply

    Transformers 3 breaks avatar
    Transformers top box office 2011 all of time

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