90% Empty Theater Seats Translate to Home Viewing

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Everyone knows Hollywood is having a miserable summer, especially with its expected tent-pole blockbusters collapsing.  What will that mean to upcoming VOD (including broadband streaming) and PPV showings, not to mention the fading DVD/Blu-ray Disc business?

The current box-office calamity takes on added significance when you consider the droves who are staying away from movies. Last week, seven of the top 10 movies played in auditoria where at least 89% of seats were empty, according to StudioDirect’s latest Customer Capacity Reporting service. Overall, America’s 42,102 theater screens attracted an average of “an anemic 36” customers per performance, according to Rusty Citron, managing director of StudioDirect.

Citron waxes eloquently about the mess that Hollywood and theater owners have created by concentrating on big openings, backed by loud ad campaigns. He observes that a few years ago, attendance often dropped by 50% from week one to week two. 

“Now it falls off by 60% to 70%,” says Citron.  He points to last week’s theatrical nosedives such as 2 Guns and The Wolverine, which each played to an average of 9% capacity seating, and kids’ movies Despicable Me 2 and The Smurfs 2, which respectively filled 7% and 6% of available chairs. (The averages mean that busy Saturday nights are more than negated by dismal weekday afternoons and evenings.)

Citron offers multiple reasons for the one-weekend wonders, including digital cinema distribution, which has made it financially feasible to open films on up to 7,000 screens simultaneously; that can mean up to 115,000 showings in the first three days.

“Everyone who wants to see a movie has seen it by Sunday night,” he explains. At the core of Citron’s research is the belief that studios have failed to identify specific customers and don’t have the ability to reach out to them for future consumption. He believes that studios could pinpoint customers to buy subsequent digital versions of movies they like, including streamed showings. Citron also has a grand vision for monetizing first-run theatrical features, such as “dynamic pricing” for theater tickets (based on the production cost of the movie and the demand for specific performances) and also for in-theater sponsorships. 

His sponsorship concepts go far beyond the video commercials that precede most screenings.  Citron’s rationale, especially for opening-week blockbusters:  “More people watched The Avengers movie (27 million customers, he says) than the typical NFL on NBC telecast” – and both audiences were heavily loaded with the coveted young male demographic. (Nielsen says last season’s NBC Sunday Night Football averaged 21.8 million viewers, making it the biggest show on television for consecutive seasons.)  In-theater sponsorships would be more intensive and more effective to the target audience than TV spots, he insists.

Beyond all these movie-going data looms a bigger dilemma. How will the tainted movies play on the home screen?  Will it matter if they are delivered via broadband, subscription premium channels or other packaging? 

As always, subscription channels (HBO, Showtime, Starz, etc.) have it “easiest” since the films are simply part of the subscription. In fact, as Citron points out, the studios may actually get a higher price for some movies if the contract is based on opening week revenues, which may trigger a payment increment.  (Ahh, there’s the studios’ ulterior motive for blanketing screens for the first three days.)

The more significant concern is that the one-weekend wonders and the bad vibes about fallen tent-poles cools interest in movies, which have been cable programming mainstays for decades.  VOD opportunities make the situation even more urgent.

Remarketing is the biggest challenge,” Citron says, noting that money spent for theatrical release must be replicated for home viewing.  It’s more expensive and the margins have diminished, he contends, adding that “nothing is proven to work” to attract viewers to a movie which is considered a flop on first sight. In particular, he points to problems with international distribution, which had been seen as a revenue savior and was critical in the greenlighting process.

None of these hurdles are particularly new.  Studios have skirmished for more than a decade about distribution tactics and home viewing schedules. Yet revising the current theatrical revenue model (based more on popcorn and soda sales than the appeal of on-screen content) is now more problematic.  This is an era when 60-inch or 80-inch, or for that matter nine-inch, home screens and unlimited broadband viewing options redefine the movie eco-system.

To be fair, Hollywood is actually having a relatively good summer financially. Despite the duds, it is on track towards at least $4.3 billion – although largely (as Citron repeats) due to higher ticket prices. Moreover, it may turn out that relative bombs such as After Earth, Turbo, White House Down, R.I.P.D.and The Lone Ranger actually do play better with a half-dozen family/friends around the home screen compared to 36 strangers in a big multiplex.

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