I love movies. Between Korea and my son, I haven’t had much time to keep up with the latest offerings churned out by Hollywood. Perhaps even more than watching movies, I enjoy following the movie industry. For example, I love playing a game called Hollywood Stock Exchange (HSX), a free game site where you "invest" in upcoming films and "hot" actors. It’s a great way for me to test my investing mettle against my potential as a movie studio executive. Although I’ve been too busy to play lately, my ranking is still in the top 4% of HSX traders. I’m a methodical, patient investor who makes modest bets on movies. I recently read that Hollywood studios suffered through their 18th straight decline in weekend box office revenues, a modern day record. What gives? Why have movie box office receipts declined so dramatically this year? Is it because Napster has undermined the movie industry and people are skipping movies because they can download them for free to their iPods? Hardly. This box office decline is due to a confluence of factors. I see this trend continuing unless the movie industry changes its business model to accommodate a new reality. An industry that routinely hundreds of millions of dollars in investment on films is vulnerable to failure and business downturns, and it needs to adjust because its market is moving away from it.
Here are some reasons why Hollywood’s box office has declined:
- The rise of alternative entertainment options, particularly gaming. The gaming industry, fueled by Sony’s PlayStation, Microsoft’s Xbox, Nintendo, Sega, and a slew of game makers such as Electronic Arts is fast capturing the eyeballs of America. Individual game releases are viewed in the vein of movies–they are costly to make, are preceded by marketing blitzes, and have a limited shelf life. A successful game like "Grand Theft Auto" or "Halo" can make millions. Legions of Gen Y’ers and Gen X’ers ages 10 to 40 are increasingly turning away from sitting in a movie theater to other entertaining pursuits. They want interactive experiences. Aside from being there for the occasional epic moment such as the end of the "Star Wars" saga, or the highly anticipated "The Matrix" sequel, they prefer to read the book or wait for the video. Movie studios need to consider how to make their offering more interactive beyond movie web sites with flashy online content.
- Movie tickets are expensive and theaters are too inconvenient. Hollywood may have reached the near-term limit on how much it can get away with charging for a ticket. When it costs you $17 for a movie ticket, a small popcorn, and a soda, you know you’re paying too much. And that’s just for yourself! Plus, movie theaters are too far away and too much of a hassle for many people to bother with nowadays. Movie studios need to figure out how to bring their product to the masses, rather than expecting the masses to come to them. The movie distribution network and ticket-revenue schemes inked between studios and cinema owners is as outdated as the traditional automobile dealer network. It needs to figure out how to deliver content dynamically; for example, combining the concept of pay per view with movie distribution. Would you pay as much or more than a movie ticket to watch that brand new movie release on your digital cable? The answer is probably yes. The studios need to work with the likes of Comcast and DirecTV to offer another outlet to distribute original features.
- Studios are not producing original, compelling content. You’re probably read this time and again, but it is so true. Just look at the top movies so far this summer. Another "Star Wars" film, another "Batman" film, a remake of the TV series, "Bewitched," a remake of "Herbie, the Love Bug," another zombie sequel, and another CGI animated film featuring cute animals. Can’t wait to see that remake of "War of the Worlds," another alien disaster flick, or yet another comic book turned into a movie ("Fantastic Four")? "Mr. and Mrs. Smith" is the only high-grossing feature with a somewhat original theme, although it borrows heavily from classics such as "The Scarecrow & Mrs. King," "The War of the Roses," and Schwarzeneggar’s "True Lies." Just like television needs to lay off its incessant urge to turn everything into a reality show, the movie studios need to throttle back on the number of remakes and sequels it makes. Indie film makers are keeping alive the flame of originality, although there’s no reason why Hollywood can’t make an original film that appeals to mass audiences. Start by reworking the canned plotline we all know and expected: develop character, key moment in character’s life, character responds, climax, happy ending.