$20 Movies on the Horizon?

It's no secret that movie theaters have been struggling. That may surprise some, but it's important for this discussion to separate out the movie making business from the movie showing business. Hollywood (and others) make movies. The process by which a movie gets produced is arcane and overly-complex, and I won't pretend to know everything about it or examine it here. When it comes to putting movies in front of audiences, there's another system, equally labyrinthine in design, that dictates where, when and how a movie gets shown. Like production, this distribution system—and the problems it's facing—is far too complex to breakdown in a blog post, but needless to say this effects all of us, so I want to shed some light.

Things can get a little confusing, when one sees headlines shouting "Box Office Records Smashed!" Technically, yeah, the film industry is making more money than ever, but so is every industry that remains in business. Rising inflation is enough to ensure that bottom line dollar figures will go up. But, even as Hollywood, may be bringing in more gross dollars their margins may be shrinking. I'm not here to address that topic though, instead we can focus on what we do know, theater owners' margins definitely are shrinking.

Everyone is buzzing today about the fact that the rising price of corn is shrinking the margins on popcorn for theater owners. Now, popcorn is sold at an outrageous premium, as any regular movie goer is well aware, but that is largely because the movies themselves are considered a "loss leader." This term describes any product or service that is sold at a loss to the supplier in hopes that it will spur consumers to purchase other related or ancillary goods. In the theater model, movies get you in the door, and once you're inside the theater owners hit you with concessions, which are marked up to maximize profits, and then they hit you with advertising, which they can peddle at high rates because theaters provide a (literally) captive audience. Tons of other industries function in this way, most notably video games (where systems are sold for sometimes steep losses, and profits are made on games) and gas stations (where the margins on the actual gas are awful, but things like lottery tickets and Doritos rake in the dough).

There's going to be a lot of hand wringing in the coming weeks and months about movie ticket prices going up. Well, first I'd say, welcome to my world. In New York $12 tickets are pretty standard. But seriously, this is nothing new, and tickets have been rising pretty steadily in price for a while now. What will be more interesting to watch is how theaters respond to these new economic pressures. Several concepts have been in the works, or have already been rolled out, and all have the ability and the opportunity to change not only the business of theaters, but the experience of theater going in general. Here's just a couple of the prominently discussed ideas:

1. Tiered Pricing - We're in blockbuster season, and box office revenues have soared with the release of each new big-budget, must-see feature. Some have proposed raising the prices for the opening week of a new release, or for offering tiered options that would make certain films a little more expensive, and others slightly less so. In this scenario, you might pay $15 to see "Indy," and $8 to see "The Visitor." It's even conceivable that theaters with assigned seating could sell the "best" seats at a premium.

2. Digital Distribution - The future of theatrical film distribution, as has already happened with home distribution, is digital. This is already in the offing, with several big chains rolling out digital projectors as they can afford it. The barrier right now is high overhead (these projectors are mad-expensive). Theater owners don't want to shoulder all the costs of switching to digital when they are struggling to hold their profits steady as is. But once the pieces are in place, digital distribution should lower costs for all the players in the film distribution game, which would ease the long term overhead of theater owners.

3. New and Different Amenities - Often, for business of any kind diversifying the product can lead to a growth in the market or at least a growth in market share. With movie-going though, the theaters that we go to now are essentially identical to the ones that our grandparents went to in the 30's and 40's. Some chains and theater owners are toying with the idea of offering different viewing experiences, like the "Living Room" theater at The Landmark in LA where I saw "Zombie Strippers." A trend in this vein that is already underway, and will explode in full force next year, is digital 3-D. While no one can say for sure whether that type of viewing experience will truly save theater going, James Cameron is staking a good deal of his reputation on the fact that it will. There are any number of different ways that theaters' shapes and sizes could change, all of which would result in new and potentially exciting options for film fans.

The trouble with all three of these is that any large scale change in the industry will require agreement between the distributors and the producers of films, and that may be hard to come by. For producers and distributors alike, Day-and-Date seems the safer of all potential changes, if only because it would directly affect theater attendance and not necessarily film viewership.

There's so many economic pressures acting on both groups that neither is likely comfortable assuming too much risk at this point (nor is any other industry, what with the overall state of the economy). But ultimately, some type of reconciliation will have to be made if the theater going experience is to be maintained in its current state. Theaters aren't going to disappear, and I don't want be accused of saying the sky is falling because it's not, but some very tough decisions may lie ahead for everyone in the movie industry, and the outcomes of those decisions will effect us, the film goers. We can only hope that any changes that do crop up in the realm of theater going will be positive.

Jon Schnaars

Writer/Podcast Co-Host/Business Guy

If you have questions about doing business with BGH, this is the man to speak with. Jon also enjoys the fancier things, like monocles and silent-era horror films.

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