Hollywood’s Decline and the Digital Solution
Hollywood has a big problem: no one’s going to see movies anymore. There’s help on the horizon, but getting it requires a major overhaul of how the movie industry normally does business.
The motion picture theater is a relatively recent development in the history of visual entertainment. Until the 1910s, movie houses were independently owned, showing clips around 10 minutes in length and costing about a nickel. Then, innovative technologies soon brought Technicolor and stereophonic sound, and Hollywood quickly adopted them, adding to the immersive experience of movie-going. Over the next few decades, Americans everywhere began to flock to the cineplex, which made one-stop entertainment, complete with popcorn, a national pastime.
The major studios, in fact, controlled a large majority of the national theater chains, building out their distribution muscle because they realized they needed to first get them to viewers’ neighborhoods to sell movie tickets. By the time the Supreme Court broke up their vertical monopolies in 1948, theaters dotted every town across the country, making going to see a movie one of the most accessible leisure activities in the nation.
But that was Hollywood’s golden era, and now is its era of decline.
Dinner and a Movie? Not Tonight
Going to movies has been a longtime social ritual in American life. Catching a flick on the weekend with some popcorn has long been a leisure-time staple, reliable date option and favored form of entertainment with audiences, ever since the first movie theater opened on June 19, 1905, in Pittsburgh, Penn.
But movies are becoming more and more expensive — the average price for a single ticket is at an all-time high at $8.12, up from $7.92 at the beginning of the year. Higher prices, coupled with a fragile economy, are making streaming video ever more alluring to cash-strapped consumers. The result: theaters are limping behind — audience attendance is declining with no uptick in sight.
Sure, blockbusters like “The Dark Knight Rises” are commanding higher profits than ever, largely on the strength of more expensive tickets and higher-priced 3-D and IMAX showings. But in terms of numbers of actual bodies in seats, audience sizes are getting smaller. Summer movie attendance declined by 100 million viewers this year alone, compared to numbers from a decade earlier.
Last year, movie attendance fell to a 16-year low, according to the Los Angeles Times. More recently, Hollywood had one of its worst weekends ever, pulling in a measly $51 million for the top 12 movies combined — the lowest cumulative levels since September 11. Industry insiders are debating over the reason for decline, but a number of factors contribute to pull-down attendance: growing advances in home entertainment, higher ticket prices, an over-reliance on blockbusters and a general sea-change in the consumption of media.
Fear and Panic at the Cineplex
The film industry in a tailspin and it’s being forced to reconsider a decades’ old business model dating back to the 1930s, Hollywood’s golden era. As the financial and marketing crown jewel for Hollywood, movie-going and the business of getting movies into theaters has created a very large pie, with several parties grabbing a hefty slice.
A host of players rely on attendance to keep business healthy: movie studios rent their films to exhibitors like AMC and command the majority of ticket revenues, while the theaters make profits on concessions. A strong theatrical run also fuels subsidiary showings of a movie, boosting the amount of money that cable, broadcast TV and streaming outlets will pay to license the material.
But audiences are increasingly going online and mobile for their movie fix, and Hollywood has yet to offer a compelling answer for this segment. Meanwhile those outside the industry — such as streaming video giant Netflix — are gaining power. Hollywood-backed initiatives like UltraViolet, which offer digital copies of movies stored in the cloud, haven’t become industry standard or picked up momentum.
The result is that, simply put, Hollywood executives don’t know what to do as entertainment transitions into the digital era. “The issues that keep me up at night about moviegoer attendance and our audience are certainly not lack of appetite for the movies,” said Brad Grey, Paramount’s chairman and CEO. “There’s an audience for everything — it’s going to be about how we make up for lower sales at the box office and with DVDs through digital distribution. I wonder what the next incarnation of distribution is.”
Enter the Upstart
Hollywood doesn’t have much of a clue, but Silicon Valley is coming up with compelling solutions to move film and TV into a new era. Some, like Netflix, have created viable models for delivering entertainment to willing and eager audiences. And now others, like newly launched subscription service MoviePass, are looking to reinvent “analog” entertainment by making it more competitive to digital alternatives, especially at a time when talk of “cord-cutting” and the rise of streaming video have execs nervous.
For a $25 to $40 monthly fee, depending on location, MoviePass promises all-you-can-watch movies in theaters. The service, still in beta-only, excludes 3-D and IMAX movies, but it’s still a major deal for movie lovers. MoviePass is going against the technological wave, instead trying to be the “Netflix for movie theaters” to make old-fashioned movie-going more competitive in the age of streaming video services.
Subscribers reserve and pay for tickets using a smartphone app, and then pick up tickets with a special debit card at their local theater. The card must be used in the same vicinity as the app, and geolocation prevents customers from sharing it with multiple parties, using it more than once a day, or swiping at locations other than those where bought their movie ticket. The service simply extends the Netflix-like model to movie-going.
It has mobile-payment elements, but its primary innovation is applying a different business model to an old entertainment pastime. At a time when going to the theater is increasingly expensive, MoviePass is promising to pack the seats again, and it now has 70,000 potential customers on its waiting list.
“It gives moviegoers the opportunity to see the movies they want, at the theaters they want,” said Stacy Spikes, CEO and co-founder of MoviePass. “We’re dedicated to driving traffic back to theaters and reducing the friction of movie-going.”
Earlier tests pegged pricing too high at $50 a month and the kinks to its technology has yet to be worked out. In addition, the company didn’t give advanced notice to theater chains and studios, who now view the service as a threat with open hostility. But to its credit, MoviePass retooled and rebooted, now requiring printouts and targeting only independent theaters. But audience sizes are proving limited.
Still, it’s slowly gaining momentum and generating a buzz among film buffs, many who are finding it cheaper than paying for each ticket. But the service has had a rocky road to date, and looks to have an even rockier road ahead, as Hollywood, and the theaters themselves, continue to fight keep their old way of doing business.
Will It Succeed?
MoviePass is gunning for enthusiastic movie-goers and serious cinephiles, but questions remain over its success. Can an outsider go without an entrenched entertainment industry? The company is leveraging the power of technology to help it get around the Hollywood machine: it claims that its debit card will work at any cinema that accepts credit cards, and the app keeps the service from being abused, which should allay studio concerns.
In addition, the company is selling itself as a powerful movie industry ally, helping to solve a growing problem. Spikes said theaters are still paid full price for the ticket, even if customers see a movie every day. And by making it easy for people to go to the movies and more often, theaters will get a boost in the all-important concession sales. MoviePass expects to generate profits by finding a middle balance between serious buffs who go often and those who go once a week, as well as through add-on services it plans to offer.
MoviePass is making a strong case for itself too, claiming subscribers increased their attendance by nearly 65 percent after joining, and concession purchases rose by over 10 percent. Numbers like these bolster its case that it helps, not hurts, the industry.
Yet despite the numbers, Hollywood is reluctant to jump onboard, at a time when it’s clear their current model is losing steam. Major players like AMC aren’t cooperating either. The chain recently issued a terse statement to The Hollywood Reporter, saying “We have no affiliation with MoviePass, and we’ve had no discussions with the company about participation.”
Without full participation, consumers will be reluctant to try it out. In the end, all parties need to coordinate and get onboard to sustain success beyond initial customer interest, though, judging from industry reaction so far, that seems unlikely.
Movies: The Next Broadway?
The biggest obstacles facing MoviePass are ultimately beyond its control. Hollywood has never been open to outsiders — one only needs to look at Netflix’s rocky path to understand how reluctant, suspicious and hostile movie and TV studios are to outside influences and powers it can’t fully control.
And there’s the intangible issue of quality: a year’s subscription to MoviePass would run on average about $360 a year, requiring subscribers to see around 40 movies a year to make it a value — and many wonder if there are really that many movies worth watching, especially when Hollywood is releasing fewer films for broad audiences. In the wake of higher prices, home and online entertainment will continue to be a competitive alternative: digital is becoming mainstream, and cable, though expensive, remain stable, even though the industry is showing signs of a shift.
But in the end, the movie industry may not be that interested in keeping audiences in attendance, at least not in the way that it used to. Many executives privately think movie-going will go the way of Broadway and become an increasingly marquee, “premium” experience. Its growing reliance on 3-D and IMAX show its willingness to boost picture and projection technology itself. Meanwhile, experiments in reserved and elite seating, as well as broadcasting one-time premium events like concerts, demonstrate theaters are trying out ways to “upgrade” the show experience and justify rising tickets costs.
Sure, Hollywood can address the bigger picture — reverse the steepest decline in movie attendance figures in years by making better movies to lure people back. It can lower ticket prices to stimulate sales — after all, movie-goers flocked to the cinemas during the Great Depression, making Hollywood one of the few profitable industries during a dire time. If studios and theaters are truly forward-looking, they can partner with companies that actually have their fingers on the pulse of technology and see how it’s radically changing the way people consume entertainment.
But in the end, Hollywood — rather than adopting new technologies like it did in its golden era — will settle for the simple solution of raising prices for the few that still go to the cineplex, as it kicks and screams while being dragged into the digital age.
