new possibilities for movie theaters

Movie theaters potentially can feature profitably more independent works in coming years.  U.S. major-studio films had an average negative cost (cost to production of final master) of $71 million per film in 2007. U.S. major-studio affiliates and subsidiaries creating narrower-market films had average negative cost of $48 million per film.[1]  New digital tools allow independent producers to make high-quality video productions much more cheaply.  The reduction in production costs will make a wider variety of high-quality work available for movie theater exhibition.

Promotion of films is shifting away from expenditure in traditional media.  From 2001 to 2007, U.S. major-studio promotional budgets shifted from 55%  to 46% of expenditure placed in traditional media (newspaper and television ads).  For narrower-market major-studio affiliates and subsidiaries, the corresponding shift was from 65% to 43%.[2] By 2009, the shift is almost surely larger, and it is also likely to be larger for independent producers not affiliated with major studios. An amateur wedding-party video that was posted on YouTube attracted more than 10 million views in less than a week and provided a major boost to professional content used (without explicit license) in the amateur video. Competition for attention is intensifying.  Average promotional expenses are likely to rise, not fall.  But producers skilled or lucky in new-media promotion can attract a large number of persons to their works.

The shift to digital cinema can make movie theaters more accessible to independent producers.  From year-end 2004 to year-end 2008, the number of digital cinema screens world-wide has grown from 334 to 8614. Recent signed deals will raise within the next three to five years the share of digital cinema screens in the U.S. to about 50% of total U.S. screens.[3] The total cost of printing and distributing analog feature films to U.S. theaters in 2007 was about a billion dollars.[4]  Digital cinema can make the incremental cost of distributing audio-visual works to exhibition theaters very small. With a good industry structure, high-value independent films should be able to get distributed to movie theaters at a cost that provides incremental revenue to all parties in the digital distribution chain.[5]

Movie theaters historically have been slow to change their business model.  They will lose an important opportunity if they are slow to recognize the possibilities for independent content.

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Data: Movie industry economic data online spreadsheet (Excel version).


[1] Data from MPAA, Entertainment Industry Market Statistics, 2007.

[2] Id.  For the re-organized and analyzed data, see movie industry economic data spreadsheet.  The 2008 MPAA report omitted data on production costs and promotional expenses.  The likely direction of these statistics doesn’t require much insight.

[3] For the data through year-end 2008, see MPAA, Theatrical Market Statistics, 2008.  Recently Sony signed a deal to equip all 4,628 AMC theater screens (nearly all in the U.S. and Canada) with 4k digital cinema systems by 2012, and another deal to equip all 6,763 Regal Entertainment Group’s screens (all in the U.S.) with 4k digital cinema systems within the next three to five years. Texas Instruments also recently signed a deal to equip all Cinemark screens (3,814 screens in the U.S. and 1,032 in Latin America) with digital cinema equipment.  For U.S. screen data and share calculation, see movie industry economic data spreadsheet.

[4] See calculation of the estimate in the movie industry economic data spreadsheet.

[5] Digital cinema also enables other new content opportunities, such showing of live events and better-targeted on-screen advertising.  About two-thirds of U.S. movie screens already show some on-screen ads.

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