Film Industry Professionals Weigh in on the Financial Crisis - Part II
By, Dennis Stratton
December 17, 2008Tags: film industry, Joe Roth, recession, Revolution Studios, ZDONK board member
After speaking about the effects of the financial crisis on the current studio model in our last blog post, we decided to shift our attention towards the effects of consumer behavior in a recessionary economy. Will the studios be altering the types of films they distribute because of what they believe consumers want to watch during hard economic times?
For this question we spoke with Joe Roth, CEO of Revolution Studios and a ZDONK board member:
One of the first things Joe pointed out was how escapist movies like Madagascar 2, Quantum of Solace and Twilight have done better than expected, whereas the more serious, heavier films aren’t doing as well -– “It’s already bad enough, movie-goers need an escape.”
Sure the public enjoys serious films, considering the academy awards are just around the corner, but does that actually translate into box office sales? Will movie-goers continue to spend $10 at the theater to not laugh or be in awe?
The public’s willingness to spend at the box office isn’t in drastic decline, but the types of movies that drive people to the theaters could be changing. This phenomenon will certainly impact the films studios choose to distribute, especially if they plan to trim their slates to cut costs. Joe says that the films that will flourish will be those that “offer the highest value to the consumer — Twilight for girls, Madagascar for kids, Bond for men.”
His perception of consumer behavior in a recessionary economy is fairly straightforward: “People are guarding their money and they’re not going to go for anything they’re not sure of.” So, at a time when cash is king, I think it is fair to conclude that studios will only be financing “tried and true concepts”.
As the recession deepens, this trend will only be strengthened as studios cut their slates and consumers opt for a rental (or YouTube) instead of heading to the theater and paying $10. This could mean tough times for production companies without original, escapist material or an already vetted concept to pitch to one of the majors.
Tried and True concepts? How many times is Hollywood going to keep remaking everything? I’d rather spend my money on a fresh idea than an old one that has been beaten to death.
I agree. I think that new media presents the opportunity to have both if someone can come up with an interesting idea and build a community behind it. “Twilight” (not my cup of tea but definitely popular) was a new idea with a community behind it (b/c of the book) and a studio jumped at that opportunity. I wholeheartedly agree though about not wanting to see Rush Hour 9.
here’s a POV from where the rubber meets the road. Distribution.
Our buyers of indie films worldwide are cutting back on high budget films that are not genre specific, or have limited star power. And there’s no market at all for B&C titles except for TV packages . Genre movies in the $5-$15 mill range with movie stars is the sweet spot. Down from $12 mill to $20 mill two years ago. Times are tough, it’s a buyers market.
The big surprise is that old library titles are surfacing as an alternative for new purchases for TV/ New Media VOD sales. Film Library asset values are improving in this economy. ICAP ( world’s largest broker dealer) in the London Financial Times December 7th 2008 recommended film libraries and indie film distribution as a ‘best investment’ in current market conditions.
Moment’s economical situation is a good bussiness opportunity for Original new Films which are both entertaining but have also deeper levels and values.
It is very good time for new (but experienced and talented) palyer who have real values to come to the film bussiness.
The film industry traditionally does relatively well during times of economic recession. It is largely recession proof as it is a source of cheap entertainment. Given the fact that films take a year or two from investment to pay off, they remain good investments as any recession will almost undoubtedly be over by the time the film hits the screens. And even films currently on the market will usually do well. The film industry prospered throughout the Great Depression and through the recessions of the past few decades. Chances are that it will prosper through this recession as well.
According to the Harvard Business Review, this is the tenth economic recession since 1948. We’ve experienced negative growth in 1947, 1953, 1957, 1960, 1969, 1973-75 (the Arab Oil Embargo), 1981, 1990 , 2001, and now 2008. Each recession has been followed by several years of prosperity.
But the health of the movie industry seems to have little to do with the general economy. According to figures from the Motion Picture Association of America (MPAA), the only indicator that consistently takes a downturn in a recession is the number of films being produced.
Year Box Office Films Films
($ MM) Admissions Produced Released
2001 + 8.8% + 3.98% - 10.5% + 1.5%
1990 - 0.23% - 5.9% - 0.9% - 18.2%
1981 + 7.8% + 4.5% - 14.5% + 2.6%
1974 + 25.3% + 16.9% - 12.6% - 2.8%
1973 - 3.8% - 7.4% - 13.2% - 9.8%
1969 + 0.9% - 6.8% - 1.7% - 2.7%
1960 - 2.2% - 12.3% NR - 2.4%
1957 - 4.2% - 8.8% NR + 10.4%
1953 + 1.0% - 5.2% NR + 3.9%
1947 - 5.8% - 9.9% NR + 6.5%
(NR means no records were kept for that category in that year.)
Others, such as overall box office, number of admissions, or number of films released, are just as likely to go up in a recession as down. In fact, a quick look at MPAA Statistics frtom 1946-2007 shows that:
• Gross box office receipts have declined in 21 of 50 non-recession years and increased in 5 of 10 recession years.
• The number of tickets sold has declined in 30 of 50 non-recession years and increased in three of ten recession years.
• The number of films produced has decreased in 14 of the 33 non-recession years for which we have statistics.
• The number of films released has dropped in 26 of 50 non-recession years yet grown in three of ten years identified as recession years.
Karyn Edwards, in-house counsel at Brightlight Pictures Ltd. in Vancouver, told me that the biggest problem in times like this is simply a lack of available capital; the banks simply do not have money to lend. Some, she said, are closing up their commercial lending operations for the time being. While films are ultimately financed by tax incentives and investors, the day-to-day operating costs, the actual money needed to get the movie made, comes from the bank and is repaid by the investors and eventual tax credits. You still need a good line of credit to make movies.
However, it is important to note that the film industry is not particularly tied to overall economic trends, at least not in recent years. In a 2005 study, Kagan Research LLC predicted that total distribution revenue will rise from $46.6 billion in 2004 to $72.9 in 2014, a 56.5% increase in ten years.