2009 Movie Studio Revenues & Box Office Share

The Big Six ranked: total box office revenues and market share

1. Warner Bros:  $2.13 billion ~ 20%
2. Paramount Pictures:  $1.46 billion ~ 13.8%
3. 20th Century-Fox:  $1.45 billion ~ 13.7%
4. Columbia Pictures (Sony):  $1.44 billion ~ 13.6%
5. Walt Disney Pictures:  $1.21 billion ~ 11.4%
6. Universal Studios:  $900 million ~ 8.5%

Avatar Numbers… So Far

Avatar is on track to take the crown from Titanic’s $1.842 billion box office record.  Perhaps most impressive is that Avatar has been in theater’s for less than six weeks, while Titanic was in theaters for 41 weeks.

BMO analyst Jeffrey Logsdom provided the following estimates for Avatar’s profitability:

• Avatar’s production budget was $300 million
• Global marketing and distribution costs are $175 million
• Avatar will gross $650 million at the US box office
• Avatar will gross $1.95 billion worldwide during its theatrical run
• After movie theaters get their take, Fox will get $942 million
• Home video sales will be worth another $420 million in revenue
• Game licensing and development will bring in an additional $70 million
• Fox Studio’s total revenues will exceed $1.56 billion
• James Cameron will get $320 million ~ 20% of studio revenues
• Fox Studios and its investors will generate a net profit of $700 million

 

5 Box Office Predictions For 2010

1. 2010 will be the highest grossing year in box office history.

With 2009 walking away as the highest grossing year in box office history, there are few signs that 2010 will stop the record-setting trend.  Thanksgiving weekend 2009 exemplified the box office’s health, up 15% over the same period last year.  With year over year total consumer spending flat during the holiday weekend, the box office’s growth proves that consumers continue to value movies as an affordable form of entertainment.

2. The Average ticket price will increase at twice its historical growth rate, around 4-6% in 2010.

Over a dozen 3D films came to the market in 2009 and there was not enough 3D equipped theaters to meet viewer demand.  The prolonged credit crunch has reduced the rollout of both digital and 3D theaters in 2009.  However, increasing liquidity and the high success rate of 3D films will prompt theater owners to accelerate the rollout of 3D screens in 2010.  As the number of 3D productions increases along with 3D theaters through 2010 and beyond, theater owners will enjoy increasing ticket prices – 3D fetches a $3-6 ticket premium on average.  With only 6,500 – 7,500 of the 38,990 domestic screens boasting 3D capability, there is certainly room to grow.  Regal CEO Amy Miles affirmed my prediction in Regal’s Q3 earnings call.

3. Big budget films will dominate the production spend, but independents will show the highest aggregate return on investment.

There is an increasing budget disparity between studio films and independent films.  This is the result of a decline in the number of studio films produced, combined with increases in marketing spend for those properties.  This creates a void in the market, exposing the opportunity for independent filmmakers to position their films as viable investment vehicles, while studios strive to recoup astronomical budgets.

4. The movie marketing revolution will accelerate throughout 2010, rendering marketing spend far less important than marketing strategy.

From Paranormal Activity to District 9, 2009 proved that creating buzz around your film is far less a product of budget and far more a product of strategy.  Each of these films had no A-list talent.  Each of these films had no mass-marketing budget.  Each of these films was a massive financial success.  Today’s low-cost inbound marketing methods allow savvy filmmakers to find the audience that is actively seeking their films.

5. Animation will remain the golden ticket – pun intended .

No film investment has shown more consistent positive returns than one made in a computer animated films, period.

Below is a clip from KCRW’s recent interview with Up director Pete Docter.

 
21 seconds – Listen to the full interview

Is Smart Money Targeting Broadway?

During a difficult economy, the weak dollar and star talent has fueled a successful year on Broadway. Signs point to a bright year ahead.

Broadway:

• Contributes $5 billion a year to the New York economy
• Supports over 44,000 jobs
• Ticket sales for the first 6 months of this season are steady at $481 million
• Attendance is expected to surpass last year’s 12 million people

10-Year Individual Investor Rate of Return

The September issue of Registered Rep contained an in-depth analysis on how devastating the last 10 years have been for the individual investor.  Registered Rep’s research concludes that the average return over the last decade for individual investors was 0%.

“…We estimate that long-term real (adjusted for inflation), actual (after taxes, fees and market timing) returns for the average investor, to be around 0 percent.”

To put that in perspective, since 1871 the average 10-year rate of return for the S&P 500 index is 7.4% (inflation adjusted).  As institutional investors continue to leave the film industry and the foreign pre sales market continues to decline, the film industry’s business model is going to vastly change.  Today, filmmakers are scrambling for financing, relying more on soft money from tax credits and individual film investors than ever before.  Yet even with the market’s 50% retracement from the bottom, the film industry derives little benefit.  Although financing from soft money mitigates downside, in a market that champions liquidity, film is perceived as a risky asset allocation.

Strong Figures For The 2009 Summer Box Office

The Summer is make or break time for the studios.  The period between May 1st and Labor Day typically accounts for 40% of the year’s total box office revenues.  With the U.S. coming out of an economic recession, the premise of film as a recessionary resistant industry has been tested yet again.  According to Paul Dergarabedian of Hollywood.com, 2009 summer box office ticket sales totaled a record $4.25 billion, beating the previous record of $4.2 billion set in 2008.

Does box office revenue measure the health of the film industry?

While domestic revenue from ticket sales climbed about 2% at the Summer box office, attendance dropped 2%.  Over the past decade, movie theater admissions have been relatively flat, hovering around 1.4 billion.  Increasing ticket prices to achieve revenue growth has been an ongoing trend.  Looking forward, 3D and Imax will comprise a larger portion of box office admissions and ticket prices will continue to increase.  However, box office revenues and theater attendance are just indicators.  Profit is the only measurement of health.  Paul Dergarabedian makes some points on the subject below in an interview with KCRW’s The Business.

 

 

Does lower theater attendance matter?

Because movies are so much cheaper than their entertainment alternatives, tickets have a high degree of price elasticity (click image to enlarge).  As better theater experiences from 4K digital screens, to 3D and Imax proliferate, ticket prices will continue to increase.  And unlike television, the film industry is not solely predicated on viewership.  The degree to which attendance is a factor hinges on production costs.  Bottom line, all that matters is profit – how much did the film cost and how much did it make.

Institutional Investors Changing Independent Film

In the last post I wrote about how the dynamics of the film industry are changing. Stars are no longer a reliable predictor of financial returns for film investors.  Return on investment today is far more predicated on a film’s marketability.  However, the predominant factor that I believe will influence the film industry over the next few years is capital availability.

Throughout 2006 and 2007, Hollywood received a large influx of capital from Wall Street hedge funds and investment banks.  The recession has prompted this institutional capital to shift their asset allocations to more liquid investments.  Asset allocation is how investors divide capital among different asset classes like stocks, bonds, leveraged buyouts and venture capital.  Film is an illiquid asset.  Because films do not trade on an open market, investors have little to no liquidity once an investment is made.   Furthermore, the lack of a market mechanism prohibits film investors from determining the exact value of an investment.  This increases the risk perception of film investments as well as the return expectations.

I believe the rebalancing of asset allocations among institutional capital will result in two broad impacts for the film industry.

1. The number of films produced by MPAA studios will continue to decline.
2. The disparity between studio and independent budgets will grow.

The reason that institutional capital left Hollywood, and why I believe it will stay away for a few years, boils down to two elements: liquidity and the rebalancing of asset allocations.

Institutional investors favor liquidity
Liquid assets like stocks and bonds are more conservative because they have efficient markets of buyers and sellers that determine the exact value of assets.  In addition to liquidity, markets allow institutional fund managers to determine the performance of their investments on a daily basis.

Redemptions are causing institutional investors to rebalance their asset allocations
The economic crisis created a panic among investors and brought on a wave of institutional redemptions.  This forced institutions to sell their liquid assets to meet redemptions, causing billions of dollars to flow out of the capital markets.  The result was the contraction of institutions, particularly hedge funds (many hedge funds have merged or gone under).  Because of the sell-off, illiquid assets now comprise a larger proportion of institutional investment portfolios.  This has and will continue to result in the decline of investment in illiquid assets.

The argument to refute my first point is that studio film production will not decline because film is a recessionary-resistant industry that tends to outperform in economic downturns.  I agree that the film industry has historically outperformed in bad times.  However, as institutional capital shifts asset allocations to more liquid investments the result is that instead of investing in Miramax’s fall film slate, institutions will simply invest in Miramax’s parent company, Disney.  This preserves liquidity while maintaining an entertainment investment pure-play.  In return, Disney will focus on maximizing intellectual property, resulting in a decrease in the number of films produced and an increase in film budgets.  Studios will narrow their focus to generate the highest returns on the most marketable properties.

Institutional asset reallocation is the crux of my second point.  I believe that asset reallocation will result in a budget disparity because less institutional capital will be available for independent films to be financed.  However, that does not translate to a decline in the production of independent films – it just changes the model.  New distribution channels are creating opportunities for low and ultra-low budget independent films to generate attractive returns.  The emerging viability among low and ultra-low budget indies will likely result in growing popularity among individual film investors.

Only time will tell if my theories become a reality.  It is certainly a tough time to raise capital, but that should motivate filmmakers!  Change always sparks innovation.

Who Is Today’s Biggest A-list Star?

In an economic downturn the green light turns red as many projects get sidelined.  The projects that do progress often move forward with smaller budgets and many concessions.  In this time when even the stars’ quotes are getting slashed in half, the question is not “Who is the film industry’s biggest star?”.  The question is “What is the film industry’s biggest star?”.  The answer, marketability.

In today’s climate, marketability is the single most important element in raising capital.  Few A-listers command audiences like they did in the past.  In the last two years there has been a growing trend of stars failing to open movies.  As the New York Times recently reported, “A-list movie stars have long been measured by their ability to fill theaters on opening weekend. But never have so many failed to deliver…”

Viewers today are much more focused on original stories with identifiable characters.  Comic book movies are perhaps the best example of this.  You can argue that most of the comic book movies have massive budgets and star casts, but that is not why they have been so successful – Disney did not buy Marvel for $4 billion because of their big-budget, star-powered films.  Disney bought Marvel for their intellectual property.  Comic book movies are filled with compelling characters that appeal to broad markets.  Disney bought Marvel because Marvel is marketable, and now Disney is sitting on top of a mountain of original stories.

Stars may be A-list to the public, but not to investors.  To investors, money is the only measure of star power.  So long as the public is not filling theaters for A-listers, marketability will remain the biggest star.  While this does put independent filmmakers on a more even playing field, the macro picture for film financing suggests a cloudy future – more on this in the next post.

Film Distribution & Identifying Strong Markets

There are a number of viable strategies to use when seeking distribution financing.  The most attractive packages are built around the fundamental elements of a great script, strong cast and talented filmmakers.  However, the one critical element that is often overlooked by filmmakers but never by distributors is the strength of the market.  Generally, distributors would rather take a good film supported by a strong market, than a great film and in a choppy market.  So how do you find identify the strong markets? Use the past, present, future approach.

• Past:  Take a stroll to the video store and see what films are getting the most shelf space.  Note which distributors are putting them out.
• Present:  Mind the numbers, they never lie.  Keep a record of which films are making money over a six-month period.
• Future:  Look at the production pipelines of the MPAA studios.  Studios are like mutual funds, they seek and exploit strong markets and are easy to follow.

Top Five Film Financing Problems

New York City filmmaker Ted Hope posted a fantastic blog (or utterly depressing depending on how you look at it) last month titled 30 American Independent Film Problems/Concerns.  The list below contains the top five as they relate to independent film financing.

1. Too many films available and being distributed to allow films to stay in one theater for very long, making it more difficult to develop a word of mouth audience.
2. Reliance on large marketing spend release model restricts content to broad subjects (which decreases films’ distinction in marketplace) and reduces ability to focus on pre-aggregated niche audiences.
3. Collapse of International sales markets requires reduced budgets for filmmakers, and thus resulting in limiting content.
4. Collapse of US acquisition market requires reduced budgets for filmmakers, and thus resulting in limiting content.
5. Bootleggers have developed a platform that allows audiences to simply download whatever they want where ever they want whenever they want — something that the film industry has yet to do.  (This is a contributing factor in the demise of the DVD market – something that pushed many independent films in the black.)

Next Page »