Marketing Costs Erode Studio Profits

Although the industry is booming, the major film studios continue to struggle.  Lower production costs have translated into a glut of supply.  Because of this, the traditional barriers to entry are eroding.  This hurts the studio model that for so long has relied on cost barriers to maintain control.

Increased supply means more competition to capture viewers.  This is why the film studios have continued to produce less projects and focus on maximizing intellectual property.  While this strategy appears to be working on the surface (ticket sales up 17.3% year-over-year,  attendance up 15.6%), it has not translated in to profits at the box office.  Increasing marketing costs have hurt the studios’ bottom line.  While the MPAA reported a 20% decline in films produced from 2007-2008, the LA Times reported that the average marketing cost for a studio picture has increased to over $36 million.

Furthermore, ancillary revenues are drying up.  Declining DVD sales are destroying the studios most important supplemental revenue source – one that often puts them in the black.   The bottom line is that the same increases in competition that may hurt independent filmmakers are definitely hurting film studios.  The competitive advantage for the independent filmmaker lies in profitability.  Independent films have more control over keeping costs low to maximize returns for investors.