Wednesday, December 27, 2017

The Demise of Movie Theaters?

2017 = Projection
Many analysts have focused on the potential demise of traditional cable television service, given the pace of cord cutting and the rapid rise of direct-to-consumer services such as Netflix and Hulu.   Perhaps more attention should be focused on the fate of movie theaters in this new entertainment era.  The chart above shows that movie ticket sales  in the United States have been declining over time, having peaked back in 2002. However, revenue has risen from $5.31 billion in 1995 to $11.05 billion in 2017.   Movie theaters have driven revenue by raising average ticket prices.  

Average ticket prices have more than doubled in the past 12 years, outpacing inflation.   The average inflation rate equaled 2.18% during this period.  Movie ticket prices have risen by 3.31% per year.  Of course, movie theaters have driven additional revenue through the sale of concessions and the addition of meal and drink service in theaters.  However, one has to wonder how long movie theaters can make up for lost box office ticket sales by increasing prices.   Moreover, this new story from Bloomberg Businessweek suggests that Disney may gain leverage over theaters as a result of the Fox deal, and it may use that clout to extract more revenue from theaters.  According to Businessweek,

Usually a film’s box-office revenue is split evenly between exhibitors and the studio. But Disney previously has gotten theaters to hand over a larger share—sometimes more than 60 percent—on its biggest, most popular films, such as the Star Wars series. Now it could try the same tactic with Fox’s Avatar, which has four sequels in the works. “While the future of movie exhibition looks increasingly dim, a Disney-Fox merger will elevate its level of pain,” says Rich Greenfield, an analyst at BTIG LLC.

The notion that Disney could take a larger share of the box office revenue seems quite plausible.  Movie theaters would suffer additional pain unless Disney/Fox can reinvigorate movie production and get more hits into theaters.  Still, it seems unlikely that new hits will reverse the long term trend taking place since the early 2000s.  

1 comment:

Unknown said...

Interesting pattern in the graph, Mike. Caught my attention. Why has there been a significant uptick every 4th year? Could provide a clue to the solution.