Domestic box office seeks relief in the Ides of March


As the April edition of FJI went to press last Friday, March really needed a hit. Last year it was The Hunger Games, the year before it was Rango, and the year before that it was Alice in Wonderland. March hits are kind of like its weather, though—unpredictable. Last year the top three March releases collectively earned $758 million. In 2011, though, the top three only tallied $285 million. 2010 was good year, with the top three totaling $618 million. So March is fickle, but so are Wall Street analysts. Analyst Eric Wold of B. Riley Caris recently downgraded the ratings of Carmike, AMC and Cinemark from “buy” to “neutral,” sending their prices sliding downward.

Wold’s main reason for the downgrade was the weak opening of Jack the Giant Slayer, which should have been a bright spot after six weeks of so-so openings (with the exception of the February smash Identity Thief). He now predicts there will be a year-over-year decline of 15% in the first quarter of 2013, instead of 10%. The March 8 release Oz the Great and Powerful opened to a robust $80.2 million, easing some of the current anxiety, though it's unlikely it will approach the huge success of the same producer’s Alice in Wonderland.

The unfortunate thing is that the downgraded ratings have nothing to do with theatres themselves. As exhibitors say time and again, it's all about the product. If there are good movies, people come. Theatres can dial up the experience with great service and presentation, but without great movies, people stay home.

Now for the good news. Wall Street analysts only care about the next quarter, not the long-term future of the business. This may be a comparatively tepid March, but what about the summer and winter ahead? Or the amazing lineup of recent Oscar Best Picture nominees, most of which earned over $100 million at the box office? In the wake of so much change, whether it's day-and-date on-demand releases or digital projection, the exhibition industry has been holding strong, and a few disappointing movies aren't anything the industry hasn't seen before or won't see again.

Proof of Piracy’s Impact
Piracy is often attributed as a reason for low or declining theatrical and especially aftermarket revenue (see X-Men: First Class). But so far, it's been difficult to enumerate its impact. Every so often, a movie bombs at the box office, like Kick-Ass, only to become a "top ten most pirated” movie once it's available as a free torrent. Would such a movie see greater success if free versions weren’t available? Piracy is undoubtedly costing Hollywood money, and for the first time, a study is seeking to prove it.

Following the shutdown of the torrent site Megaupload in January 2012, 12 countries experienced a 6-10% increase in digital movie revenues, according to a study by two researchers from Wellesley College and Carnegie Mellon University. In the study, "Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales," they were able to determine that countries with higher usages of Megaupload, such as Spain, experienced greater upswings in their digital movie income in the 18 weeks following the shutdown (the period of the study). This finding in particular is the most statistically noteworthy. While it’s possible that the market as a whole rose 6-10%, this data helps establish that the increase was not due to market fluctuations but causation.

A few things to consider. One, just because Megaupload shut down didn’t mean that torrents weren’t available elsewhere. Many consumers probably just switched to another free torrent provider. But some didn't. "Why didn’t consumers just switch from Megaupload to some of those sites?" the study's authors, Brett Danaher and Michael Smith, asked in an accompanying blog post. "We think a more productive view is that competing with free (pirated) content is just a special case of price competition... Some consumers would be willing to buy through legitimate channels if content in those channels is more valuable than the 'free' pirated alternative." They cited "reliability, ease-of-use, and convenience" as potential reasons why a consumer might pay for content instead of choosing another free torrent provider.

Another thing the authors don't mention is that just because someone watches a movie for free doesn’t mean they will pay to rent the same movie. Most of the time, people know what movies they want to see, and will try to see them through whatever means possible.

However, a lot of movies fall into a middle category. People will watch them, but only because they’re free and they have two hours to spare. Anyone who has ever flipped channels and ended up watching a sup-par show or movie can vouch for this phenomenon. One million downloads of a pirated movie might only translate to 250,000 legal rentals of the same movie. If Hollywood wants to convince legislators to pursue anti-piracy statutes, more data like this would go a long way towards demonstrating that shutting down torrent sites can make a difference.

Seeking Alternatives
“Alternative content brings in many people who might not otherwise come to movie theatres very often. It is a great opportunity to remind those infrequent guests that seeing a movie at a theatre is the best way to experience film entertainment.” That comment from Marcus Theatres’ Carlo Petrick is just one of many valuable insights FJI gleaned from a special survey of exhibitors you’ll find on page 37 of this edition. Executives from Carmike Cinemas, Cineplex Entertainment, Digiplex Destinations, Goodrich Quality Theaters, Malco Theatres and NCM Fathom Events joined the discussion of their experiences with new forms of programming at their cinemas. Several acknowledged the challenges of attracting and cultivating audiences for these diverse special-interest attractions (often playing for one performance only), but most seemed gratified by the responses they’ve been receiving for their efforts. (Cineplex’s Pat Marshall says Metropolitan Opera fans have been known to hug theatre managers after witnessing a great broadcast.) The opera has been a smash hit in this arena, but other forms of programming are catching on too: sporting events, concerts, drum-corps competitions, and digital screenings of movie classics. Alternative content still has a struggle ahead, but it looks like it’s here to stay. And the more inroads it achieves, the closer cinemas will come to round-the-clock, seven-day-a-week entertainment centers.