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Blockbuster $40 bn movie year belies poor health of theatrical release

Only the movie industry can bask in consistent self-congratulation, when all the indicators are that it’s future is far from certain. comScore this week used a headline which claimed 2017 was the best for theatrical box office revenues since records began at $39.92 billion.

While we are not doubting the 3% increase over last year’s revenue we worry that North American revenues are down, and that there is no “per showing” or “per seat” calculation. It is well known that in Asia-Pacific there are continuous build outs of new cinemas, whereas in the US there is, if anything a contraction of movie viewing locations, and less seats per showing sold. The only thing that has stabilized theatrical revenues in the US has been consistent increases in the seat price.

This is pretty much the same outcome as pay TV subscribers – Comcast, Charter and most pay TV operators are planning to put through subscription increases which are ahead of inflation for 2018. And yet this makes them more prone to cord cutting, as prices of OTT services continue to stay low, and any increase in the differential will accelerate discarding of pay TV contracts.

Cinemas cannot push prices ahead of inflation forever, and there will be a tipping point where they lose customers rapidly to OTT services (see our discussion on Netflix movies elsewhere in this issue). The only thing preventing this right now is that other “live” entertainment events which involve leaving your home, are getting ever higher in seat price.

But much the same is going on in Asia-Pacific, in that the more cinemas there are in reach of the public, the more that the revenues per seat available will fall per showing. Investment in new cinemas will plateau due to lack of ROI, and shortly after, revenues for the entire industry will begin an aggressive collapse.

This type of “it will never happen” headline helps no-one understand the process. Once it becomes impossible to run a cinema profitably in a given territory, then the global box office revenue will fall.

Internationally, or rather outside the US, the industry witnessed revenues of $28.8 billion during 2017. Given this is only 3% higher than last year, and taking away the effects of inflation, it’s not even an increase. When you realize that China alone is growing cinema screens ahead of their economic need, anticipating a theatre-going public.

In 2013 China had just 20,000 cinema screens but today it has well over 40,000, but the per seat revenue is low. Theoretically the 1.3 billion people, if they develop cinema going habits will allow this to recover and China only has 23 screens per million people. But box office takings per screen in China despite having overtaken the US last year in number of seats and screens, is less than half of the US.

comScore has in this report tried to pretend that North America numbers are holding firm, but in fact they went from $11.4 billion to $11.1 billion, a $300 million fall, against the direction of price rises. Given that more and more movie output is non-American, this must represent a significant fall in revenues for US made films, and a significant blow for Hollywood.

The top films included Disney’s “Beauty and The Beast” and “Star Wars: The Last Jedi,” as well as Sony’s “Spider-Man: Homecoming.” The prominent Chinese title was “Wolf Warrior 2.” The worrying thing is the number 2 in the title, showing that China is already addicted to sequels, based on Hollywood advice. comScore tracks attendance information from 125,000 screens in 25,000 theaters in near real time. There are roughly 166,000 Cinema screens in the world, with about 155,000 of them digital and some 115,000 in the top 10 countries with the US and China both on just above and just below 40,000 each.

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