The Bus

There's a fairly interesting article in The Economist right now. The highlighted part is what I'd like to discuss.



A world of hits

Nov 26th 2009
From The Economist print edition

Ever-increasing choice was supposed to mean the end of the blockbuster. It has had the opposite effect.



NOVEMBER 20th saw the return of an old phenomenon: the sold-out cinema. “New Moon”, a tale of vampires, werewolves and the women who love them, earned more in a single day at the American box office than any film in history. The record may not stand for long: next month “Avatar”, a three-dimensional action movie thick with special effects, will be released (see picture). This film’s production budget is reportedly $230m, which would make it one of the most expensive movies ever made. “Avatar” will be a great disappointment if its worldwide ticket sales fail to exceed $500m. Yet it is a reflection of how things are changing in the media business that such an outcome is unlikely.

There has never been so much choice in entertainment. Last year 610 films were released in America, up from 471 in 1999. Cable and satellite television are growing quickly, supplying more channels to more people across the world. More than half of all pay-television subscribers now live in the Asia-Pacific region. Online video is exploding: every minute about 20 hours’ worth of content is added to YouTube. The internet has greatly expanded choice in music and books. Yet the ever-increasing supply of content tailored to every taste seems not to have dented the appeal of the blockbuster. Quite the opposite.

This is not what was predicted by one of the most influential business books of the past few years. In “The Long Tail”, Chris Anderson, editor-in-chief of Wired, a technology magazine (and before that a journalist at The Economist), argued that demand for media was moving inexorably from the head of the distribution curve to the tail. That is, the few products that sell a lot were losing market share to the great many that sell modestly. By cutting storage and distribution costs, the internet was overturning the tyranny of the shop shelf, which had limited consumers’ choices. And, by developing software that analysed and predicted consumers’ tastes, companies like Amazon were encouraging people to wallow in esoterica. Such companies did not just supply niche markets—they helped create them.

“The Long Tail” set off a lively debate. Professors at Harvard Business School questioned whether many companies can profit from selling a little of a great many things. The supply of obscure films and music seems to be growing faster than people are discovering them. Harvard’s Anita Elberse argued in an article last year that only a foolish firm would shift its focus away from the mass market. People in the media business, who have to back their judgments with money, have a different view. In a sense, they say, both Mr Anderson and his detractors are right. At the same time, both are missing the real story.

“Both the hits and the tail are doing well,” says Jeff Bewkes, the head of Time Warner, an American media giant. Audiences are at once fragmenting into niches and consolidating around blockbusters. Of course, media consumption has not risen much over the years, so something must be losing out. That something is the almost but not quite popular content that occupies the middle ground between blockbusters and niches. The stuff that people used to watch or listen to largely because there was little else on is increasingly being ignored.

The strongest survive

Take American broadcast television. This is an industry in decline, albeit from an immensely profitable peak. The “big four” networks (ABC, CBS, NBC and Fox) have steadily lost viewers over the years as eyeballs have wandered to cable networks and, to a lesser extent, online video. Yet the top programmes are holding up well. In the 2000-01 season the most popular show on broadcast television, “Survivor”, was watched by 17.8m households on average. The leader in 2008-09, the Wednesday edition of “American Idol”, drew 16.5m. Less popular shows—fairly funny sitcoms and cheap reality programmes such as “COPS”—suffered far worse. Indeed, the further you look down the prime-time rankings, the more audiences have eroded (see chart 1).

The fact that the biggest shows continue to draw audiences nearly as big as their predecessors did may not sound impressive. But it has great commercial consequences. As broadcast television has lost audience share, its salesmen have convinced advertisers to pay more and more to reach a given number of viewers. They get away with this because broadcast television is still unchallenged as a mass medium. No other venue, including the internet, can guarantee an audience of many millions on a single evening. So a show that reaches 10m Americans today is worth a lot more than a show that reached 10m at the beginning of this decade. Simon Cowell, the star judge on “American Idol”, reportedly renewed his contract earlier this year for more than $100m over three seasons. He is probably worth it.

Or take music. Like broadcast television, recorded music is a troubled business. Sales of CD albums are declining thanks to illegal file-sharing and the rise of digital download services such as iTunes, which allow listeners to pluck out the best tracks. Yet hit albums can still sell well. In Britain, where album sales in all formats have declined by 18% since the 2004 peak, those of albums occupying the number-one spot have increased slightly (see chart 2). A recent analysis by Billboard, a trade magazine, found a similar trend in America. There, sales had declined across the board, but the hits were holding up best. Albums ranked between 300 and 400 suffered the greatest proportionate losses.

One possible reason is that the profile of music buyers has changed. Young fans, who are more likely to follow up-and-coming guitar bands and dance music, are highly likely to download music illegally. In 2008 Britons in their 40s spent more on pop and rock music than teenagers or people in their 20s, according to TNS, a market-research firm. As young people with more unusual tastes abandon music shops altogether, the market becomes skewed towards safe, established pop acts. One of last year’s biggest sellers was the cast recording of “Mamma Mia!”, which features songs by ABBA, a fizzy 1970s pop group. But this is not the whole story.

Offer music fans a virtually infinite choice of songs free of charge, and they will still gravitate to hits. That has been the experience of We7, a music-streaming service based in London which has 2.5m users. Only 22% of We7’s 4m songs are streamed in any given week, says Steve Purdham, who founded the company. The top 100 artists account for more than half of all streams. Users of Spotify, another ad-supported music service, are similarly unadventurous. Will Page of PRS for Music, which collects royalties for British songwriters, calculates that the most popular 5% of tracks on Spotify account for 80% of all streams. He is counting only the 3m tracks that were streamed at least once between February and July. Another 1.5m were not touched at all.

“People want to share the same culture,” explains Roger Faxon, head of EMI Music Publishing. Music is an intensely social medium, most enjoyable when it is discussed and shared with friends. Because choice in music—and, to an extent, other media—is collective as well as individual, it is hardly surprising that people cluster around popular products. And Mr Faxon cites another reason, having to do with the advent of online piracy. File-sharing has made virtually all music available for nothing. Yet it has not altogether stopped people from buying. Even enthusiastic pirates will still buy CDs of music that they love, in order to get the cover art or simply to express their devotion. And what people love, it turns out, are hits.




The tyranny of the hit

Although you might expect people who seek out obscure products to derive more pleasure from their discoveries than those who simply trudge off to see the occasional blockbuster, the opposite is true. Tom Tan and Serguei Netessine of Wharton Business School have analysed reviews on Netflix, a popular American outfit that dispatches DVDs by post and asks subscribers to rate the films they have rented. They find that blockbusters get better ratings from the people who have watched them than more obscure ones do. Even the critically loathed “Transformers: Revenge of the Fallen” is awarded four stars out of five. Ms Elberse of Harvard Business School has found the same of ratings on Quickflix, the Australian equivalent of Netflix.

Perhaps the best explanation of why this might be so was offered in 1963. In “Formal Theories of Mass Behaviour”, William McPhee noted that a disproportionate share of the audience for a hit was made up of people who consumed few products of that type. (Many other studies have since reached the same conclusion.) A lot of the people who read a bestselling novel, for example, do not read much other fiction. By contrast, the audience for an obscure novel is largely composed of people who read a lot. That means the least popular books are judged by people who have the highest standards, while the most popular are judged by people who literally do not know any better. An American who read just one book this year was disproportionately likely to have read “The Lost Symbol”, by Dan Brown. He almost certainly liked it.

This explains why bestselling books, or blockbuster films, occasionally seem to grow not just more quickly than products which are merely very popular, but also in a wholly different way. As a media product moves from the pool of frequent consumers into the ocean of occasional consumers, the prevailing attitude to it—what Hollywood folk call word of mouth—can become less critical. The hit is carried along by a wave of ill-informed goodwill.

These days it may travel far. Blockbuster films, long among the most international of media products, are now more so. The leading studios have beefed up their foreign-sales arms and learned how to market films that open at roughly the same time all over the world. Sony has done particularly well this year, pulling in more than $1.6 billion in ticket sales from outside America, a record for the studio. Big films such as “2012” and “Angels and Demons” have earned roughly twice as much in foreign cinemas as in American ones.

Hollywood seems to have exported the blockbuster model, too. Anil Arjun, chief executive of Reliance MediaWorks, reckons ticket sales for the top five films in India grew by 250% between 2004 and 2008. Growing professionalism and a multiplex building boom have lifted the market as a whole, but the biggest films are rising most quickly. In addition, the best Hindi films increasingly serve expatriates in London and California’s Bay Area.


“New Moon”, newly enthroned

Blockbusters are also reaching people in more ways. Peter Chernin, who recently stepped down from overseeing News Corporation’s film and television business, notes that technology does not just expand the range of products available. It also gives people much greater choice in how they consume the most popular ones. No longer must people go to a cinema or a video shop if they want to see a popular film. They can get hold of it as a video-on-demand, download it or stream it. “Hits are going to be the single biggest beneficiary of technology,” Mr Chernin reckons.

In short, just because people have more choice does not mean they will opt for more obscure entertainments. That is especially clear in the book trade. A study of the Australian market by Nielsen, a research firm, found that the number of titles bought each year (measured by ISBNs) has risen dramatically, from about 275,000 in 2004 to almost 450,000 in 2007. Niche titles selling fewer than 1,000 copies each accounted for nearly all the growth in variety. Yet their market share fell. In Britain, sales of the ten bestselling books increased from 3.4m to 6m between 1998 and 2008.

The bestsellers are gaining in part because of a change in the retail marketplace that affects other media too. High-street bookshops, which carry a reasonable selection of what publishers call “mid-list” and “back-list” titles—that is, modestly popular and somewhat out-of-date books—are struggling. Borders UK, owner of a British chain, is reportedly seeking a buyer for its stores. Such shops are being displaced by online retailers, which offer vast selections of obscure titles, and also by supermarkets, which sell a tiny selection of hugely popular books.

In newspapers, too, the leading outfits are faring best. The three biggest-selling American publications—the New York Times, USA Today and the Wall Street Journal—have all held on to subscribers better than the large metropolitan papers that comprise the second tier. That market also has a thriving long tail in the shape of small-town papers. This has less to do with consumers’ tastes than with advertising. The metropolitan papers are suffering because the classified advertisements on which they rely have collapsed under pressure from free listings websites such as Craigslist. Small-town papers also depend on classified ads, but they face less online competition. The nationals rely more on display advertising.

What is a media company to do? As sales become ever more concentrated, it is becoming both more urgent and harder to establish a foothold near the top of the market. A book or film that fails to attract a mass audience tumbles quickly into the depressed middle. To avoid this fate, should a company spread its development and marketing budget over lots of products, hoping that one or two catch on, or should it bet on just a few? The problem is especially acute in businesses like music, where money is tighter than ever and even the hits are not quite as solid as they used to be.

The joke answer, proffered by several executives asked these questions, is that media companies should simply churn out hits. This is less of a joke if a firm knows in advance what will prove popular. Of all creative media enterprises, Hollywood is the most confident of its ability to predict demand. Film studios carry out rigorous audience research and adjust production and marketing budgets according to the size of the group they are targeting. The studios have learned that stars are much less reliable generators of profits than films based on known characters and stories. That is why, in August, Disney agreed to pay $4 billion for Marvel Entertainment, a veteran comic-book and media firm that had filed for bankruptcy protection in the mid-1990s.

Above all, Hollywood has learned that bigger is better. Although small films can do astonishingly well (the latest is “Paranormal Activity”, a cheap thriller that has sold more than $100m-worth of cinema tickets in America alone), they do not do so at all dependably. SNL Kagan, a research firm, calculates that between 2004 and 2008 films costing more than $100m to produce consistently returned greater profits to the big studios than cheaper films did. With DVD sales slumping in the recession and outside financing hard to obtain, the leading studios are cutting back their output of films. But the cuts are concentrated at the bottom end. Studios have shut down or neglected their divisions that specialise in distributing low- and middle-budget films. None has sounded a retreat from big-budget blockbusters.

Hollywood is one of America’s most stable industries, with the same number of big studios now (six) as in the early 20th century. As both production budgets and risks soar it seems less likely than ever that an outsider will break into the club. On the contrary: the club may eventually shrink. The trend towards blockbusters is likely to suit the most successful studios, with the deepest pockets, the best marketing departments and the greatest ability to wring revenues from a hit by selling DVDs, television rights and toys.

Of course, not everything can be big. Complex political films; violent cartoons; English folk music—none of these things is likely to produce queues around the block. And a great many hoped-for hits fail: every media company puts out many more misses than hits. What to do with them? One answer, says Mr Bewkes, is to take advantage of the protective power of brands. Television programmes, in particular, do not compete for audiences on a completely featureless playing field. They are shown on channels that attract distinct audiences with different expectations. In the right context, a middling show can survive. “You let the strong brand carry the medium product,” Mr Bewkes explains.

Another way of rescuing less popular stuff is to charge more for it. In many media businesses it is an accepted principle that such products cost more. Specialist magazines are often expensive. Less popular books cost more than bestsellers, because the latter are discounted. Even television has a successful model for charging more for shows that a smallish group of people feel passionately about, in the form of premium subscription channels like HBO. Yet, with the exception of live screenings of opera and sport, film tickets all cost the same. This is one thing that could change.

But nobody knows quite what to do. The old-media world of limited choice, in which any product that was not too objectionable was guaranteed a decent audience, was a comfortable place. Pleasing a customer who can choose from several hundred films and television programmes even without getting up from the sofa, by contrast, is an unnerving prospect.

http://www.economist.com/PrinterFrie...ry_id=14959982

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The first point is obvious but bears repeating.

The second: I've always thought that a variable pricing model for theatrical films would be a good idea. There are certain films I would pay more for, and some I'd see if they were less. While matinées and 3D charges cover some of this, they are not addressing the market itself. Right now, spending more on a movie means buying merchandise, soundtracks, etc. How theaters are not trying to muscle in on this is beyond me.

I think the article gives some interesting insight into the state of media today.

sauce07

Didn't George Lucas want to charge a flat fee to see Episode 1 at one point, no matter what theater you went to?

al_bundy

the reason people like blockbusters is people like to go to the movies to escape reality, and to see a fun and light story line. people have enough problems in their lives that they don't want to be reminded of it when they go see a movie.

Groucho

Many blockbusters don't have a "fun and light" storyline. Titanic for example.

sauce07

20 highest grossing movies of all time

1 Titanic Par. $600,788,188 1997
2 The Dark Knight WB $533,345,358 2008
3 Star Wars Fox $460,998,007 1977^
4 Shrek 2 DW $441,226,247 2004
5 E.T.: The Extra-Terrestrial Uni. $435,110,554 1982^
6 Star Wars: Episode I - The Phantom Menace Fox $431,088,301 1999
7 Pirates of the Caribbean: Dead Man's Chest BV $423,315,812 2006
8 Spider-Man Sony $403,706,375 2002
9 Transformers: Revenge of the Fallen P/DW $402,111,870 2009
10 Star Wars: Episode III - Revenge of the Sith Fox $380,270,577 2005
11 The Lord of the Rings: The Return of the King NL $377,027,325 2003
12 Spider-Man 2 Sony $373,585,825 2004
13 The Passion of the Christ NM $370,782,930 2004^
14 Jurassic Park Uni. $357,067,947 1993
15 The Lord of the Rings: The Two Towers NL $341,786,758 2002^
16 Finding Nemo BV $339,714,978 2003
17 Spider-Man 3 Sony $336,530,303 2007
18 Forrest Gump Par. $329,694,499 1994
19 The Lion King BV $328,541,776 1994
20 Shrek the Third P/DW $322,719,944 2007

I say 15 of them could be considered fun

al_bundy

a lot of people died in 2012 as well and that had some drama. Titanic was mostly drama lite, and some cool AI of the ship sinking. otherwise it was a by the numbers movie with the usual formula

sauce07

Aliens were involved in the sinking of the Titanic? I need to go back because I don't remember that or the guy pulling a Murdoch

al_bundy

sorry CGI

how many of the movies you posted came out in the summer months of the year when blockbusters are released? the drama stuff is Christmas time. B and C level comic book movies are spring and fall

i think thanksgiving is big for kid/teenie movies. I seem to remember at least one Harry Potter movie coming out this time of year

majorjoe23

Are you kidding? I laughed like crazy when the evil Officer William Murdoch got his.

Groucho

I hated that character so much that recently, when I met Dwight Schultz, I spit in his fucking face!

Matthew Chmiel

The model already exists in various forms, it's just not properly used. Second-run theaters will be my first point I hit and than VOD as my second. Going with my first point, more modern second-run theaters now incorporating smaller, independent fare or films that studios didn't want to release but needed to give a theatrical run.

Using Las Vegas as my example, most films hit the second-run theater anywhere from two-to-three months after it's original theatrical release. There are some rare cases where it could be as quick as three-to-four weeks into it's release where I could go see it for a dollar (such as Cirque du Freak).

The trend that I've been noticing as well is that some independent branches have been releasing their films into second-run theaters right out the door in some markets. In Vegas, Apparition's Bright Star opened at the same time in both a first-run and a second-run theater. The same happened with Apparition's Black Dynamite which went right to the Beverly Center 13 in Los Angeles (a now second-run theater) whereas it opened in other first run theaters throughout the valley. I also remember the same thing happening last year with Warner's Chandni Chowk to China (which opened in Vegas in a second-run theater). In all these scenarios, you could see a film at the discounted second-run price.

To me, that's a steal as these are films that I'm more interested in seeing than most modern studio fare. At the same time, I'd pay more to see a film if it means I could have quicker and easier access to coming into my market. This is where VOD is seeing success when it comes to studios like Magnolia and IFC Films.

In the cases of Magnolia, most of their releases will be given a theatrical and VOD release at the same time. If you want to see it in a theater, you have your chance. If it's not playing anywhere near you and you have access to HDNet or now the Zune Marketplace, you can watch the film from the comfort of your television for a premium. While Magnolia hasn't done this with a film I've been interested in (like Let the Right One In which got a theatrical release in Vegas or The Signal which did not), it's still an interesting concept as you can pay to see a theatrical release inside the comfort of your own home. It's not the ideal, but for markets where independent fare is harder to come by, it makes it easier if one wants to see the film.

In the case of IFC Films, most of their releases wouldn't see the light of day outside of the major film markets of NYC and LA; so VOD is the next best option for those who have a desire to see one of their films.

Heading back to my first point on second-run theaters, I wish more people would utilize them. In Vegas, ours isn't in the greatest of areas, but it's catering specifically to those interested in film. Not only does it offer dollar movies, but it's selection sometimes caters to independent fare along with revival shows of older films (for a higher premium).

While I personally would like discounted shows at theaters besides matinee or early bird pricing (which I would love if a theater in Vegas started to do that like in other cities I've been to like Omaha, Dallas or Anaheim); I just don't see the theater chains going for that idea for quite a while.

Ash Ketchum

I sure miss the days of the second-run theater. There used to be tons of 'em in New York. But everything's a multiplex now and they're all showing the same films at the same price. And no double features. As someone who grew up entering theaters by walking off the street under a marquee through the entrance, right into the lobby and then into the theater, I get put off by having to take a series of escalators to get to a theater.

The Bus

We had a $1 theater around here as recently as The Nutty Professor (the last movie I saw there).

There is simply no second-run / discount theater around here. There's a second-run indie theater, but it's run by a film society and has two showings a weekend. If it was run like a real theater (meaning I could go and see a show tonight) I'd love it.

I like your examples Matthew: they're an indication of what could be.

Let's not forget too that Dreamgirls (upon its limited release) had higher ticket prices. If I were a theater, I would charge more for midnight shows on opening night. Maybe not for every movie, but if the movies are going to sell out anyway, why not charge more?

I'd love to take a look at the business model that big chains have with the distributors.

Drexl

They also are already essentially charging more for blockbusters now in some cases, since they're the movies in 3D and IMAX theaters.

naitram

Yeah new gimmiks like bigger screens and 3D mean higher prices. But I don't see how they could charge more for less-marketable films at this point. I'd think it would be the opposite.

dan30oly

Those are not the 20 highest grossing releases of all time.

Please post the adjusted for inflation list if you want to be accurate.
(I'm too lazy)

sauce07

I, just like hollywood, don't care about adjusted grosses

Hokeyboy

Unadjusted grosses are the only grosses that count.


And FWIW in 1997 the audience I saw TITANIC with rocketed out of their seats with applause when Murdoch offed himself. It was one of the most joyous cinematic moments of my life.

Solid Snake

Wouldn't it be like GWTW for highest gross if adjusted?

Supermallet

Top 20 highest grossing films of all time, adjusted for inflation:

1 Gone with the Wind MGM $1,450,680,400 $198,676,459 1939^
2 Star Wars Fox $1,278,898,700 $460,998,007 1977^
3 The Sound of Music Fox $1,022,542,400 $158,671,368 1965
4 E.T.: The Extra-Terrestrial Uni. $1,018,514,100 $435,110,554 1982^
5 The Ten Commandments Par. $940,580,000 $65,500,000 1956
6 Titanic Par. $921,523,500 $600,788,188 1997
7 Jaws Uni. $919,605,900 $260,000,000 1975
8 Doctor Zhivago MGM $891,292,600 $111,721,910 1965
9 The Exorcist WB $793,883,100 $232,671,011 1973^
10 Snow White and the Seven Dwarfs Dis. $782,620,000 $184,925,486 1937^
11 101 Dalmatians Dis. $717,405,900 $144,880,014 1961^
12 The Empire Strikes Back Fox $704,937,000 $290,475,067 1980^
13 Ben-Hur MGM $703,640,000 $74,000,000 1959
14 Return of the Jedi Fox $675,346,600 $309,306,177 1983^
15 The Sting Uni. $640,045,700 $156,000,000 1973
16 Raiders of the Lost Ark Par. $632,858,500 $242,374,454 1981^
17 Jurassic Park Uni. $618,957,900 $357,067,947 1993
18 The Graduate AVCO $614,402,600 $104,901,839 1967^
19 Star Wars: Episode I - The Phantom Menace Fox $609,049,300 $431,088,301 1999
20 Fantasia Dis. $596,252,200 $76,408,097 1941^

It's a pretty different list when adjusted. Interestingly, four Star Wars films and four Spielberg films make the cut.

d2cheer

Problem is that list is meaningless to Hollywood.

Unadjusted gross is the only list anyone goes by and the only one that matters.

Dr Mabuse

I believe that, inflation adjusted, 'Gone With The Wind' is still the box office king.

EDIT: I see Supr done already covered that.

dan30oly

Than you might as well say it's the top 20 movies since 1977.

Screw you if you care about movies before that as they don't matter.

Supermallet

I was just providing it for reference, as people were asking what the adjusted grosses were. I agree that the bean counters in Hollywood don't give a shit what the adjusted grosses are.

Ash Ketchum

This paragraph bothered me the most. They're basing this notion solely on an analysis of Netflix reviews. It doesn't seem to have occurred to them that maybe those of us who get the most pleasure out of the obscure films we've discovered don't even bother to go on Netflix. Netflix doesn't have the stuff I want, so why would I even go on that site to provide reviews? How do you measure the tastes and critical responses of those of us who function entirely outside of that system? I buy DVDs in Chinatown and I order others from CDJapan and YesAsia. And I even review stuff on CDJapan. But occasionally, I see Hollywood blockbusters in theaters. So I belong in that study in some way, but their criteria for research rules out any viable way of tabulating my responses to the mainstream releases I see and the obscure ones I purchase.