Expected Rain on the B.O. Parade

After recording the two biggest single-day openings of all time with The Dark Knight and Transformers: Revenge of the Fallen (respectively), seeing new films such as Iron Man establish themselves as franchises, and witnessing seasoned sequels like Harry Potter show no signs of slowing, Hollywood has a lot to brag about as an industry today.


While totals for 2009 won’t be in for another couple months, the report from all of the six major studios back in January of this year was that they had either matched or surpassed their yearly box office revenue:

Ticket sales for the year -- Jan. 2, 2008, through Jan. 1, 2009 -- clocked in at $9.63 billion, ahead of the $9.62 billion earned in 2007. Admissions were down roughly 4%, far less than declines in other sectors of the economy.1

It’s this type of success that has prompted many experts to proclaim that the entertainment industry—and the film going audience in particular—is recession-proof; that even in a time when theater ticket prices continue to get steeper, the public is willing to hand over the $12 or so it costs to call a Friday night flick a form of escapism.

And all of that is great news within the industry, but big success at the box office is really only impacting a smaller section of the profitability pie. The single largest portion of revenue is earned through the home entertainment market where “DVD revenue accounts for about half of a film's income, with the remainder split evenly between theatrical receipts, both domestic and international, and television, both pay and free channels.”2

The truth is that Hollywood can’t deny (and would be smart not to neglect) that it is bleeding heavily in this very department thanks in large part to technological advances that have made copyright infringement harder to police in the States—and even more so in black markets overseas. So much, in fact, that some studios have opted to shut down production of DVDs intended for distribution in once-profitable foreign markets.

Celebrating B.O. dominance is always warranted, but the Hollywood studios are going to have to find a way to change their business model and stay out in front of the black clouds that have caught up with the majority of American industries. Check the forecast. The market is shifting away from DVDs that have been the standard for so long; our global society is constantly moving towards greater digitization and the studios should know well enough to recognize that purchasing physical technologies (read: discs) is rapidly going out of style.

Hollywood needs to do a better job of catering to that home market by addressing consumer interest to have the convenience of content when they want it and where they want it on a wider variety of media devices.