It's not me, it you

And in the slow tides of summer news, the box office fiasco/catastrophe/disaster/signal of a new era that represents the decline in receipts over last year has jumped to the front pages of news outlets everywhere. Peruse the Hollywood Reporter, the New York Times, the Los Angeles Times, and the Guardian Unlimited are reporting John Fithian's, head of the National Association of Theatre Owners, response to Robert Iger's recent statement that decning box office revenue supports the need for simultaneous theatrical and home video release of movies.

Made during a recent analyst call on August 9th, Iger said:

"I don't think it's out of the question that a DVD could be released in fact in the same window as a theatrical release, although I'm sure we'll get a fair amount of push back there from the industry…. I think that all the old rules should be called into question because the rules in terms of consumption have changed so dramatically."

Not surprisingly, but with very direct language, Fithian's response was mainly:

"I'm not sure who was asleep, but it wasn't the exhibition industry. Here's what we know about 2005: the movies are not as good. They're not terrible; they're just not as good. And so the industry has experienced a temporary drop-off compared with 2004, the biggest box office year in movie history." [Editor: emphasis mine]

Frankly, this is a really complicated issue. On the one hand, the movie theater experience is increasingly marred by high ticket and concession prices, preshow advertising, and general rude theater behavior. Of course, that is offset by a reasonable argument that the movies this year have generated less money because they have appealed less to the public. In fact, it's very similar to the problems in the music industry when falling sales were blamed on piracy and rising sales -- despite much press about better reviewed and received albums -- pegged to effective anti-piracy messages.

For theaters, the high concession prices and advertising are driven primarily by the need for profitability. As movies increasingly earn the bulk of their theatrical revenue in the first week or two of release, theaters receive a smaller portion of the box office grosses. The reigning split formula has the theater share increasing over each week of release.

To be fair to Iger, it is unlikely that he or the rest of the studios would abandon an almost $10 billion market unless it was shown that the profit earned from day-and-date releasing would be greater than that earned under the present system. It is clear that DVDs get a huge jolt in sales and awareness from the very fact that films are marketed -- for more than $35 million a pop -- in theatrical release. That is what has been driving the collapse of the video window: to capitalize on awareness, studios are releasing DVDs sooner to avoid repeat marketing spend.

So is all this drama really specific to current box office performance? Unlikely, according to this analysis from the LA Times:

The year-to-date gross total for this year stands at $5.57 billion compared with the $6.05 billion that had registered at this point in 2004. But of that $6.05 billion, $489.4 million was generated by the two indie phenoms, "Passion" and "Fahrenheit 9/11." Remove those two from the 2004 totals and the comparable gross-to-date would stand at $5.6 billion, nearly identical to this year's $5.57 billion.

However, it gives the studios a chance to frame a conversation that will tackle the impact of digital release and multi-platform availability ahead of the piracy woes that hit the recording industry. Times are changing soon and Iger appears to want to ride the crest of that wave.