Disrupting the Movie Business

Movie attendance and box office revenue have been stagnant in recent years.  The longer-term trend looks alarming, with author Edward Jay Epstein observing:

The regular movie audience has been so decimated over the past 56 years that the habitual weekly adult moviegoer will soon qualify as an endangered species. In 1948, 90 million Americans—65 percent of the population—went to a movie house in an average week; in 2004, 30 million Americans—roughly 10 percent of the population—went to see a movie in an average week.

Entrepreneur Mark Cuban, a pioneer of internet radio and HDTV, and owner of a movie chain is vexed by the issue, which he calls the holy grail of the movie business:

How do you get people out of the house to see your movie without spending a fortune? How can you convince 5 million people to give up their weekend and go to a theater to see a specific movie without spending 60mm dollars?

Cuban knows his movie business well and has not been caught in the classic traps of denial or of keeping a narrow view of the business.

But he lays out a public challenge to solve this problem. Cuban is offering to hire anyone who solves the problem. So far he has nearly 800 people chipping in online, including a few unexpected suggestions from other entrepreneurs such as ISP pioneer Robert Young, who suggests used ticket stubs could carry value as discount coupons to be passed on to friends.

Another idea is to give away up to half the seats to promote word of mouth. (ZD Net says Cuban's challenge is like a low-cost version of Apprentice, which is pretty innovative in itself.)

Let's look at the problem:

• Hollywood has a high-cost business model for making and promoting movies. Average budget last year was $96M, up 76% from $55M in 2000;
• The business depends on hits to bail out the losers;
• Consumers have other alternatives to entertainment, including TV since 1940 and  home-theaters in the past decade;
• New online entertainment alternatives such as the web, YouTube, video games, etc. are drawing consumers away from the big screen at a more rapid rate than early TV did.

I can't say that I have immediate complete answers.  But five questions pop up based on the disruptive innovation framework:

• What is the job that people are 'hiring' movies for when they go to the cinema?
• What are the barriers to the consumption of movies?
• Are there ways to eliminate or reduce some of these barriers?
• Are parts of the market overshot?
• Is there a simpler, lower-cost approach that appeals to a neglected or underserved market segment?

The first two questions appear straightforward and I will take a quick crack at them.  The last three questions get at the heart of the issue and I will attempt to address them over time. It would be a disservice to rattle of quick answers on those issues.

The job people hire the movies for:
The reason people go to the movies varies: Unattached teens want a better place than the mall to hang out. People on dates want an easy-access, neutral venue that gives two strangers something to talk about. Parents with kids want to have a simple night out to relive their dating experiences. Although these are all different, the common theme is by and large people are looking for 90 minutes of affordable, diverting escape.

Barriers to consumption:
In my view, time is the biggest barrier. People work longer. They surf more. They have increased responsibilities and other diversions all of which eat into potential movie time. Part of this may be associated with just getting out to the theater more than the actual length of the movie. With ticket prices rising and concessions upsizing, money is also a barrier for many people.

** Other Views **

Blogger Adam Kalsey says theaters should improve service to win back customers, with better food, assigned seating etc.: He adds: "The problem Mark Cuban is trying to solve is mass-marketing films isn’t efficient. In order to replace mass-marketing of films, studios need to replicate the successes while eliminating the problems. They need to build word of mouth, build mass awareness, and create interest among their target market.  Approach the mass market through some non-traditional advertising."

FirstShowing.net has an interesting approach to recreate the excitement of a Hollywood opening night, every night, something most theaters don't do: "Blame lies on the movie theatres themselves. They’re not advancing themselves in the way they should be by redeveloping their business models and reworking their business strategies."

TechDirt has a few comments on FirstShowing and the company's mission to improve theaters.

NPR interview with Edward Jay Epstein on the 55-year movie 'slump.'

The Smoking Gun has dope on average Hollywood budgets based on internal studio memos.

The Guardian examines 'Martian accounting' in Hollywood.

PC World interview with Mark Cuban on HDTV.

Comments

[Adam Kalsey]

Couple of corrections...

My name's Adam Kalsey.

I didn't suggest improving food service or having assigned seating -- people in the comments section on Mark's blog did. I pointed out that while improving the theater experience might result in some incremental gains in attendance, it wasn't the solution that Cuban was looking for. He wanted a complete disruption in the economics of movie advertising.