Box Office Mid-Year Report: What's Worrying Hollywood

This story first appeared in the July 20 issue of The Hollywood Reporter.

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When Avatar opened in December 2009, the promise of 3D seemed boundless. A staggering 83 percent of its domestic gross came from 3D. Six months later, more than 56 percent of Toy Story 3's North American earnings came from 3D as families lined up in force to pay an extra $3 to $4 a ticket.

Fast-forward to summer 2012, and the slide in 3D attendance that began last year has gotten much worse. On Brave's opening weekend, 32 percent of the booty came from 3D, a record low. It wasn't much better for June's other animated tentpole, Madagascar 3: Europe's Most Wanted (38 percent). Across Hollywood, studio executives say the dips point to a sea change in habits that have left the first half of the year littered with heartbreak: Cash-conscious consumers are becoming more discerning about what movies they see, 3D or otherwise. "Prices are too high," says a studio distributor. "We've turned our business into appointment moviegoing, at least domestically. There's no more generic moviegoing."

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So why, with all the gloom, is 2012 domestic revenue through July 8 at an all-time high of $5.86 billion? The Avengers and The Hunger Games are a big reason, collectively taking in $1.02 billion in the U.S. and Canada. Dr. Seuss' The Lorax, Madagascar 3 and Brave are next on the chart -- even if more kids and parents are seeing them in 2D. Comedy also is breaking out, between 21 Jump Street and Ted.

But that can't make up for the out-and-out box-office carnage (John Carter, Battleship) and string of disappointments (Tim Burton and Johnny Depp's Dark Shadows, Rock of Ages, Abraham Lincoln: Vampire Slayer, Adam Sandler's That's My Boy, Sacha Baron Cohen's The Dictator). "There is no safety net left; the middle ground is gone. If you make a movie people don't want to see, there's no historical precedent that can save you from a terrible fate. You wake up one day and even Burton, Depp and Sandler aren't invincible. If people reject a movie now, it can be astronomically more severe," concedes one studio head.

Theater owners don't buy the argument that ticket prices are to blame for the box-office blues, invoking the common refrain, "It's the movies, stupid." While exhibitors aren't all wrong, there's no denying the cost of going to the multiplex has increased. In Los Angeles, an adult 3D ticket at AMC Century City is $17.75, while a children's ticket is $14.75 (both $4 more than the regular prices). Translation: A family of four will pay as much as $65 to see a film in 3D, and that's before concessions. The regular admission price is $49, still not cheap.

It can cost substantially less to see a movie in smaller markets; in Kansas City, Mo., AMC charges $11 for a 3D title and $7.50 for 2D.

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According to the National Association of Theatre Owners, the average ticket price is now $7.92, just off the all-time high of $7.93 set in 2011 and above the $7.89 posted in 2010. Fanboys appear more willing than families to fork over the extra dough to see a film in 3D or Imax (the large-format exhibitor is thriving), with The Avengers and Prometheus drawing a larger percentage of their domestic grosses from 3D than animated titles, even if at lower levels than before. And the continued appetite for 3D internationally -- and specifically in boom markets Brazil, Russia and China -- is making up for the damage stateside. In China, Avengers grossed $84 million, much of it from the more expensive format. Says the studio head: "3D doesn't have to justify its existence domestically to remain valid. The primary benefits lie across the oceans."

Sony vice chairman Jeff Blake agrees the middle ground is getting squeezed out at the domestic box office but takes a holistic view. "A lot of event pictures, including Amazing Spider-Man, are delivering around the world, as are comedies and adult dramas like The Best Exotic Marigold Hotel. I think you have a pretty healthy market."