High times for movie biz

Receipts and prod'n costs hit record heights in '07

It was up, up and away at the boxoffice in 2007. Boxoffice swelled at home and abroad — but so did the costs of making and marketing movies, which grew at an even faster rate.

Domestic returns from the U.S. and Canada hit a record $9.6 billion last year, a 5.4% increase over 2006, according to the final figures released Wednesday by the MPAA in its annual state-of-the-business report, which for the first time it compiled in partnership with Nielsen EDI. The figure represents grosses for all commercial releases in North America, not just those of the MPAA companies.

The story was much the same around the world as international boxoffice for all commercial moviegoing hit $17.1 billion, up nearly 5% from 2006. That brought the worldwide boxoffice total for 2007 to a record $26.7 billion. The MPAA companies' portion of that total international tally of $17.1 billion in grosses was nearly $9.5 billion.

"All in all, 2007 proved a healthy year at the boxoffice," MPAA chairman and CEO Dan Glickman said. "We had a very good year domestically," while the international returns were "also bullish."

But though more money was flowing into Hollywood, more money also was flowing out.

The studios' investment in the average movie's negative cost rose to $70.8 million from $65.8 million in 2006. And since the MPAA doesn't include the outside investment money that the studios now routinely solicit to co-finance many of their films in that calculation, the average production cost of a movie actually is substantially higher than that.

At the same time, the average marketing costs on a film rose from $34.5 million in 2006 to $35.9 million in 2007. As a result, the total average negative and marketing figure also hit a record: a forbidding $106.6 million.

The outlays on the part of the studios' specialty divisions were even more dramatic. While the divisions that turn out potential Oscar winners — such as Disney's Miramax, Paramount's Vantage, Universal's Focus and Fox's Searchlight — may concentrate on producing, acquiring and releasing "smaller" movies, in their case, small is a relative term.

The subsidiaries' average negative investment in 2007 rose to $49.2 million, while average marketing costs soared to $25.7 million. The total negative and marketing cost of the average specialty film soared to $74.8 million, up more than 54% over the comparable 2006 figure of $48.5 million.

Glickman contended, though, that those business decisions paid off last year in higher boxoffice returns — particularly for the big movies of summer.

In 2007, Hollywood saw 28 movies climb above $100 million at the domestic boxoffice — compared with just 19 the previous year. And at the top of the heap, four movies — "Spider-Man 3," "Shrek the Third," "Transformers" and "Pirates of the Caribbean: At World's End" — took in more than $300 million domestically, compared to just one, "Pirates of the Caribbean: Dead Man's Chest," that crossed the mark in 2006. It went on to gross $423 million.

But while Hollywood's biggest movies were, for the most part, bigger than ever, the film industry didn't actually get more Americans to go to the movies more often.

Actual admissions in 2007 were flat. The year's total of 1.4 billion admissions was just 0.3% above 2006's 1.395 billion admissions. And neither year challenged the modern-day record of 1.6 billion admissions set in 2002.

The fact that overall boxoffice grew by 5.4% was largely a result of an increase in the average ticket price, which the National Association of Theatre Owners said grew from $6.55 in 2006 to $6.88 in 2007 — an increase of 5%.

"The vast majority of that ticket price increase does correspond to inflation and rising consumer prices," NATO president John Fithian said. "Over 80% of that increase is just to keep up with the pace of inflation."

However, rising ticket prices also are beginning to reflect the growth of luxury theaters charging premium prices as well as the growing popularity of large-format and 3-D movies. "I can't quantify it, but some of it is reflected by a fairly rapid growth rate in luxury cinemas," Fithian said. And with eight to nine 3-D movies promised for 2009, further price increases could be in the offing.

At the same time, Fithian noted that inflation has outpaced the rise in ticket prices over the long term. For example, the average ticket price in 1977 was $2.23; in '07 dollars, its equivalent would have amounted to $7.63.

While the actual number of admissions didn't grow in 2007, neither did the number of films released in the U.S.

Overall, 590 new releases and 13 reissues hit theaters in 2007, on par with the 599 new releases and eight reissues that competed for moviegoers' attention in 2006.

But the MPAA companies — Paramount, Sony, Fox, Universal, Disney and Warners — did scale back their output. The majors and their affiliated subsidiaries distributed 179 new films in 2007, down from 203 the year before.

With production and marketing costs rising, majors like Disney managed risk by simply taking fewer turns at bat.

At the same time, non-MPAA companies — from larger players such as Lionsgate and MGM down to the smallest micro-indies — took up the slack. They flooded the marketplace with 411 movies in 2007, up from 396 the previous year. That number is likely to increase this year as such new outfits as Summit and Overture entered the field.

But as Fithian sees it, the problem wasn't too many movies but too many of the same type of movies crowded into the same release corridors.

"I think we had the right type and diversity of movies last year, but I don't think we scheduled them appropriately," he said, pointing to all the big titles released from May through August, while most of the more adult-oriented movies were reserved for the fall. "Instead of spreading everything out, we left April completely on the table," he said. "It was a great year, and a huge summer, but I think it could have been a $10 billion year."

The MPAA did discount one factor that Monday morning boxoffice quarterbacks have been quick to blame whenever the wickets register a downtick: competition from new media.

A Nielsen NRG study cited Wednesday by the MPAA found that the average moviegoer goes to the multiplex 7.9 times per year. But moviegoers who own or subscribe to five or more new technologies, such as PPV/VOD, DVRs, digital cable and DVD rental services, are even more reliable moviegoers. They leave their wired homes 11.4 times per year to go out to the movies.

Increasingly, moviegoers also consult the Internet about what movie to see. "I use the Web site RottenTomatoes a lot," Glickman offered in an unsolicited testimonial.

A study conducted by the MPAA and Yahoo found that 73% of all moviegoers consult the Internet before deciding on a movie. That's approaching the 75% who also get their movie info from TV and radio and way ahead of the 46% who rely on print.

Movie advertising is moving in that direction, too. MPAA companies spent 4.4% of their ad budgets online in 2008, up from 3.7% the previous year. Simultaneously, allocations for newspaper advertising fell from 10.8% to 10.1%.
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