Saturday, January 9, 2010

Avatar Is More And Less Than It Seems

James Cameron's epic, "Dances with Smurfs," er "Pocahontas in Space," oh wait, "Avatar" is on its way to make astonishing amounts of money world-wide and domestically. Avatar as of this date has made 1.1 Billion in world-wide box office revenue. According to Box Office Mojo the figures are $393.8 million domestically and $781.8 foreign. This is serious cash. Why then, aren't studios desperate to sign James Cameron for another film? An "Avatar 2" or whatever he wanted to make? Jon Favreau with "Iron Man," Bryan Singer with "X-Men," and Christopher Nolan with "Batman Begins" all were quickly signed to sequels, with money thrown at them.

The reason for the "dog not barking in the night-time" is that Avatar is not expected to be that profitable, despite the gobs of money it is making at box-office. Part of the reason is the high cost, but the other is that the movie really is not poised to reap a home video and TV rights sales, where Hollywood makes most of its money. Avatar is however, important in that it points out how Hollywood can make a bit more money: by releasing movies in 3-D, getting marginally more money from box-office receipts, and re-issuing movies that already exist in 3-D.


First, the cost of Avatar is reported by the Financial Times as $430 million, for production and US marketing. This makes the movie one of the most expensive ever made. Foreign marketing, including likely assistance for foreign exhibitors, who are financially pressed, to install IMAX 3-D systems likely impacts quite a bit of the otherwise impressive foreign box office (do note, that Avatar has about a 2-1 ratio of foreign to domestic receipts, an interesting point itself). It is likely that the net result is a lesser amount than the 40-45% range assumed for foreign box office grosses, when either "give-backs" or assistance in installing IMAX 3-D systems are included. Avatar netted approximate $57.75 million to the studio opening week-end (studios keep about 75% of the opening week-end box office) and about $158 million thereafter domestically. Avatar probably did less than $312.7 million net to the studio from foreign receipts. That should still be somewhere south of $528.47 million, so why aren't studios lining up to throw money at Cameron? Likely, real receipts from foreign box office are far less than even 40% of the $781.8 million currently reported. And things are not looking up for home video sales.

The Daily Beast reports that Avatar is showing on 3,600 screens, with 2,200, or 61% of them, 3-D IMAX. The 3-D IMAX tickets are about 36-40% more expensive than the ordinary movie tickets. This means that while the movie is popular, it is not as popular as people might think. And sales of home video, and TV rights, are still a mass-popularity game.

Edward Jay Epstein, author of "the Big Picture" maintains that Hollywood makes about 18% of its profits from theater box office, and 82% from home video (both sales and rentals), and TV rights sales (foreign and domestic). These also have much lower marketing costs, as well. In many cases, Studios use the theatrical roll-out as merely an extended marketing campaign for the DVD and pay-per-view releases.

Well, what of Blu-Ray? After all, the format is far more expensive, with say, "the Hangover" listing at $35 for Blu-Ray and only $29 for DVD. That's 20% more. Shouldn't "Avatar" on Blu-Ray be a natural sale? Making lots of money? Video Business reports that Blu-Ray for 2009 accounted for only 10% of home video purchases. Obviously there is a recession on.

To really enjoy Blu-Ray, you obviously need to pay (at least 20%) more for the Blu-Ray disc. You then need a Blu-Ray player (which list from $200 and up, though they can be discounted), and then of course, a Hi-Def TV. Those can be pricey, still around $500 and up. Though again careful shopping can find discounts.

If consumer incomes were rising as they were in the late 1990's, this would not be a problem. Hollywood would ride a wave consumer purchases of new players and high definition TVs to even greater heights of profitability. But it is not the 1990's. It is not even George Bush's economy. December job losses rose to 85,000 with the official unemployment rate at 10%, and the Labor Dept. "U-6" underutilization (those unemployed not looking for work, or underemployed) at 17.4%. This is in line with lower consumer spending for the Holiday season, with consumers purchasing mostly items on sale not spending as in past, pre-Recessionary holidays.

The economy is bad, and likely only to get worse. New health-care legislation (ObamaCare), Cap and Trade, Amnesty, are all likely to add new regulations and taxes on top of employers, making adding employees a pipe dream. Expansion that does happen will happen overseas, with fewer taxes and regulations. Due to population growth, the economy needs to add 1.9 million jobs every year. Since the onset of the December 2007 recession, the private sector employment which peaked at 115.8 million, has declined to 108.5 million. A loss of 7.3 million jobs, or around 6%. Public sector employment fell less than 1%, basically unchanged, at 22.5 million jobs. Most states are in severe budget trouble, with tax receipts tanking in ways not seen since the Great Depression. States are seeing double-digit tax revenue declines, contradicting the Obama Administration predictions of 3% growth for the economy.

With no wage increases and job gains in sight, and the economy terribly vulnerable to shocks, from oil supply (WTI and Brent Crude are both as of this writing above OPEC's $70-80 price band by considerable margins) to China, there seems little prospect of consumers rushing out and spending money on Blu-Ray players, Hi-Def TVs, and Blu-Ray discs. [The Financial Times is now comparing China openly to Dubai, noting that Tianjin has a development with buildings modeled after each continent, and an indoor ski slope, just like Dubai. Shanghai is filled with apartments and condos that are empty — wealthy Chinese lacking other investment opportunities and facing no property tax buy and hold luxury apartments. The skyline of Shanghai's residential districts are dark at night with empty buildings. This indeed echoes Dubai.]

Video Business again:

U.S. consumer spending on DVD and Blu-ray Disc rentals business rose 4.1% to $6.5 billion in 2009, according to Rentrak Corp.’s Home Video Essentials, which collects point-of-sale data. During the year, kiosk revenue grew 94%, with the Redbox-dominated channel approaching $1 billion in revenue, more than enough to offset a 3.2% decline in the bricks-and-mortar and online sectors combined.
Consumer sales of DVD and Blu-ray, in comparison, fell 13.7% to $12.2 billion, Rentrak estimates.


Redbox, the story notes, grew 94% (admittedly, from not very much to start with) in revenue for 2009. Clearly, consumers like entertainment cheap and convenient.

Which brings us to a wider point. Consumers over the decades have consistently chosen convenience, and cheapness, over high-quality sensory entertainment. In the 1980's, first cheap cassette tapes and then CDs won out over higher-quality vinyl, and the music machine of choice was the Sony Walkman and its imitators, not the high-quality home stereo. This followed over with personal CD players, and finally the Ipod and other MP3 players. People preferred music in portable packages, even if it meant giving up an immersive experience and superior sound. That the convenient packages were also cheaper, the Ipod really taking off when various models could be had for less than $170, was a bonus.

According to the Financial Times, Hi-Def TVs are less than 12% of the global market. See the picture below:


[Click Image to Enlarge]

This seems overly optimistic to me, as so far, the price point for adoption of new gadgets seems to be around $150 or so total cost. Apple's tablet device, whenever it reaches down to that level, is likely to be far more significant (given its rumored video capabilities) than fantasies of 3-D Hi-Def TVs, and ESPN's planned investment in a 3-D sports network. Consumers just don't have the money to spend, beyond that level. Unless consumer electronics companies can get the basic technology down to a very low level (i.e. a TV that costs around $150 and can play Hi-Def 3-D content with a built-in-player or high speed connectivity), 3-D at home is far away. People don't have the money.

What is potentially far more lucrative, is the technology Disney has, with "Keychest" that would authorize content to be streamed to any device, mobile phone, Ipod Touch, computer, internet-connected TV, and the like, from a central stored server. There, the technology is on the back-end, with compression and robust data networks not pricey consumer electronics being the key to content. Again, note the economics: mass-oriented content for cheap (this material is likely to be viewed on the equivalent of a Sone Walkman or Ipod for video) devices at cheap prices is likely to be the rule. The story of high-quality content devices and storage, such as Video Laser Disc, Mini Discs, and the like has not been a happy one compared to cheap and "good enough."

Avatar's true meaning is likely to be, instead of a rash of movies in 3-D IMAX, a few select movies in 3-D that eke out a few more dollars in extended, 3-D showings, that are a small margin for studios to transition (if they can) to the Itunes/Ipod world of cheap content anywhere, any time. Either purchased for cheap or rented even cheaper. With the "winner" whoever can provide consistently a high quality and low price mass entertainment line-up. A 3-D version of say, "the Goods" with Jeremy Piven is not going to save the movie industry, which faces a long-term decline in tickets sold (though this year had a partial recovery) and very high costs, with a few hits subsidizing the many failures.

Screenwriter William Goldman once observed that "nobody knows anything" with respect to profitability. Yet the golden age moguls, Warner and Mayer and did know something. Their movies almost always made money. Avatar might just be the last hurrah for the old-line Malibu Marxists before cheap, fast, anywhere, anytime media overwhelms their business model. Because it doesn't look like consumers will be shelling out $1,000 anytime soon just to watch a bunch of blue cats crossed with stilts, re-enact Pocahontas.

20 comments:

HUNGRY HUNGRY HIPPOS said...

A blu-ray drive for a pc can be bought for around 100$. The pc would need to be equipped with a cheap video card, probably around 50$, and a monitor capable of displaying 1900x1080, which is anywhere from 150-500+. I'm kinda surprised people even still buy high def TVs instead of simply using their computer monitors and hulu or similar websites.

Amateur Strategist said...

Appreciated analysis, but do you have any comments on the movie itself?

I saw it (against my will, I'm afraid), I was not impressed nor entertained.

Teresita said...

I used to stand in line for hours to watch the first show on the first day when Star Wars sequels came out (that first crowd is wild, it's a really different experience when you are surrounded by jubilant, appreciative fans). One guy at work said Avatar made Lord of the Rings look like the Teletubbies. I'm going to pass, because:

1. I have CGI burnout. Special effects which are mass-produced in a render farm of thousands of computers don't have the art and the charm of simple stop-motion work, like Ray Harryhausen in the Sinbad movies, or John Dykstra's model work in Star Wars, or Douglass Trumbull's optical tricks in Close Encounters.

2. It would be almost impossible to tell whether you were watching Avatar on DVD or a kid playing Avatar on X-Box.

3. The film is a liberal screed, Dances with Wolves in Space, a 3D powerpoint presentation of Obama's talking points that asks the audience to cheer the defeat of American troops.

4. Bad science. Unobtainium (standing in for oil) is a room-temperature superconductor that levitates in the presence of a magnetic field by being opaque to lines of force. Entire mountains of the stuff are floating in the air. But a magnetic field strong enough to levitate superconducting mountains is strong enough to stomp those steel US landing craft (used to attack the peaceful natives living in harmony with the climate) flat to the ground.

5. My girlfriend is working six days a week and the one day she has off she is not in the mood for the cinema ordeal of sticky seats, rude people, and endless pre-film commercials.

Anonymous said...

"I'm kinda surprised people even still buy high def TVs instead of simply using their computer monitors and hulu or similar websites."

...

Mil-Tech Bard said...

>Public sector employment fell
>less than 1%, basically
>unchanged, at 22.5 million jobs.
>Most states are in severe
>budget trouble, with tax
>receipts tanking in ways not
>seen since the Great
>Depression. States are
>seeing double-digit tax
>revenue declines,
>contradicting the Obama
>Administration predictions of
>3% growth for the economy.

The Obama Administration's economic and social welfare policies have caused a small business and big capital strike like FDR had in the late 1930's.

This is causing a tubing of state and local tax revenues so large that 2010 will see really massive lay offs in local and state governments and particularly education.

Massive lay offs that will be on-going in Nov 2010.

Hell_Is_Like_Newark said...

Someone gave my wife a pirated copy of Avatar. She wants to watch it tonight. I have no idea what quality it is. No matter.. I can't watch movies in 3D anyway (you need to be able to see out of both eyes, which I can't).

I think I will approach this movie like watching the "Day After Tomorrow". With enough scotch it becomes a comedy.

Whiskey said...

I hated the movie. Terrible. Typical Cameron simplistic liberal screed. Also a base libel on the US Marines, presented as monstrous murderers.

Hungry -- Most people lack your skills. They wouldn't even think of it. I know educated, professional guys who have a hard time rebooting computers.

TGGP said...

Avatar is not expected to be that profitable
I googled avatar film profits and found nothing suggesting that. Instead I found this. Investors appear quite happy with their investment, though on the other hand you wouldn't expect them to say something like "Boy was I an idiot for wasting all that money!".

Cameron has also confirmed that there will be a sequel. Earlier he was hedging that based on whether the first film was a success.

I have no plans to see it. Watching bad movies just encourages them to make more.

Pro-Male/Anti-Feminist Tech said...

@HUNGRY HUNGRY HIPPOS (and Whiskey)

The only real difference between a tv and a computer monitor now is the size of the screen. And a tuner, but since most people use cable or satellite the tuner is redundant and useless. If you want to have multiple people watch a movie, a computer monitor isn't going to cut it (at least if they want to be comfortable).

Otherwise there isn't a whole lot of a difference except for what the tv/monitor is connected to. For that you can get a HTPC so you can get hulu and the like. They day will come when people start giving up cable/sat tv for the internet just like many people have given up land line phones for cell phones.

Whiskey said...

TGGP -- a random comment to some guy is not the same as a signed deal. I would expect that if AVATAR 2 were a signed deal that FOX would be trumpeting it.

I mean, look at Stone vs. Cameron. Oliver Stone is a reputed coke-head and 100% difficult guy whose movies always never make money. Yet he keeps getting work. Cameron sits around for ten years not working (that's not getting PAID).

Whats up with that? The only thing I can conclude is that most of Hollywood believes he's likely to get them fired, and has no crony network to mitigate that risk. Heck one of the Wachowski brothers had the sex change operation and looks like a freak, a melted wax face. THEY got "Speed Racer" the movie.

Anonymous said...

I have no desire to watch Avatar.

The point of my post though is your William Goldman quote. There is a certain irony in that quote because Goldman knew what men wanted (which fits in nicely with your last article).

- Breeze

Anonymous said...

Who needs Blu-Ray with $100 USB bridge media players? They've been flying under the radar all year. The quality of 700 MB movie files is surprisingly good on HD TV's and most movies and TV shows are readily available on the interwebz if you know where to look.

Tarl said...

Also a base libel on the US Marines, presented as monstrous murderers.

Is there a scene where the Marines decide to take off and nuke the whole site from orbit, destroying a clearly important species? =)

Talk in the NYT today about China being a bubble about to burst:

http://www.nytimes.com/2010/01/08/business/global/08chanos.html?scp=6&sq=china&st=cse

TGGP said...

I think James Cameron's deal is that after Titanic he got full of himself and decided to goof around underwater. He's certainly not hurting for cash. His net worth is $150 million. The same site lists Oliver Stone at just $50 million. What was the last bomb Cameron made that got someone fired?

FilmoFilia claims "there is no doubt that 20th Century Fox would want to proceed with a second installment." It's just an opinion, but so is yours. Can you provide dates on how soon after release there were sequels announced for Batman, Iron Man & X-Men? Of course those were already existing franchises.

stratomunchkin said...

he very basic problem of this movie is that it totally disregards its own premise once they get to Pandora. Given the state of Earth, unobtanium (and yes, that is the mineral's name) is the savior of the human race. Among other things, it lets us get off the wrecked planet. And maybe make it less of a wreck. Fixing your power transmission and waste issues probably helps life on Earth. But the big one is that it plausibly let’s the human race leave by enabling FTL coms and effective .7c space travel. And energy-free superconductors are of course highly desirable on the spacecraft because it cuts your heat sink requirements dramatically and cuts your power requirements for running the ship. And you don’t get into the loop of having to cool the superconductor to save energy... yes, I'm a nerd.

In the scriptment, it’s also clear that Pandora is not the only resource exploitation area for a resource-starved Earth. RDA operates elsewhere and they would need .7c starships for those resources as well.

So "unobtanium" helps the energy situation on Earth, enables easier far-solar and extra-solar resource exploitation, and enables a chance for humans on a large scale to escape Earth if they find something that is either habitable or can be made that way.

The story should have been over a lot more than greed and I suspect that Cameron did realize that at one point or another in the 10 years of working on this. It’s probably not in there because it exceeded his storytelling grasp to still make Jake “right” in those circumstances.

The reason I say ignoring this angle is poor is because it lets you make some fantastic “bad” guys. Instead of a greedy corporation, you now have wide-eyed true believer crusaders. Doesn’t have to be all of them on planet, but it would be considerably more jarring to have a couple characters leaning this way. Some implicit reluctance given the stark situation – maybe they like the Na’vi – but absolute Knight Templar brutality and ruthlessness to get the job done because humanity is at stake.

It also would screw up the strawmanning by giving the audience competing rooting interests. Good book sci-fi would tend to do just this. Authors like Sophie’s choice situations like “two worlds enter, one world leaves.” To wit:

Humans: “We need to rip your planet apart to save our species.”

Na’vi: “The deposit is under our sacred tree, the flying mountains are sacred, and we’re not too thrilled about this whole ‘remove 20% of Pandora’s mass and ship it to your solar system’ long term plan either.”

Humans: “You’r right, that would probably be the end of your biosphere. We’re sorry for your loss.”

Na’vi: “….this is bad.”

Of course, this would make Jake’s choice to associate with the natives more asinine than it is and we can’t have the other side actually having a point. It would still be a much more interesting plot and require characters to make much more difficult choices.

Add to this the whole stupid Vietnam and 9/11 analogies plus the “noble savage” clichee (why Hollywood still clings to that one I just cannot fathom) and even from the POV of someone who is not an American (me) you get a movie that is preachy, anti-civilizational propaganda about living in harmony with nature made by people who have the luxury not having to do just that.

It’s also really bad and inconsequential story-telling if you think about it for more than a second. Just imagine what the Na’vi did just did:

How does eradicating a mining colony make it less likely that you’ll be burned down to the bedrock in the long run? Your stuff is still valuable, you’ve proven you’re unwilling to negotiate, and you’ve demonstrated you’re a threat on the ground... Hey, wow, the atmosphere’s on fire, and what’s that big rock…?!

Anonymous said...

Excellent post, munchkin.

As for watching movies on your PC screen, in my world (the real world), that's not gonna happen.

Anonymous said...

I already watch movies and tv on my pc if I want to watch it. No ads, its free and I've never been someone to get caught up on screen resolution.

- Breeze

Anonymous said...

"What is potentially far more lucrative, is the technology Disney has, with "Keychest" that would authorize content to be streamed to any device, mobile phone, Ipod Touch, computer, internet-connected TV, and the like, from a central stored server."

But what is even easier is to copyright-infringe the movie, watch it on your computer, decide it should be called "Dances With Smurfs" instead of "Avatar," and then post a snarky blog entry about it.

Like you say, consumers like convenience. Copyright infringement is awfully convenient.

"Dances with Smurfs" is going to be cracking me up all day. Heheh. "Dances with Smurfs," good one.

Sauropod said...

"Shanghai is filled with apartments and condos that are empty"

Business Week just ran a story about a city built by the Chinese from the ground up in the middle of nowhere. Lots of big new buildings, but nobody lives there. It's a ghost town.

I'm starting to think China may turn out to be a Potemkin village on a massive scale.

India's growth, on the other hand, seems like the real thing and should continue ... if they can avoid getting into a nuclear exchange with Pakistan.

"In the 1980's, first cheap cassette tapes and then CDs won out over higher-quality vinyl"

I take your point about consumers wanting convenience, but disagree that vinyl LPs offered higher quality than CDs. I was an early adopter of CDs, and from the start I thought they provided far better sound than vinyl. No more scratches, clicks, and pops. Plus, they were searchable and hard to damage.

Regarding Avatar, the film is obviously a big hit, even if its staggering costs mean that it will not be as profitable, on a percentage basis, as some other movies. And Cameron surely isn't hurting for opportunities. He's already announced that his next film will be an epic about Hiroshima. (Sadly, I predict a hit piece on America that ignores the military necessity of dropping the bomb, and also ignores the horrendous atrocities perpetrated by the Japanese.)

Mark Wright said...

I think the film is definitely a silly "Dances with Smurfs" ode to "noble savages," but all the claims that it's offensive to the military are way off base. Jake makes it extremely clear in his first scene on-planet that the troops on the alien planet are all Blackwater-esque Private Military Contractors who are there to exert force on behalf of a corporation.

Last time I checked, no one from Blackwater was a current member of the US Military. Nor do I think that mercenary killers for hire deserve the respect that active duty members of the military do. Even if everyone in Blackwater is a -former- member of the service, I still don't think that they deserve the respect of those who are serving their country. While I honor the duty they performed in uniform, the second you take off that uniform and start shooting people for profit, you instantly lose any claim to the moral high ground.