3 D Won't Save Hollywood from the DVD Collapse

The Financial Times reports that films without a broad audience, but made in 3-D, are flopping. The 3-D craze, indeed, may be killing Hollywood's effort to find a way out of the DVD collapse. Even films like "Eat Pray Love" are getting in on the merchandising business with handbags, t-shirts, necklaces, day beds, wines, and more featured in the movie sold on Home Shopping Network. Considering the fairly anemic gross of the movie's opening weekend box office ($23 million), as an indicator of interest, even the best-selling (9 million copies) Elizabeth Gilbert novel could not turn out the opening weekend box office of $31 million for "Sex and the City 2". Thus the futile search for new technology, and new "deals" to save the business model of Hollywood.


Ed Driscoll notes that the business of Hollywood consists of making "dark and edgy" material that does not appeal to audiences but Hollywood insiders. “Making something commercially successful and appealing to a broad public, like The Incredibles, is less likely to get a Rebecca Romijn look-alike to sleep with you than making dark, hard-hitting, critically acclaimed material like Million Dollar Baby,” the post quotes Michael Medved. That business model was sustainable as long as movies like "Rocky Balboa" brought in lots of revenue through DVD sales. Yesterday, I saw that very same movie on sale in the local supermarket for $6.99. The movie is four years old, being released in 2006. As the LA Times noted last year, DVD sales are collapsing, with films like "Indiana Jones and the Crystal Skull" that do well in box office but poorly in exit polls and word-of-mouth, under perform vs. say, "Iron Man" that retain audience affection. Films that pump up box office by mega-marketing don't bring in revenue anymore, with tight wallets and the loss of DVDs as a novelty. "Hancock" also under-performed, in DVD sales, vs. family films like "Madagascar" or "Wall-E."

The LA Times article noted:

Although studios are extremely secretive with DVD numbers, especially the figures involving conversion rates, I was able to study one studio list of the films that performed the worst, in terms of conversion from box office to DVD. It was a long list. Films that fared poorly included a host of year-end releases whose DVDs arrived this spring. They included such box-office hits as "Quantum of Solace," "Yes Man," "Seven Pounds" and "Saw V." The list also included a huge number of adult-oriented awards-season films, from "The Reader" and "Milk" to the Oscar winner itself, "Slumdog Millionaire."

To understand what this all means is to first understand how complicated it is to interpret the numbers from the DVD end of the business. For example, did "Slumdog Millionaire" have a disappointing showing in DVD because everyone who really wanted to see the film had gone to a theater? Or did it perform poorly because Wal-Mart, by far the biggest single outlet for DVD sales, especially with the demise of more upscale retail outlets like Circuit City, is not a hospitable home for an exotic specialty film? Even top-ranking studio executives admit that much of the DVD business is a mystery to them. I was on the phone with one high-level executive who insisted that the DVD business was down only 10% to 12% until he grabbed hold of a new study on his desk, skimmed the cover sheet and said, "Hmmm, I take that back -- this study says it's down 18%."

The problem is that studios have invested years in obfuscating their DVD profits, fearful that A-list actors and filmmakers would get wind of how much money was pouring in and want a bigger piece of the action. By Sunday, everyone knows what movies made in theaters -- it's a carefully monitored cash business. DVD has little of that transparency, especially with some DVDs being rentals, while others are sell-through purchases, making the numbers more difficult to quantify. When studios announce their opening day DVD numbers, they aren't actual sales figures--the numbers represent the amount of DVDs shipped to stores. The DVDs that don't sell get shipped back to the studio. The industry abounds with stories of studios who have warehouses full to the ceiling with DVDs that went unsold and were shipped back, left to rot in storage. 

Secrecy is still the order of the day. DVD numbers are so well hidden that when one studio chief was preparing a budget estimate for a British period project, he asked his home video people how many DVDs Focus Features had actually sold of "Atonement." He still doesn't know -- nobody in home video could come up with a good answer.

No one has any real answers about the DVD downturn either. Obviously the country's economic woes have played a role. The DVD business has long ago lost its novelty, so many consumers don't feel the need to stock up on as many new releases. Many consumers have turned to downloading and rentals, with Netflix in particular enjoying a burst of popularity -- a good thing for filmmakers, but not such a good thing for studios, who make a lower profit margin on rentals than sales. 

More recent news stories have estimated DVD sales slides to more than 25% from the prior year. This is not good news for Hollywood. Which is locked in to its model of making movies for itself, so the forces behind the "dark, edgy" movies can "sleep with a Rebecca Romijn look-alike" by getting accolades from their peers. Think about this: John Lasseter has produced for Pixar, hit after hit after hit, with movies that under perform vs. expectations or other Pixar films, still very profitable. Yet because he resolutely produces family fare, he has less power, prestige, and imitation than say, Quentin Tarantino or Oliver Stone, two writer-directors with not very many hits but a cult reputation for being "dark" and "edgy." Hollywood did not need to copy Lasseter, it had an easy stream of first Video Cassette revenue, and then DVD revenue. Which has now declined inevitably, as bad content, hurting wallets, and the end of DVD novelty brings the great Hollywood cash boom to an end.

Larry Meyers at Big Hollywood believes that the Netflix deal to acquire streaming video rights from Epix, the joint venture between Lionsgate, MGM, and Paramount, is a deal changer. The deal really is not a game-changer. Among other things, MGM is essentially a dead studio, with the value of "dead" studio Miramax's film library set during its recent sale at around $900,000 or so per movie. Lionsgate and Paramount don't release many films any more, not to the extent that say, Warners, or Fox do year in and out. The deal won't really transform Hollywood significantly, contra Meyers.

Because the biggest problem is not HOW people watch movies and television (serial) entertainment, it is WHAT is offered to them.

Consistently, people will pay (but not too much) for good, solid content. As the Financial Times graphic points out, family oriented animated films do well, "edgy" stuff from M. Night Shymalan or exploitation fare ("Step Up 3D") do not do well. Even if they are in 3-D. Which after all dates from the 1950,s and was famously mocked by SCTV decades ago as "Dr Tongue's Three D House of Stewardesses":



As the FT story notes:

Yet, a string of recent 3D films has stumbled at the box office, notably Cats & Dogs: The Revenge of Kitty Galore, which flopped, and Step Up 3D, which made less than the first two films in the dance series, both of which were released in 2D.

Hollywood studios like 3D because consumers have so far been willing to pay a premium to see the films. But with 3D tickets costing as much as 50 per cent more than comparable 2D films, analysts have expressed doubts about whether consumer appetite for the format can be sustained – particularly if the films are poor.

“The studios and theatres are overpricing 3D films and there’s too much of it out there,” said Richard Greenfield, an analyst with BTIG Research.

“They are converting all of their movies into 3D without any regard to quality.”

A US ticket for Cats & Dogs, which was panned by critics, cost up to 50 per cent more than Christopher Nolan’s Inception, which was released in 2D recently to great critical acclaim. Yet Cats & Dogs cost less to make than Inception and was only converted into 3D after production had finished.

“Why should releasing a film in 3D and having the audience wear 3D glasses cost more?” asked Mr Greenfield.

...

Proponents of 3D insist that it can be a powerful tool when used correctly. “It’s a tool for filmmakers and a premium entertainment experience for moviegoers,” says Rick Heineman, vice-president of marketing at RealD, which makes 3D projection systems for cinemas.

But other analysts say Hollywood is playing a risky game by betting on unwavering consumer enthusiasm for 3D – and for higher prices.

“The studios are guilty of short-term thinking,” says Brandon Gray, president of Box Office Mojo, which tracks film box-office performance. “They all jumped on the 3D bandwagon but they’re avoiding the real issue, which is their bankruptcy regarding storytelling.” [Emphasis added]

Patrick Goldstein at the LAT seems to think that Hollywood can stave off irrelevance by offering the theater equivalent of box seats and corporate luxury boxes found in Baseball and Football stadiums. Or that the real threat to Hollywood is people watching on IPads or phones, instead of DVD players connected to TVs or in theaters.

Hollywood has the ability to get paid, if it makes broadly accessible movies and TV series that people will pay to see, in one form or another. Jimmy Iovine believes bad Ipod earbuds and mp3 mixes are destroying the music business. Instead of, bad music that no one cares about to begin with. If you've heard one Lady Gaga techno mix, you've heard them all. Regardless if the sound is in full, CD quality mastering, or even analog recording, with great speakers or headphones.


“The people we work with spend hundreds of millions of dollars every year getting the sound exactly right.” But then, says Iovine, his emotions rising, much of what has been so carefully captured in the studio recording process has to be “dumbed down” or compressed by 20-25 per cent to be copied on to a CD, before being further compressed into an MP3 file format for playing on a computer or mobile phone with a sound processor likely to have cost just 50 cents. Sound quality is lost at every step of the process. “That’s like taking the Beatles master [recording] and playing it through a portable television,” he says with revulsion. Ramping up the similes, he points out that 80 per cent of 18- to 24-year-olds listen to music at home through computers whose speakers, typically, “make the helicopters in Apocalypse Now sound like mosquitoes”.

Bad sound, he warns, is destroying the music business.

Yet the Beatles made most of their sales, back in the era of cheap, tinny transistor radios broadcasting over mono (not stereo) AM radio. The richness and warmth of their music came out loud and clear, as did Elvis Presley's, or Buddy Holly's, or Frank Sinatra's, or Duke Ellington's and Louis Armstrong's music decades before them. Good music


Beats’ founders have ambitions far beyond headphones. “This is only the beginning of something huge,” Dr Dre claims. Iovine concurs: “Beats is a headphone now but it’s [also] an idea to fix the ecosystem of music.” Together, they intend to develop music’s answer to the Blu-ray disc or 3D movie, a premium technology that helps a business hurt by illegal downloading.

For most people, high fidelity in music went out with the hi-fi, sacrificed for the portability of the Walkman, Apple’s desirable iPods and the tinny MP3 format used by countless peer-to-peer websites, mobile phones and also-ran digital music players.

The music business did not suffer when people purchased mostly 45 rpm singles, cheap and ubiquitous, in the Presley-Beatles era. Musicians and labels still made money in the Cassette era, and then the CD era, as consumers left the "warm sound" of LPs for more portable and durable formats. Having music with you, was more important than great sound that was not portable.

The music business only came a cropper when bad content drove out good. Copying and making "mix tapes" was pretty rampant, and impacted sales. But enough good music remained even through the 1980's to make copying by cassette tape (and later CD recorders) a minor matter. It was only when U2 became the next generation of the Rolling Stones, a "legacy" super-group instead of an up and coming band, and Britney Spears, or Justin Timberlake, or utterly interchangeable rap stars became the dominant musical choices, that the music industry revenues fell apart.

The same thing is happening in the movie industry. As the music labels could not and would not find young musical talent with widespread appeal, instead choosing to create manufactured talent like Justin Bieber with appeal to pre-teen girls and their mothers, or variations of rap, so too the movie and TV industry wants the same thing: to appear "hard" or "edgy" or "hip" and create formulaic junk that few outside a group of "one quadrant" (say young women) want to see.

3 D movies won't save Hollywood any more than Dr. Tongue could. Deals for streaming won't save Hollywood, or doom it either. The key is always, content. If Hollywood makes movies that most people like, the studios will make money from them streaming them to phones, or IPads, or Netbooks, or whatever, as folks take entertainment on the go. If they don't, they won't. Simple as that.