This post was first published on Passion For Cinema
The Wall Street Journal recently ran an interesting piece entitled, Plot Change: Foreign Forces Transform Hollywood Films.
The article discusses the growing importance of foreign box office sales for US film studios. More and more of their money is coming from international, rather than US, sales. In view of this, the studios are looking at ways to ‘internationalise’ their content in terms of themes, locations, actors etc. Studios are even steering clear of films that would be certain hits within the US but would have limited appeal globally. Perhaps an example of this is The Expendables, which is currently being advertised on PFC – global stars, global locations, simple to understand plot.
Going beyond the article, I wanted to illustrate some of the back ground of why this is happening. There are two reasons for many of the changes that are taking place in global cinema. A big reason, and a smaller reason.
The big reason is falling DVD revenues.
For a long time, DVD sales profits were a crucial component of film budgeting. They were very predictable (based on the box office sales the producer could estimate the dvd sales). DVDs also carried high profit margins for the producer as less money from DVDs than from cinema sales had to be paid out in royalties to cast and crew members.
The big changes that have affected the US DVD industry over the last 2-5 years are:
- Obviously piracy. As internet speeds increased, suddenly people could download a film as easily as they can download a song.
- Video on demand. The ability to order a film through your DTH provider to watch instantly on the tv.
- Cheap DVD rentals. America has services such as Redbox, which is a kiosk in supermarkets that lets you rent dvds for $1 per day. Or Netflix, which lets you order DVDs online for rental
- The recession. People with insecure jobs don’t spend money on DVDs
- Online Sales. People can now purchase films on Itunes and similar services.
- More selective consumers. While several films may release with similar box office results, the films that are poorly reviewed or receive negative word of mouth now see much smaller DVD sales.
The result of all this, is a drop in DVD sales of around 15-18%. This doesn’t sound like much, but since DVDs contribute so much to studio profits, this has a huge impact. Further, this is an aggregate figure – companies like Disney with their children’s dvds are faring much better, while studios with only adult award-oriented entertainment are faring much much worse.
As an example: MGM’s net DVD sales in the US fell from $140 mil in 2007-08 financial year to $30.4 mil in 2009-10 financial year. Sony Pictures has cut 1000 jobs in the last 18 months, which they blame on falling DVD sales.
Studios have realized that the increased revenue from Blue Ray, online sales, and rentals, is not going to make up for the drop in DVD revenues.
The smaller reason is that the global cinema industry is developing rapidly.
Look at the multiplex explosion in India for example. The same thing has happened in most other developing countries. Alongside this, the growing middle class around the world is more selective about the quality of what they watch, and the local film industries are producing a wider range of films in response. Many of the Hindi films released in Indian multiplexes over the last few years are closer in style and content to Hollywood fare than popular Indian cinema. Even within the US there is a growing market for international films – we have seen multiple Hindi films perform well internationally.
Previously people around the world would see Hollywood films for the big special effects blockbusters or if they wanted a ‘quality’ film. As developing film industries create the capacity to produce both of these content types, the relevance of Hollywood is challenged.
The WSJ has identified these two factors for the current Hollywood push to ‘globalise’ films, i.e. incorporate international stars, avoid films that are too US culturally specific. There are actually many other current phenomena’s that stem from these two problems. Three examples:
- 3D cinema. 3D films can’t be pirated and still don’t have a decent home viewing experience. This forces viewers to the cinema, where they are charged higher ticket prices.
- Compressed release windows. For a long time the industry has held to a series of ‘release windows’ Once a film released at the cinema, there would be a certain amount of time before DVD release, video on demand, cable tv, network tv. The downside of this was that the studios had to market the film once for the cinema and then market it again for DVD release. This was ok as the DVD revenues were great, but if people stop buying DVDs, the studios can’t afford to market the DVD release and will try to shorten the period between cinema and dvd release to maximize their marketing spend.
- International investment in film production. While some of the initial attempts at this in India were a touch disastrous (Saawariya, Roadside Romeo, Chandni Chowk to China), there have been some successes including Slumdog and MNIK. Developing markets are too important for Hollywood to ignore, and, considering the tiny DVD sales in these countries, it is important for Hollywood to look at what will find success at the box office, rather than just on DVD. Now that many of the big studios are actively monitoring Indian content, or have offices here, perhaps with local partners, their understanding of what will work here should hopefully improve over time.