Posts

Having just completed my short review of 'The Dark Knight' I realize that I'm not finished just yet.

What I really want to emphasize is the fact that the movie has generated over $155 million in tickets sales in just the opening weekend to take the record for the top grossing opening 3 day period. In the process it's also broken just about every other relevant record:

• Top grossing opening weekend for an IMAX film: $6.2 million
• Best opening day: $66.4 million
• Top grossing midnight debut: $16.9 million

All of these numbers are based on early estimates. Final numbers are due shortly. Also keep in mind that ticket price inflation must be taken into account. The average cost of a movie ticket this year is $7.08, compared with $6.88 in 2007. That's an increase of approx 3%. (By the way I paid $10.50 for my ticket, 30% more than the average - grumble).

We might ask ourselves what held the record previously. It was Spiderman 3, just last summer. Interestingly, this is exactly the same type of movie (and not even a particularly good one).

OK, how about the other top grossing movies this year? The top two are:

1. Iron Man: $314.4 million
2. Indiana Jones and the Kingdom of the Crystal Skull: $312.6 million.

In spite of these numbers we're still supposed to believe that the movie industry is reeling from losses due to piracy, It's completely absurd.

The fact is there are more entertainment options now than there ever have been. In the absence of a compelling movie to see the moviegoing public will find something better to do. Let's not forget that the moviegoing public is also the tv watching, video-game playing, internet-using, social networking, music listening, summer traveling, and everything else-ing public (oh yeah and the economy is in the shit and with higher prices nearly across the board including food, gas, health care, etc.).

But these are only the top performing movies. These record setting sales may not be the norm. It's true. Let's look at some of the other choices we have from the movie industry:

Mamma Mia! Space Chimps Meet Dave Hancock (which for anyone who didn't see it is absolutely abysmal)

The fact that anyone is willing to pay to see these movies is a testament to the strength of the business. The fact that fewer people turn out for them than the industry might like is evidence that we're not (yet) completely brain-dead.

What's even more important is that these numbers tell us are that the people who drive record setting ticket sales for movies are the same people who we're told are responsible for the piracy problem, namely 16 to 24 year old men (No offense intended to all of you Batman loving 30+ ladies out there).

If the powers that be in the industry would simply stop alienating their best customers and focus on making good movies, there is a lot more money to be had. What's more they'll be able to keep more of their profits simply by not pissing it away on ridiculous and unworkable DRM schemes, and other nonsense (e.g. PSA's shown before a feature in a theater about a carpenter who works on movie sets losing his job). Movie studio execs would be well advised to stop producing that sort of ineffective crap and invest the money saved in trailers and other promotion.

To be perfectly clear the message is this: There's $150+ million just waiting to to be claimed by a single movie on any given weekend in the US alone. All studios have to do is make a movie people want to see. It's as simple as that. And apparently there are plenty of talented people to make the movies.

While studios continue to cry poverty let's remember that U.S. ticket sales are just the beginning. These people will go on to make considerably more from global ticket sales, DVD and Blu-ray disc purchases, video games, merchandise, rentals, video on demand and download services, television rights, etc.

Here is a list of movies which have earned more than 200 million dollars in worldwide ticket sales at imdb.com.

The top 3 have all grossed more than One billion dollars US and the top 10 have all made at least $890 million.

7 of the 10 have come along after 2000, when presumably piracy has started to have a big impact on the industry.

I can't emphasize enough that these numbers are box office totals only and as such represent only a fraction of the total revenue generated by the movies. Yes, we must take inflation into account when when making comparisons across movies, but if when discussing profits the numbers stand on their own.

Consider for example "The Lord of the Rings: The Return of the King" which is number 2 on the list. At a cost of 280 million dollars, it was over budget by a whopping $70 million. But it took in over 1.1 billion dollars just from ticket sales. According to Wikipedia (I know, I know but this just a quick post and I'm not getting paid to do the research) the total income for the Lord of the Rings trilogy is estimated to be approx $6 billion dollars. That's 6 billion dollars against $426 million for all costs associated with making the movies (including marketing and promotion). That's a more than 1300% profit. Those numbers put the oil industry to shame.

Am I saying that piracy is ok? No, absolutely not. What I am saying is that the movie industry's supposed losses are for the most part imaginary. For example, there is no evidence to support the idea that the availability of movies on file sharing sites affects ticket sales (i.e. a causal relationship has never been established). It cannot be assumed that every download represents a real, measurable loss. It must first be established that the person downloading the movie would have paid for a ticket if the movie were unavailable online. Furthermore, we must somehow take into consideration the positive as well as the negative impact on ticket sales. It's conceivable that someone who would not have seen the movie otherwise will buy a ticket after having the opportunity to watch it partially or even in its entirety online. As evidence of this some number of people will pay to see 'The Dark Knight' in an IMAX theater after watching it first in standard movie theater. It's safe to say that quite a few people will watch the movie more than once in the same theater. These patterns suggest that the MPAA's assessment of losses due to piracy are overly simplistic. The surest measure of the impact of piracy are sales figures, and considering all of the other factors I've already mentioned, sales are extraordinarily strong.

Let's look at just one of these other factors, increased competition from video games.

Consider for the video game industry. I'm going to borrow some of the data presented by Sony at their E3 press event (just last week) to help me make my point.

The gaming industry has generated more than 6.6 billion dollars US in revenue in the first 5 months of 2008 alone.

It's estimated that revenue from the industry will reach more than 23 billion dollars this year.

What does this mean to the consumer? Well as a consumer I need to think about several platforms. Not considering PC gaming the current gen platforms are:

• PS3 - $400
• XBOX 360 - $350.00
• Wii - $250.00
• PSP - $170.00
• DS - $130.00
• PS2 - $130.00

All of these platforms offer exclusive titles so that in order for me to access all of the games I might want to play I would need to buy all of them at a cost of $1300.00. This of course is a gross underestimation because it does not include the cost of accessories. Still that $1300.00 represents roughly 184 movie tickets at the average $7.08 price per ticket. Also, keep in mind that we haven't factored in the price of games yet.

Year to date (through June) Sony has sold 1.8 million PS3s in the US at $400 a pop for a total cost of $720,000,000. They've also sold 1.6 million PSP, their portable system. At $170.00 each, 1.6 million PSPs have cost US consumers $272,000,000. Finally, the PS2 is still selling strongly with 1.5 million sold in the US for the first half of 2008 at $130.00 each for a total cost of $195,000,000.

Combined this is $1,187,000,000 in video games that consumers do not have to spend on movie tickets. It represents roughly 167,655,367 movie tickets at $7.08 a piece.

Again this doesn't include games. Let's simplify the math and say that each game sells for $40.00. In fact new PS3 games usually sell for $50 - $60 and PSP titles are $20 - $30. Let's say $40 per game for everything. If consumers buy just two games for each console sold (again I'm purposefully underestimating) then we are spending $196,000,000 just on Playstation games. Just like the hardware numbers this does not consider XBOX, Wii, and the DS all of which have done better since their introductions than Sony's platforms. So the actual amount of money being spent is considerably more than the numbers I'm listing here.

Of course Sony's goals are loftier than this. They have targeted sales for this year of:

• 09 million PS2
• 10 million PSP
• 15 million PS3

If these numbers are correct then we should multiply all of these numbers x7. So let's say $9,681,000,000 for software and hardware assuming just two games per system sold and no accessories or other associated costs and considering just Sony's products through the end of 2008. This represents loss due to competition of roughly 1,367,372,881 movie tickets.

Let's put it this way, since 1995 the Playstation brand has generated 50 billion dollars in the retail market. That's a lot of money spent on games. More to the point, that's a lot of money not being spent at the movies.

The market for video games is expanding aggressively. It is silly to pretend that increasing the amount of money spend on video games by tens of billions of dollars does not have an impact on the movie industry. The fact that strong sales and profits persist would seem to indicate that piracy is not significantly impacting the the movie business. Otherwise, after taking into consideration the impact of video games and other consumer product and service offerings (which like games play an increasingly important role in the lives of consumers), we should see a radical decline in sales.

It it certainly true that as a consumer I have only a limited amount of money to spend on entertainment. If I'm spending more on games today then I was a few years ago then I should have less to spend at on movies. This is just as true for just about every other consumer. If anything we should be amazed at just how deeply consumers are willing to reach into their pockets to spend.

The last point I want to make is that the industry needs to assume their share of responsibility for perceived losses. As ticket prices continue to rise, there will come a time, and I would argue that that time is already here, when the industry will begin to lose customers who are priced out of the market.

In conclusion, maybe the MPAA should quite with whining and stick to making with the movies so consumers can continue to throw their money at the movie studios, which is apparently what everybody wants.

Update 2008 0724 4:14p: Corrected a couple of typos and made some other minor changes which did not change the substance of the post.