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SVOD accelerating movie business decline?

US box office revenue 1996-2016

Netflix wants to help the movie business grow, but Hollywood is in no mood to change. In the meantime, Netflix is draining revenue from the movies and educating its members to storytelling in a different form. Can Hollywood afford to let this go on?

The war of words between Hollywood and SVOD

Netflix’s Reed Hastings does not mince words when talking about the movie industry. He believes it needs to innovate. Asked about his company’s relationship with movie chains, he quipped:

“How did distribution innovate in the movie business in the last 30 years? Well, the popcorn tastes better, but that’s about it.”

He went on to say that Netflix could help the movie business, in the same way that cable networks and online services have helped TV:

“What Netflix wants to do is to unleash film. It’s fundamentally about growing the movie business.”

It doesn’t look like the industry is ready to change any time soon, at least according to Stacey Snider, head of 20th Century Fox Film. Speaking at a movie industry event at UCLA she commented:

“Eventually I would imagine, I’m speaking as an observer, the studios will need to find their own platforms and create our own direct-to-consumer opportunities. It’s a vital conversation to be having, and we can all leave with saying that one-size-fits-all doesn’t work in today’s marketplace.”

Speaking at the same event, a panel of experts agreed that changes in how movies get to fans won’t happen anytime soon.

Can the movie industry afford to wait?

The U.S. box office struggles on

Things do not look great at the box office in the U.S. According to The Numbers, the number of movie tickets sold has hardly changed in 20 years. In 1996, 1.31 billion tickets were sold, and in 2016 1.33 billion were sold. Over that time, the US population has increased from 269.4 million to 323.3 million, a 20% increase.  Looked at another way, the average number of tickets purchased per person in 1996 was 4.9 and in 2016 was 4.1.

The revenue picture looks a little better, thanks to a rapid rise in ticket prices. Total box office has increased from $5.8 billion in 1996 to $11.3 billion in 2016. However, adjusted for the inflation things don’t look nearly as exciting. In 2017 dollars, the box office was $11B in 1996 and $11.3B in 2016.

$3B in movie revenue erased since 2014

However, the real problem for Hollywood isn’t box office sales. It’s the collapsing disc market. In 2013, physical disk sales in the US amounted to $7.8 billion, according to DEG numbers. In 2016, that has fallen 30% to $5.5B. Some of that revenue has transferred to electronic sales, which has increased $0.9 billion between 2014 and 2016. That still leaves $1.4 billion which has vanished from studio bottom lines.

Although not all the losses have been born by the studios, the collapse of the movie rental market has erased another $1.5 billion in revenue. The rental market for movies (physical and digital) has declined from $6.1B to $4.6B between 2014 and 2016.

In total, consumers spent about $3B less on movies in 2016 than 2014. What did all that money go? Every penny of it went to SVOD services like Netflix. Over the same period, SVOD revenue has grown from $3.2 billion to $6.2 billion.

The hidden damage to the movie industry

To be sure, the loss in movie revenue is painful. However, more damaging to the industry is the loss in time people spend watching movies. The truth is that people spend more time watching scripted shows on services like Netflix than movies. They are swapping time spent watching movies for a different storytelling experience. One that evolves over many hours, rather than in the 2-hour movie format.

If Hollywood allows this to go on consumers could end up preferring to watch Luke Cage on Netflix over many hours, to watching a Luke Cage movie in theaters.

Why it matters

Netflix says it wants to help the movie business grow. Hollywood and theaters are in no mood to play.

The movie business in the U.S. is facing stagnant box office revenues, and declining disc sales and rentals.

As well, people are swapping time watching movies for time with scripted shows.

Hollywood may need to change soon, or it may lose its audience.

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