Doomsayers Predict Death of Movie Theater

Imagine a time when a movie's opening weekend means long lines at the video store, not at the multiplex ... and when awards shows like Monday night's Golden Globes are honoring films that have been seen as often on a TV set as on the big screen.

That time may never come — and theater owners certainly hope it's nothing more than a futuristic fantasy. But after final numbers for 2005 showed the largest box-office dip in two decades and some filmmakers expressed interest in shrinking the window between theater, DVD and pay-TV release, the scenario may not be as far-fetched as it sounds.

Some doomsayers are even sounding 2005 as the death knell for movie theaters. But most agree the forecast isn't quite so gloomy.

“I don’t know that it’s the end of the movie theater, but it’s the end of the movie theater as we know it,” said Dade Hayes, author of "Open Wide: How Hollywood Box Office Became a National Obsession" and a senior writer at Entertainment Weekly. “There’s a lot of change that’s going to hit very, very soon.”

Movie attendance dropped by about 7 percent in 2005 in the sharpest slump since 1985, when it fell by 12 percent. Domestic revenues at theaters plummeted to below $9 billion — the lowest they’ve been since 2001 — after a $9.3 billion average over the past three years. And just 1.4 billion tickets were sold, the smallest number since 1997.

"This should be a wakeup call,” said Paul Dergarabedian, president of box-office tracking firm Exhibitor Relations Co. "It’s fair warning with plenty of time to fix things. If ignored, it’s at the peril of the entire industry."

The theater industry says cinemas aren't going anywhere, and people are being hasty in jumping to false conclusions after one bad year.

"It does get wearisome to hear the prophets of doom say we're on the way out, because it's just not true," said Kendrick Macdowell, general counsel for the National Association of Theatre Owners (NATO). "It's shallow thinking."

The downward slope was blamed on everything from a lackluster selection of movies, high admission and concession prices and an increase in video-game playing, to an overkill of remakes and the rise in DVD, pay-per-view and Internet film-viewing.

"There's no one reason for this slump,” Dergarabedian said. “This convergence of technology and culture, combined with so many options for entertainment, has created a pie with so many slices now. It’s tougher and tougher to grab a piece."

Early numbers for 2006 have been promising, however, with New Year’s weekend seeing a 5 percent increase in revenues over the same weekend last year and the second weekend in January experiencing a 9 percent spike over 2005.

"It's cyclical," said Macdowell of last year's downturn. "We are a mature industry, and we've had these cycles before. DVDs and home entertainment sales are not going to kill us if TV didn't kill us. We're going to survive and thrive."

Box-Office Jitters

Though theaters are downplaying their concern, they are worried — most notably about all the recent talk of shrinking or eliminating the window between theatrical and DVD release, and DVD release and cable's video-on-demand.

The window has already diminished in the last decade or so, from six months between theatrical and DVD release in 1994 to the current four months.

But this summer, Walt Disney Co. CEO Robert Iger implied that the day was approaching when movies would open in theaters and come out on DVD at the same time.

"I don't think it's out of the question that a DVD can be released in effect in the same window as a theatrical release," Iger told financial analysts in August. "Although I'm sure we will get a fair amount of push-back on this from the industry, it's not out of the question."

Iger added that he didn't think studios and theaters should try to prevent the public from getting access to movies, in whatever format or time frame they want.

"Consumers have a lot more authority these days, and they know that by using technology they can gain access to content, and they want to use the power that they have. We can't stand in the way and we can't allow tradition to stand in the way of where the consumer can go or wants to go," he said.

In a December interview with The Wall Street Journal, Iger also said the idea was floated to sell DVDs of "Chicken Little" in theaters where the film was playing.

Director/producer Steven Soderbergh ("Traffic," "Ocean's Eleven," "Erin Brockovich") is experimenting with simultaneous release with six films, the first of which is the forthcoming "Bubble," opening in theaters and airing on HDNet Movies on the same day, Jan. 27. On Tuesday, Jan. 31, it will come out on DVD, since Tuesdays are the usual release day for DVDs.

Mainstream theaters have refused to screen "Bubble" because they have a policy of not showing movies that are released simultaneously on DVD or cable. Only the 60-theater Landmark chain — owned by the film's financiers and distributors Mark Cuban and Todd Wagner — will take on the project.

Soderbergh called the movie industry "out of whack" in a fall Hollywood Reporter article and told the magazine that "the studio model has to be rethought."

His comments were lambasted by those who pointed to the low grosses on Soderbergh-produced films including "The Jacket" (2005), "Confessions of a Dangerous Mind" (2002) and "Solaris" (2002) as evidence that he isn't a savvy businessman and shouldn't be trusted with financial advice.

In addition to Disney, other studios including Twentieth Century Fox, Warner Bros. and Universal Pictures are currently pursuing plans to release DVDs at the same time a film comes out on video-on-demand.

The theater industry and box-office watchers say narrowing any of the release windows or getting rid of them altogether would spell disaster.

"To collapse the window would be devastating not only to the theater industry but to the movie industry in general," Dergarabedian said. "Rolling them out in different windows creates a value that they would not have if they were all rolled out at once. It diminishes the product. When Iger and those guys say that stuff, it's very chilling."

NATO's Macdowell believes the current business model is the best one, because it capitalizes on each phase of the process.

"You're talking about extracting as much money as you can from each successive stage of release," he said. "Each window creates its own incentive for people who can't get it another way. You maximize the profit."

Wave of the Future

But other industry insiders say that theaters need to be flexible and open to new ways of doing things in the current culture of rapid technological advances and entertainment-on-demand.

"There's a way for them to continue to be an essential part of the mix, but they do risk being made irrelevant if they don't change their ways," said EW's Hayes. "It's not inevitable that the window between theaters and DVDs will disappear, but theaters would be wiser to pay more attention and explore all the alternatives. With certain movies, it might be smarter to have a simultaneous release."

Talk of the shrinking window has exposed the deep-seated tension between studios and theaters, which are often at odds because of how a film's revenues are split.

Studios make a much higher percentage of a movie's returns in the early days of its theatrical release — sometimes as much as 70 percent to the theater's 30 percent — but the longer the film stays on the big screen, the more the theater profits.

DVD sales and rentals also produce a bundle for studios — so much so that a movie's theater release is now sometimes seen as an ad campaign for the DVD, and a DVD's release is an event in its own right. Last year, combined U.S. revenues from DVD sales and rentals totaled about $23.4 billion, more than twice that of box-office sales, according to Digital Entertainment Group.

Often, however, the studios' marketing focuses on a grandiose opening weekend rather than on staying power, which can snuff out the chances that a flick will stick around.

"All the dealings with studios are so contentious," Hayes said. "They're very, very longstanding rivals, but they need each other to survive. Theaters don't control their destiny because they don't control the product. They're just the conduit."

In the current competitive climate, cinemas are exploring ways they can keep luring audiences in. Answering complaints about cell phones going off during movies, the industry is looking into cell phone jamming and emergency-call-only technologies, according to NATO's Macdowell.

More theaters are also adopting digital projection. And in recent years there have been upgrades in everything from seating to sound.

Movie buffs like Dave Ebersole of Philadelphia, who hits the cineplex at least once a month, can't see theaters ever going extinct.

"Sometimes viewing a film with a community is more of an experience than watching a movie at home," said Ebersole, 26. "A DVD is a movie that was in the theater. Theaters legitimize things."

That desire to see a film in a theater, with a live audience, isn't likely to go away — especially since the experience can't be duplicated anywhere else.

"There's always going to be the need for the shared movie experience," said Hayes. "No matter how advanced home entertainment systems get, you're not going to have an 80-foot screen with stadium seating."

And Soderbergh and Iger aside, most filmmakers shudder at the thought of doing movies that will go directly to video or cable. Their canvas is the big screen, not the little one.

"If I can't make movies for theaters, I don't want to make movies," director M. Night Shyamalan ("The Sixth Sense") told The Los Angeles Times. "I hope this is a very bad idea that goes away."