In the late 1970’s Hollywood executives like Lew Wasserman saw the opportunity to hyper inflate the movie economy as a result of the releases of such blockbuster as JAWS and STAR WARS and began to re-invent the movie industry in order to enlarge it and put further studio controls into play. What they created in essence was like the real estate bubble. Bubbles could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future. In the case of the movie bubble, Hollywood’s integration into media monopolies coupled with relying on external source of funding, movies with a super inflated budgets and super inflated market expectations have resulted in a classic economic bubble. Like all economic market bubbles, they burst, and the movie exhibition business is going through one heck of a burst right now. Analysts will give you all kinds of theories regarding the decline of the motion picture exhibition business, but let me assure you the fault lies primarily at the feet of the motion picture studios, their owners the vertically integrated media conglomerates and secondarily your good friends and mine the major chains.
In the movie by Oliver Stone, New Orleans District Attorney Jim Garrison puts forward the theory that John Fitzgerald Kennedy, the 35th President of the United States was felled in Dallas by an ambush using the strategy of triangulated crossfire. In Stone’s JFK, David Ferrie played by Joe Pesci and Willie O’Keefe played by Kevin Bacon hold this conversation during a supposed meeting at Clay Shaw’s New Orleans mansion.
David Ferrie: I will kill! In the White House! Stab him in the heart! Somebody must get rid of him!
Willie O’Keefe: You won’t get that son of a bitch!
David Ferrie: It won’t be long. That ****er will get what he deserves. It could be blamed on Castro, the country will want to invade Cuba. We just need to get him in the open.
Clay Shaw: Always some harebrained scheme. Let’s have some more champagne, shall we?
Willie O’Keefe: What about the Secret Service? The cops?
David Ferrie: If it’s planned right, no problem. They got close to De Gaulle. Eisenhower always rode in open top. We need three mechanics in three different locations. An office building, a high-powered rifle. Triangulation of crossfire, that’s the key. That’s the key. A diversionary shot gets the Secret Service looking one way. Boom! Get the kill shot. One man has to be sacrificed. In the commotion, the job gets done. The others leave the country.
Now whether or not there is truth in Stone’s film, I am not one to say other than it’s an interesting theory and a well crafted piece of cinema. I would have to put forward that the motion picture exhibition industry, especially the independent theatres are the victims of a similar plot. I would say that the decline of the movie theatre business was engineered and executed by the short sighted implementation of three actions imposed by the motion picture studios. These three actions as a defacto triangulated crossfire aimed at the theatrical exhibition of motion pictures. For dramatic purposes I shall call these actions….shooters.
Shooter One: The movement towards reduced windows.
The studios are consistently attempting to reduce theatrical windows. They feel the closer they can launch a movie on a platform they have full control over, the faster the income will flow into their coffers and the larger the revenues can be reported on their Quarterly Stock filings. Some studios are advocating day and date, which by the way is a ruse because what the studios really want to do is remove the exhibitors entirely from the equation and have platforms that they exclusively control. We see all the studios heading in this direction. They believe that movie going is archaic and takes away from their potential income. It is short sighted and does not make much economic sense, but the studios are only looking at the industry in three month cycles and no longer seem to have the bigger picture in mind. In the glory days of VHS, a window of 6 months existed and allowed each market to perform independently and perform well.
Shooter Two: The virtual print fee
When the studios imposed the change to digital projection there was a hidden agenda. In return for accepting funds from the studios in order to subsidize the acquisition of new DCI compliant digital projection equipment the theatres were forced to allow the studios and their VPF aggregators like GDC, Sony, and Cinedigm to hinder access to alternative content and to stall the growth of programming alternatives that the move to digital should have brought forward. Only the major studios in offsetting their deep investment in 35mm prints could afford to subsidize such a program. In other countries were the entry price for content owner access to digital conversion and the VPF far less restrictive as a result box office increased by up to 20% as a result of the inclusion of alternative and local content. With Hollywood producing less and less product, there is a vacuum not being filled primarily because of the barriers put forward by the VPF programs. There is a huge amount of content available. Prior to 1980, Anti-trust regulators would have hit this practice and hit it hard but not in today’s regulatory environment, the MPAA lobbies very hard and with great effectiveness. Lets face it Chris Dodd is a brilliant guy who works for a bunch of not so brilliant guys. Jack Valenti was no slouch either but not at all altruistic.
Shooter Three: Reduction in produced product
This year Netflix shall produce more movies than all the studios combined. In 2016 Netflix did $8 billion dollars in revenues and saw a profit of $187 million. That is a 2.3% profit, which is not great. Global theatres saw $38 billion in box office revenue, $11 billion of that was from the domestic box office here in North America. These are solid numbers… the problem is that much of the revenue increase crowed about by the MPAA is a result of an increased ticket price. What is odd is that it’s not that people do not want to go to the movies, it’s that Hollywood is purposefully is not producing enough intended product for the theatrical market….and when they do produce movies they have been diluted in order meet the demands imposed by the regulators in the Chinese markets. As a result the market in North America is being presented movies that do not speak to them. Now Hollywood has been bitten and bitten badly by this approach, and after having had 9% of their revenue skimmed off illegally by Chinese exhibitors and as well have had access reduced gradually by the Chinese regulators as part of a plan to reduce the global influence of the American studios. A trap was laid and they stepped right into it. The studios in their wisdom decided that better to produce fewer pictures which produced greater box office revenue. As a result of fewer picture being produced major filmmaking talent starts gravitating toward Netflix and Amazon. You cannot blame them folks have to work, even stars have balloon payments on mortgages. Hollywood has created a deep market vacuum but due to the VPF independent producers cannot take advantage of., in the meantime the multiplexes with six more more screens are finding it increasingly hard to get more product. The VPF’s have restricted access and now Hollywood in its infinite wisdom decides to consistently reduce output. The reduction of output is strangling revenue for the theatres, ignoring audience demand and market share and also laying the groundwork for the studios to attempt to regain control over revenues by launching Netflix like services of their own. Frankly they should look at Netflix’s bottom line….it ain’t that good. If there was a giant pop of gold under the video on demand rainbow I as a die hard free enterprise advocate could understand their action…but the gold just ain’t there.
The projector stops.
In the movie JFK, the Zapruder film is played as Jim Garrison puts forward his argument for the conspiracy. The projector is silenced and the audience is left to ponder the validity of the Garrison’s argument. In the breakdown I have just outlined, the conclusion clear, the exhibition industry is being purposefully eroded by the actions of studios no longer in the hands of showmen but the hands of accountants who no longer serve the American market place but only serve their Wall Street masters. It is a conspiracy or is it something else? In answering this I will reference a quote by journalist Peter Bergen,
“Incompetence is a better explanation than conspiracy in most human activity”
In an attempt to paint a proper picture of what is truly at risk, let me re-state some history. Last year I visited the Statue of Liberty, sitting on Liberty Island just south of New York. There was fog and a deep chill came off the water. The tour offered the option of stooping at Ellis Island, the landing point for most of the American immigrant population in the first half of the 20th Century. While the Statue was amazing and a true miracle of engineering and design, Ellis Island had the greatest emotional impact. Situated in Upper New York Bay,the island was the gateway for over 12 million immigrants to the United States as the nation’s busiest immigrant inspection station for over sixty years from 1892 until 1954.
Today over 160 million people can claim some form of family entry at Ellis Island. If there is one place that truly defines the American experience, it is Ellis Island.
Discovering ancestors that had landed at Ellis Island drilled home the knowledge that those that landed most of did so with fear, hope and a huge amount of courage. The open halls of main building of Ellis Island still echo this and when you walk into that main processing hall you are struck by history of hope that this place is drenched with. It is truly something worth seeing.
The 12 million that landed had many things but common to all was the dream to become Americans. The movies deeply helped in this process. For most of the 12 million , the easiest way in which they became familiar with this new land of theirs was through the movies. New immigrants could walk down Hester Street in Lower Manhattan, not too far from where they landed, past a cacophony of Italian, Yiddish, German, Slovenian and many other languages and walk into a movie theatre and begin to fall in love with their new country. Movie were crucial in developing the idea of an America in the 20th Century. The movies were school, travelogue and dream factory all rolled into one. In the movies lay the cultural foundation of modern America. In the darkness of a movie theatre this modern Tower of Babel became one.
Then one day the movie studios decided to purely by folly and a misplaced avarice devastate that cultural foundation. It is time to take it back.
