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March 14, 2007

Some Data Challenging the "Box Office is Dead" Hype

Not to beat a dead horse but I wanted to follow-up on my post yesterday where I stated yet again that the hype that the domestic box office is dead or dying is off base.

Here is a link to the annual domestic box office performance since 1980 courtesy of BoxOfficeMojo.com. Several things jump out when you look at the data. First, a slowdown in growth beginning in 2003 is evident in both total box office and tickets sold. Second, 2005 was a really bad year. I am going to ignore the data that shows the cost to produce a film has risen much more rapidly than the domestic box office revenue. I'll address that in another post focusing on studios as opposed to theatres.

These highlights suggest that some of the bearish hype over the box office is warranted. However, I think several other factors are worth noting. Most importantly, the last few years aren't the first time the box office has slumped. 1985/86, 1990/91, and 1999/2000 each were back to back years where ticket sales fell. Growth picked up following each of those downturns....

Another key point is that the 2004 performance was boosted by the huge numbers from Passion of the Christ. Passion brought in $370 million domestically, finishing third in 2004 behind Shrek 2 and Spiderman 2. Several attempts to tap the same religious audience since Passion have failed miserably. This past holiday season Apocalypto and the The Nativity Story which grossed $50 million and $37 million, respectively, were both considered major disappointments.

For the sake argument, lets' remove $325 million and 50 million tickets from the 2004 box office on the theory that Passion was a one-time item. The box office decline is 2.8% instead of 6.1% and the tickets sold decline is reduced to 5.8% from 8.9%. I'd further argue that despite its R-rating Passion had a below average ticket price since it was very popular among Christian families and there were many reports of Church groups arranging buses to take people to special showings.

If you accept my passionately argued theory, then 2004 becomes just another bad year. Not meaningfully worse than the 1990/91 slowdown or the lousy year in 1985. You still have a pattern of slowing growth but you wouldn’t have the consternation over the box office that exists because you wouldn’t have had all the articles in the Hollywood press and major newspapers and magazines throughout 2005 and 2006 talking about the death of the box office.

I'll be the first to admit that box office growth might be slower in the future than it has been historically due to digital downloads, home theatres, and alternative entertainment. However, the box office isn’t dead and it isn’t dying. It just isn’t as healthy as it used to be. Not a lot different from a lot of other businesses, a lot of us, or the US economy. And it leaves plenty of room for correctly capitalized companies that return cash to shareholders, such as Regal Entertainment (RGC), to be successful investments.

Posted by Steve Birenberg at March 14, 2007 09:56 AM in Box Office