Bloomberg Businessweek
By Michael White
Hollywood studio chiefs were all smiles after the Vin Diesel-Dwayne Johnson testosterone fest Fast Five kicked off the summer box-office season with an $86 million opening weekend on Apr. 29. That was Hollywood's biggest debut since November, when the seventh Harry Potter movie took in $125 million. Fast Five also helped shore up hopes for an end to the slump in ticket sales that's dogged the industry since Christmas.
"I think we've jumpstarted the summer," says Nikki Rocco, president of distribution at NBCUniversal's Universal Pictures. "I'm very enthusiastic about what the future looks like for the rest of the year."
Despite all the Tinseltown buzz, it may be premature to break out the champagne just yet. The industry is starting the key summer movie season—increasingly dependent on teen fare and expensive action and sci-fi blockbusters—about a half-billion dollars behind last year's cumulative box-office level. Through May 1, U.S. motion picture ticket sales were down 14 percent, and attendance was off 15 percent. Studios and theater operators will need a lot more outperforming openings if they are to resume making annual box-office gains after last year's slight drop.
The studios also need to keep theatrical revenues growing to counter the continuing decline in home video, long among the most lucrative of a movie-maker's revenue streams. That's one reason why Hollywood is so aggressively pushing 3D and IMAX widescreen versions of this summer's films; moviegoers pay $3 to $6 more per ticket to see those enhanced releases.
This year started with optimistic assessments from analysts, including Jeff Bock at Exhibitor Relations, who predicted that the industry's domestic box office (which includes the U.S. and Canada) would hit $11 billion in 2011, up from $10.6 billion in 2010. Underpinning those forecasts are a record nine summer sequels, including installments of Pirates of the Caribbean, Transformers, and the final Harry Potter film, plus new movies such as Universal's Cowboys & Aliens and Paramount Pictures' science-fiction flick Super 8 from director J.J. Abrams. Bock is still positive, citing higher ticket prices from 3D and IMAX showings that have helped make up for a longer-term decline in attendance. "Prospects of $11 billion are good when you look at this summer's slate," Bock says. "If this isn't the biggest summer on record, there really is a problem."
Hollywood has generated $2.93 billion to date, vs. $3.47 billion at this time last year. Reaching $11 billion "looks possible," says Matthew Harrigan, an analyst at Wunderlich Securities. He says studios and cinema operators will need to outpace last year's record $4.35 billion summer season by about $500 million to eliminate the existing deficit by Labor Day. From there the box office will have to generate an extra $400 million in the fall compared with last year, when the holiday season was dragged down by clunkers like Yogi Bear and The Tourist. "It's going to be a challenge," says Mike Hickey, an analyst with Janco Partners. "You see a lot of franchises. You may have some fatigue."
Success at the box office is crucial because studios depend more on theater attendance since consumers are buying fewer DVDs. To adjust to the changing market, most studios closed their specialty divisions, which made smaller niche movies, several years ago and started making fewer, bigger films. That has made their bets on individual movies bigger—especially for sequels, where costs generally go up with each installment as stars demand more. Universal spent $125 million on Fast Five, adding Johnson to the cast, up from $85 million for the fourth Fast & Furious in 2009, according to Box Office Mojo. The last X-Men film in 2009 cost $150 million, double the $75 million production budget of the first one in 2000.
To make the summer gamble work, Hollywood needs to get consumers back into the habit of going to the movies—again and again. A major release is planned almost every week, from the May 6 debut of Thor, from Walt Disney's (DIS) Marvel Studios and distributed by Paramount, until the season ends with Shark Night 3-D, distributed by Relativity Media. A disappointing night at the movies can sour the public, says Jeff Blake, vice-chairman of Sony's (SNE) Sony Pictures Entertainment. "A slump continues because you can't sell the next movie off the current movie," he says.
Many studio executives think that momentum can be maintained this year because the summer releases include some of the biggest franchises in Hollywood's history. The first three Pirates of the Caribbean films averaged $346 million in the U.S. and Canada, and the seven previous Harry Potter movies averaged $287 million, according to Box Office Mojo. The year also will include at least 34 3D movies, the most ever. Some films, including Thor, will play in both 3D and IMAX. "Everything I've heard about the summer slate that we're doing, including the tracking data, makes me more confident," says IMAX (IMAX) Chief Executive Officer Rich Gelfond.
Theater owners have prepared for the onslaught of 3D films by more than doubling the number of screens equipped for the technology, to 9,609 from 4,001 a year ago, according to the National Association of Theatre Owners. Even so, competition for screens may limit the performance of some movies. Green Lantern, for example, an untested DC Comics-based film from Time Warner's (TWX) Warner Bros., opens June 17, followed by Disney's Cars 2 and Paramount's Transformers: Dark of the Moon. All will compete for those 3D screens. "It really is an embarrassment of riches," Gelfond says. "You'd like to have a little more time."
The bottom line: Hollywood will roll out big-budget movies almost weekly this summer in an effort to erase a $500 million box-office deficit so far in 2011.
