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B.O. bashers and slipped discs

Studios A-OK on bigscreen, but shifts in DVD biz could have big H'w'd impact

This article was updated on June 5, 2005.

One of the summer’s hottest trends has become bashing the box office. Spurred by a 14-week (and counting) streak of down weekends, the media and Wall Street are claiming people have stopped going to the movies and offering all sorts of explanations, including the theory that consumers are so enamored of their DVD players that they don’t have the urge to get to the multiplex.

The clucking about box office proves show business is mostly a game of perceptions. And while various factions are debating the health of the film biz, they may be missing a much more important reality confronting the business: the DVD boom won’t last forever. Film executives, meanwhile, are not fretting that much about ticket sales: Though overall box office is down from last year, the money taken in by the Hollywood majors is actually up, and on a per-picture basis, their product is performing well.

“This isn’t 1950,” says 20th Century Fox co-chair Jim Gianopulos. “The box office is not the sole source of our revenue. People have developed habits to access our movies in different ways.” He adds, “It seems an inopportune time to be worrying about the box office.”

Indeed, Fox’s “Star Wars: Episode III — Revenge of the Sith,” racked up $279 million in its first 15 days, and the Memorial Day frame, with $232 million in total biz, goes down as the second- best frame in history.

But both groups — media and Wall Street on one side, and Hollywood execs on the other — may be missing the warning signs that Hollywood’s biggest revenue stream is also cooling off.

According to Variety sister publication DVD Exclusive, the once-explosive disc growth has slowed dramatically: from a 71% jump between 2001 and 2002, to the 17.5% advance this year. And this year’s growth would probably be in the single digits if it weren’t for the flood of TV titles hitting shelves — the fastest-growing segment of the homevid market.

Rather than worrying about DVDs siphoning off filmgoers, Hollywood honchos have come to depend on a geyser of DVD lucre — so far this year, U.S. consumers spent $8.42 billion on DVDs, nearly three times the box office take.

Double-digit growth still makes for a vibrant business, but it shows the market for the 8-year old format is maturing, just as VHS did before it.

Gianopulos, for one, isn’t flustered: “As far as we are concerned, it continues to grow at a pretty steady pace. To see sustained growth on a mature base is a great indicator of health.”

And the DVD market is beginning to emulate the box office dilemma of a few years ago, when studios realized that a film had only one weekend to make its mark. DVD sales fall precipitously after the first few weeks of release.

Despite the flattening DVD biz, studios more and more are counting on a torrent of disc revenue to get their pricier pics into profit.

Meanwhile, Hollywood is more than holding its own at the box office. Total year-to-date box office is down 5% this year: $3.25 billion vs. $3.4 billion, according to Nielsen EDI, but that’s due to one key factor: 2004’s “The Passion of the Christ,” which grossed $371 million after it was rejected by the majors and finally distribbed by indie Newmarket Films (which has been subsequently absorbed by Time Warner).

If one measures only the studios’ tallies in the two years, the majors and their subsidiaries have grossed $3.1 billion through Memorial Day — a 6.5% improvement over the $2.91 billion in the same 2004 frame.

Studio films, on the whole, are performing well (despite some misfires including “XXX: State of the Union” and “Kingdom of Heaven”).

Through the end of May, the 47 films released at 1,000 or more theaters have collectively grossed $2.5 billion. That’s down from the $3.15 billion last year.

But last year there were 60 wide releases in this frame. So the average this year is actually up to $53.5 million per pic from last year’s $52.6 million. And this year’s numbers are going to increase as the most recent releases complete their runs.

There have also been fewer clunkers. Before Memorial Day in both 2004 and 2005, there were 20 films grossing more than $50 million. That means last year there were 47 films that failed to get that far, while this year only 27 have been below that number.

Given all this, why has the mood been so glum on the box office front? The problem is the same as the DVD headache: All of Hollywood’s hype is coming back to haunt the execs.

Studios spend hundreds of millions to persuade the public that each film is the biggest and best-est thing to hit the silver screen, and then spend Sunday mornings twisting statistics into records: biggest four-day opening for a live-action children’s picture starring a British actor!

Witness last week’s sell-off of DreamWorks Animation stock following “Madagascar’s” $61 million bow — which, in the eyes of Wall Street, was labeled a big disappointment.

Heading into the weekend, execs at competing studios — who have been known to inflate the B.O. expectations of their rivals’pics — said the film would be lucky to get to $60 million, given the toon’s tracking, reviews and stiff competition from “Star Wars” and the opening of Adam Sandler’s “The Longest Yard.”

But investors were much more optimistic. Sanders Morris Harris analyst David Miller said his pre-opening poll of clients who owned DreamWorks stock called for a bow north of $70 million. His firm’s prediction was $85 million, or on the same level as Memorial Day titans “Bruce Almighty” and “The Day After Tomorrow.”

After the holiday, analyst reports immediately began circulating, including Miller’s, which labeled “Madagascar’s” bow “tepid” and “not even close to our estimate.”

When traders returned to their desks the morning of May 31, they started dumping DreamWorks shares, sending the stock price down 9% by the end of the day.

“Stocks all come down to expectations,” says Miller. “That’s what makes a market. There’s always a disconnect between information yielded in the present, whether it’s right or wrong, and all future information.”

It’s been a particularly bumpy road for DreamWorks, which saw its shares hammered even harder earlier in May when DVD sales of “Shrek 2” came in lower than they had predicted.

But it’s not just stock investors who are clucking over the wickets. Newspapers, magazines and TV chatshows have been awash with grand pronouncements that people aren’t going to the movies anymore.

And as box office becomes more widely followed, it becomes a tempting barometer for commentators on cultural and political changes.

Recently, the New York Times declared on its front page that moviegoing was passe. Citing the now-familiar stats that movie attendance is down, the losing weekend streak at the box office and the testimony of four people who love their DVD players and PlayStations, it concluded, “Americans are changing how they watch movies.”

Oft-quoted box office analyst Paul Dergarabedian, president of Exhibitor Relations, told the paper, “It is much more chilling if there is a cultural shift in people staying away from movies.”

But the same box office data can be just as easily spun 180 degrees. Asked to comment for this story, Dergarabedian told Variety: “We need a lot more data before we make histrionic statements about what’s going on in the culture about going to the movies. Fourteen weeks does not a cultural shift make.”

Still, the streak is likely to continue despite strong Memorial Day weekend results. Many are skeptical that “Sith” marks a turning point because there’s a seen-it-all-before factor to many of the summer’s upcoming titles.

Some theorize that “Kingdom of Heaven” didn’t do better because audiences felt they’d seen it in “Gladiator.”

This summer’s slate is filled with familiar-seeming sequels, remakes and adaptations: “Batman Begins,” “Bewitched,” “Charlie and the Chocolate Factory,” “The Dukes of Hazzard,” “Herbie: Full Throttle,” “The Honeymooners” and so on.

Hollywood hopes the season will be hearty — but fears it won’t be. Given the weak start, here’s little hope of surpassing last summer’s record $3.86 billion haul.

But the box office is a cyclical beast, sometimes up, sometimes down.

After 2004’s sizzling spring and summer, box office slowed down considerably during the fall and holiday seasons.

And there are plenty of big titles skedded for the end of this year that could bring an upswing:

“Harry Potter and the Goblet of Fire,” “King Kong,” “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe,” to name a few.

It’s true there are more areas than ever pulling at people’s limited entertainment dollars and attention spans. And DVDs are cutting into box office. But the fact is many, in the media, on Wall Street and even in Hollywood are studying the numbers without the perspective.

(Scott Hettrick contributed to this report.)

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