Showbiz tries to shake off recession, but it's a slow road back
The recession is officially over. It has been since summer 2009, a group of government economists declared last week.
That news should have triggered an explosion of confetti like that seen showering the winners of “American Idol” or “America’s Got Talent.”
So why isn’t Hollywood celebrating?
The reality is that even amid signs of an eventual uptick, showbiz, like many other industries, is still struggling amid a weak economy. In other words, Americans may have talent, but they’re also broke.
During the first six months of 2010, every major sector of the entertainment biz was hit hard as consumers kept a closer eye on their wallets and opted for cheaper alternatives to amuse themselves.
They’re renting more movies rather than buying them; aren’t willing to shell out $60 for just any videogame to slide into their Wiis, Xbox 360s or PlayStation 3s and are turning to Facebook to play free games in droves; downloads of individual songs instead of entire albums are now the norm; and while B.O. figures were up worldwide during the first half of the year, most of that increase was a result of inflated ticket prices for 3D films.
The troubling drops in revenue follow a depressing 2009 that had already seen a major ding taken in nearly every sector.
While there have been some recent success stories — “Avatar,” “Alice in Wonder-land,” “Toy Story 3,” “Iron Man 2,” “Despicable Me” and “Twilight: Eclipse” at the megaplex; the opening of the Wizarding World of Harry Potter bringing tourists back to theme parks; “Halo: Reach” giving videogame sales a much-needed boost — they haven’t been enough to give the overall biz a much-needed boost to its bottom line.
The health of the overall economy is often hard to gauge. But for Hollywood, the strength of its pulse can be discerned in a handful of key statistics:
¦ Despite all of the talk of 3D saving the studios, a crop of films in the format couldn’t prop up the summer sesh, with B.O. revenue during those months nearly flat, and admissions down 6% to 538 million, according to the National Assn. of Theater Owners. Some analysts blame the quality of films.
¦ The homevideo industry saw sales fall by $1 billion last year vs. 2008, according to the Digital Entertainment Group. Increases in Blu-ray and digital video-on-demand were not able to make up for a decline in DVD sales (off by 15%) during the first half of 2010. Much of that erosion is attributed to the growing impact of Redbox’s kiosks, which offer $1-a-day rentals, and subscription-based Netflix, whose content availability is nearly ubiquitous across every platform. But even rentals were down 4.9% during the first six months to less then $3 billion, creating even more jitters for homevid chiefs.
¦ Full seasons of TV shows, which make up 24% of homevideo sales, have also been hurt by digital, with increased usage of iTunes, Amazon, Hulu and websites run by the networks eroding sales of such DVD and Blu-ray sets by 14% during the first six months of 2010, according to Nielsen.
¦ Sales of vidgames declined during five of the first six months of the year compared with the same frame in 2009, with business off 9% to $6.6 billion at the end of June. Year-to-date revenue is down 8% to $8.3 billion, as of August, according to research firm NPD. Sales of cheaper downloadable games like “Angry Birds” for the iPhone or iPad are increasing, as is the number of players of Facebook-based games like FarmVille and Mafia Wars.
¦ The top-selling videogame so far this year is Microsoft’s “Halo: Reach,” whose $200 million haul in its first day of release topped 2007 “Halo 3’s” 24-hour haul of $170 million and the $125 million take of 2004’s “Halo 2,” but didn’t come close to last year’s big hit, Activision Blizzard’s record-breaking $310 million first-day sales tally for “Call of Duty: Modern Warfare 2.” Then again, “Halo: Reach” is exclusive to the Xbox 360, while “Call of Duty” can be played on all systems.
¦ Music sales are dire, with sales of physical CDs down 18% during the first six months, according to Nielsen SoundScan, compared with the same frame last year. Overall, album sales were down from 172.9 million to 154 million units, which includes digital.
The situation may not remain this depressing, however. There are growing signs a turnaround is taking place in Hollywood — as long as an increase in spending by consumers can stave off a double-dip recession.
Roughly 70% of the economy is dependent on the volume of consumer purchasing. The most current recession lasted 18 months, the longest downturn since World War II, according to the National Bureau of Economic Research, which declared the recession over in June 2009, after starting in December 2007.
Advertisers appear to be returning to TV again, with automakers, especially, shelling out more coin to sell their new cars on the broadcast and cable networks, with 60 models getting a big push, doubling last year’s count. In fact, the major broadcast and cable networks were cheered at the start of summer by a better-than-expected upfront advertising sales market.
The largest nets saw gains of around 10% in advance bookings for the 2010-11 TV season, coming off of the low bar of 2009, when the economy was in freefall. The strength of the scatter ad-sales market in recent months has been cited by Rupert Murdoch and other showbiz CEOs as a welcome indicator of a rebounding economy. On the cable front, top networks are commanding higher rates of 15% to 19%.
The opening of the Wizarding World of Harry Potter brought tourists flocking back to Universal Studios Florida and its Islands of Adventure parks, in Orlando, driving attendance up 2% to 2.6 million visitors during just the second quarter — the first quarterly gain since early 2008. Sales of merchandise, which includes 600 licensed products related to the “Harry Potter” franchise, soared 13% to $243 million.
“The Wizarding World of Harry Potter is having a very positive impact on both our guest experience and our business,” Universal Orlando president Bill Davis said in August. “Our guests continue to be thrilled with the experience we have created for them, and our business results are beginning to show it.”
Taking advantage of that uptick in attendance, Universal increased the price of its theme park passes by $3 to $5, after Walt Disney World did the same, when attendance at its resorts also started showing signs of a resurgence throughout the year. One-day, one-park tickets for adults increased 3.8% to $82 at its Walt Disney World parks in August.
The videogame industry, meanwhile, could still post sales of between $18.6 billion and $20 billion this year — in line with the $19.6 billion earned in 2009 — with new hardware like Microsoft’s Kinect and Sony’s Move, as well as a new 3D version of Nintendo’s popular DS handheld gaming system, expected to perform well for retailers.
Although high-profile titles like Nintendo’s “Legend of Zelda: Skyward Sword,” Microsoft’s “Gears of War 3,” Sony’s “Killzone 3” and Electronic Arts’ “Dead Space 2” have been delayed until next year, new games, like the sequels “Call of Duty: Black Ops,” “Fable III,” “Guitar Hero 3,” “Little Big Planet 2” and newcomer “Epic Mickey” will still hit store shelves during the holidays, the period in when the gaming biz typically sells most of its titles. Already, slimmer, cheaper versions of the Xbox 360 and PlayStation 3 have moved more consoles out of stores, which will hopefully result in more game sales.
The Hollywood studios, for their part, are finally accepting the notion that digital distribution is the future of the homevideo biz. They’ve begun to embrace all forms of video-on-demand, given that digital distribution, as a whole, rose 23% during the first half of the year to generate $1.1 billion for the studios, according to DEG.
Sales of digital music also are growing for record labels — and helping offset los-ses from CDs. That biz still needs to grow a lot faster, however: Digital music sales reached nearly 13% through the
end of June, but CD sales were off by 18%, according to Nielsen SoundScan.
Digital sales figures are only expected to rise, as consumers increasingly turn to their iPads, videogame consoles, computers and, soon, cellphones to watch movies and listen to music. And studios are ponying up some serious marketing coin to promote new digital businesses.
A consortium of studios and cable operators has teamed to promote VOD through cable boxes for films released day-and-date with their DVD and Blu-ray bows. Distributors have also partnered with retailers to launch Ultraviolet, which will push the acquisition of digital movies, TV shows and other fare that can be stored and accessed from any device. Disney is readying to launch its own version of a digital locker, dubbed Keychest.
For now, Warner Bros., Universal and Fox have been able to hold off Redbox and Netflix from offering DVDs and Blu-rays until 28 days after they hit store shelves, encouraging the further growth of Blu-ray for now (Lionsgate, MGM and Paramount say the rental outfits don’t impact disc sales).
Despite the shift to rentals and VOD, homevideo divisions remain upbeat about Blu-ray, with sales up 84% during the first half of 2010, earning $733 million. Numbers are expected to increase as more people buy HDTV sets for their homes.
Blu-ray is also helping boost sales of TV shows, with full-season shows available in the format up 84%, but not enough yet to overcome declines of traditional, and cheaper, DVDs. As of June, 292 TV titles were available on Blu-ray, up from 120 at the same point last year.
“Clearly we are still grappling with a challenging marketplace and a tough economy, but overall the trends that we are seeing are encouraging,” says Ron Sanders, president of the DEG.
One thing is clear: Hollywood needs to start promoting new platforms for consumers to access entertainment and to quickly figure out a way to wring more revenues from those offerings. High profit-margins that came from sticking with the status quo are now a thing of the past, forcing business models to be reimagined on an almost weekly basis.
The recession, clearly, has changed the buying habits of consumers.
Even when the economy starts to pick up again and job losses give way to job gains, audiences may not return to their old buying habits.
A new generation has gotten too used to their digital devices, and the multitasking mindset has now embedded in every must-have gadget: A videogame console plays movies; a cell phone is a music and gaming device; an iPad is used both for watching TV shows and reading books.
“The first half of the year has been tough, largely due to comparisons against a stellar first half performance last year,” wrote NPD’s Anita Frazier in analyzing videogame sales. “But still, this level of decline is certainly going to cause some pain and reflection in the industry.”