‘Increasingly Dire’ Film Industry Has Fewer Winning Films, Studios (Analyst)

Courtesy of 20th Century Fox

The film industry faces an “increasingly dire” outlook as audiences continue to shrink in the U.S., with too many studios producing too many tentpole films, which end up cannibalizing each other’s audiences, analyst Doug Creutz reported Friday.

The Cowen and Company entertainment expert said that there is no easy solution for Hollywood studios but that a “slow-moving consolidation” is the likely end result.

In “Another Memo to Hollywood. Prediction? Pain,” Creutz says the industry’s woes are demonstrated by the fifth consecutive year in which domestic box office demand “has taken a step function lower.” The fight for remaining audiences has become increasingly fierce as “the market appears to be condensing into fewer, but bigger, hits,” as studios crank out more films in the $100 million-plus budget range.

The analyst reports that, when the video game industry faced a similar dilemma, with fewer but bigger hits, it resulted in dramatic change. Rather than a series of mergers — the preferred result — a number of big gaming companies simply went out of the business, including THQ, Midway, Acclaim, Atari and LucasArts.

A similar breakdown in the film industry would not help investors, Creutz wrote. “We note that even the stocks of the eventual survivors of the video game shakeout didn’t do well during most of this period, until their recent spectacular out-performance,” the Cowen report says.

Creutz offers a welter of stats to back up his contraction argument: “Last year, over 25% of total box office came from just five films, well above the average of roughly 16% from 2001-14 and the prior peak of 19% in 2012.” He called this a “consistent phenomenon.”

The top grossing films each week accounted for 33% of total box office in both 2015 and 2016, almost twice the average of 18% that prevailed in 2011-13, Creutz wrote. And No. 1 films tend to persist, he said, noting the “nigh-unexplainable” persistence of films like “American Sniper” in 2015 and “Deadpool” this year.

It’s not only the few films, but the few studios that are taking most of the spoils. While Disney and Universal’s combined profits were up 54% year over year and, collectively, managed 70% of total industry profit, the other studios saw profits drop 40%. “We expect this type of volatility to continue due to the narrowing of the window for hit films,” at least until there is a “likely slow-moving, consolidation,” Creutz wrote.

In many other industries, the consolidation might move more quickly, Creutz contends. But the entertainment business puts weight not just on profits but on concepts like “prestige” and “star power,” Creutz wrote. He said it would make sense for Viacom to sell Paramount — a move that is reportedly under consideration — but suggested a deal might be difficult because Viacom’s exit from the movie business would be seen as “diminishing its importance and reputation in Hollywood.”

Creutz predicts tough sledding for most of the studios in 2016, though he adds: “We expect that one or two of the companies will likely outperform our generally negative view; however, we also think picking the winners at this point is a high-risk proposition.”

A summary of some of the analyst’s predictions:

DISNEY: He calls the studio “the lead dog” and sees likely “outsized hits” in “Captain America: Civil War,” “Finding Dory” and “Star Wars: Rogue One.” But even the industry leader will face stiff competition with April’s “The Jungle Book” and its July distribution of “The BFG” for DreamWorks. Despite huge performance, Creutz worries “that investors are capitalizing what in retrospect may prove to be peak studio margins at a very high multiple.”

WARNER BROTHERS: Creutz is concerned about the company’s broad slate of 18 films for 2016, though he expressed some optimism for “likely success” in a new entry in the “Harry Potter” franchise and the kickoff of a two-film-a-year series of DC Comic films, beginning this month with “Batman vs. Superman.” A drag on performance could come from mid-budgeted films like “The Nice Guys,” “Central Intelligence,” “Sully,” “Storks,” “The Accountant” and “Collateral Beauty.” If the DC films underperform, he said, “then results could be very disappointing.”

FOX: Starting the year with runaway hit “Deadpool” sits well, but the studio’s year rests largely with three big summer sequels: “X Men Apocalypse,” “Independence Day: Resurgence” and “Ice Age: Collision Course.” Cruetz concluded: “We tend to think ‘Deadpool’ was more luck than skill (plus a heavy dose of passion from Ryan Reynolds) and so we don’t necessarily expect any success this year to be sustained.”

PARAMOUNT:  “We see little hope for a significant turnaround in operating performance over the longer term, and expect this year to be characterized by continued struggles.” Creutz cites “indifferent film quality,” as an issue and too many “Zoolander 2”-type films to make up for winning franchises like “Mission Impossible,” “Star Trek” and “Transformers.”

LIONSGATE: Predicts “an uphill climb” to get back to better profitability, with focus on low- to mid-budget films and some bigger swings, like the $140-million-budget “Gods of Egypt,” missing the mark.  Creutz sees a “struggle,” given the competition, for upcoming sequels such as “Divergent: Allegiant” and “Now You See Me Two.”

DREAMWORKS ANIMATION: “We think that being the 4th- or 5th- or 6th-best animated studio (behind Disney Feature Animation, Pixar, Illumination, and arguably Blue Sky and/or Warner Bros.) is not a good place to be.” Creutz worries that upcoming “Trolls” (November, 2016) and “The Boss Baby” (March 2017) will tough time in midst of competition from other animation and tentpole offerings.


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  1. sassafrass says:

    I don’t buy into the notion that the studios are failing when their historic box office returns are year-upon-year still growing.

    Yes, the vfx driven tent-pole market drives the theater chains and yes, event movies are what people want to see.

    That being said, the bigger the gamble the bigger the loss and reward. Less content on the big screen yet there is more money than ever available to digital distrubution channels and so much of our content consumption has shifted. ie: you stay home to watch smaller films and you pack the theater full to see the spectacle that is Star Wars.

    The only way the theater experience dies is if audiences outright reject great films that are exciting to see on big screens, like Star Wars and like the upcoming summer blockbusters.

    The wallets still open for those winners, and it leaves little room for the smaller films that would otherwise be winning alongside them.

    What is good news for content creators is that there are new digital outlets with revenue streams, built-in audiences, and less marketing costs that they now have access to. That is where eventually we will consume all content, so studios need to start dumping more dev money into those channels and outlets and make even less tentpole movies, while making sure the tenpoles they produce are still big enough to force audiences to see the spectacle and have that shared audience experience.

    Everyone inside knows this, so I fail to see how this article gives us anything new to ponder.

    I understand content creators are frustrated, but they should be glad there are outlets for their creativity and a broader landscape for future consumption at consumer’s disposal.

  2. Eric C. says:

    Rising ticket costs plus streaming and torrenting have the studios in a choke hold. Hence why they only produce product that they know they’ll get a comfortable return on.

  3. Adam says:

    “Lucasarts” did not go out of business. They were consolidated into Disney.

  4. Online platforms such as Netflix, are enabling consumers on a mass scale, to more than ever classify their viewing a ‘theatre movie.’ Typically the tent- pole films because of the dazzling VFX. Or a ‘Netflix movie,’ often a drama or comedy. Formerly expressed as ‘I’ll wait for the video/DVD.’

  5. Jim says:

    The part that Hollywood continues to ignore is that they are just making too many crappy movies. They think audiences will turn out for whatever garbage they produce. Make better movies and more people will buy tickets.

    • Adam says:

      Declining attendance has nothing to do with any perceived lack of quality. It has everything to do with the rise of home entertainment and now online streaming. Attendance has been stagnant for the past 13 years or so.

  6. Will we see the day when films are smaller, smarter and actors will no longer make millions? I hope so.

  7. It’s not tentpoles, it’s not cannibalization, it’s the complete and utter lack of originality or risk of any kind whatsoever remaining in Hollywood. Nothing but reboots/rehashes/remakes, copycat trend decisions, and turning out cheap ‘found footage’ films with bargain basement budgets that work on spreadsheets but not in practice. Add to that the fact you need to take out a second mortgage to take a date (much less a couple of kids) to the movies if you actually want snacks to go with the movie, even at matinee timing, and the explanation is clear. I mean for **** sake, a 23 Jump Street/Men in Black COMBO? Who is smoking WHAT and where can I get some?

  8. Plissken says:

    the solution is not to go bigger and bigger and bigger, it’s to go smaller, to become more diverse, to micro-target specific demos and markets, to pursue higher-quality material, and to invest in experimental projects -some of which will of course fail- but the ones that don’t will reveal new untapped markets… the film companies are mirroring the financial sector… to big to fail.. which is really just another way of saying, doomed to fail spectacularly at some hazy point in the future… don’t put all your eggs in one basket… common sense…

  9. Malcolm Neal says:

    Great article by James Rainey, As owner of the RITZ historic single screen theatre in Thomaston GA., I entirely agree with your observations, particularly the greed, star power, ego concept of the major studios. Its the studios themselves that are creating their own problems. From a different angle and one that affects us and similar small town theatres every week is the loss or revenue for the theatre and the studio, by outdated, greed and ego based distribution deals. Single screen theatres were of course the only theatres in years past. Now just a few remain mostly in small communities who depend on their ‘old’ theatre for big screen movie entertainment. We were ‘forced’ to go digital or close up and promised that without the print cost and time to produce problems, films would be more available easier to schedule in the digital era. Anyway the studio still are working in the 1950’s and that now makes life difficult for the small guys. Not to take up too much time here, but there could be a good story maybe in the making….one major issue is trying to please the community, have them come to the movies more often and therefore keep them interested in the big screen rather than migrating to the small screen. We have many people who would come the movies almost every week…if we can show a ‘new’ movie. As you know most of the general public want to see a new movie close to its national release…as that’s what the TV tell them to do! So why do the studios ‘force’ the small town theatres to hold a movie longer than business dictates? We not have the population to hold any movie past two weeks and still do business, and the studios know that. I know we make very little money for the studios compared to the big guys, but something is better than nothing I would have thought, especially as studio talk about is making more money. Ideally if we could play a brand new movie every week, we could see staying open, our weekly moviegoers would come more often, we would make more money and the studios, as the first week is usually the best, would make more also…plus we would be able to show more films for everyone. Maybe two weeks would be OK with the bigger movies and that brings up another topic for later discussion….providing our audience with a variety ( as multis do) of movies by say showing at PG movie first and then an R rated later each evening. Just a couple of thoughts. Cheers.

  10. Mr. Cinephile says:

    This isn’t surprising especially since top notch filmmakers like Steven Spielberg, David Fincher, Steven Soderbergh, George Lucas, Martin Scorsese, Francis Ford Coppola, & such have openly criticized the studio system strategy with their film slates over the past several years. They have all said that the franchise strategy is going to push the studios into a corner & at some point, there will be a year of numerous franchises to fail in a single year which will force the studios to have a complete paradigm shift in the overall studio system strategy. It seems we are getting closer to that very conclusion. The whole franchise thing is not a long term solution for the major studios. Many of the big name filmmakers have gone on record saying the major studios need to bring back the mid-budget films. A recent study has shown the adult drama is making a significant comeback as numerous adult oriented dramas had significant success this past year alone. The major studios need to look to more smaller & independent production studios & their strategies who are finding strong success like HBO Films, The Weinstein Company, Red Granite, A24, Regency Enterprises, & so forth. These are companies who don’t rely on the whole franchise strategy game which is a sink or swim mentality that fails more then succeeds. The major studios need to wake up.

    • Daniel says:

      If the franchise strategy failed more than succeeded the studios would not have the money to make more. They’d be bankrupted.

      • Mr. Cinephile says:

        @Daniel – You are missing the point in many respects. Actually, yes, the majority of franchises do fail more then they succeed. Many times these major studios fail to just breakeven by years end. Last year alone, Warner Bros. Pictures had to write off millions because of significant failed projects like “Pan” & “Jupiter Ascending” which were both being looked upon as potential franchise start-ups. Only 2 major studios in Walt Disney Pictures & Universal Pictures actually had a profitable year last year & that was mainly because of just a few films that luckily for them had huge profit. This article practically indirectly says the studio system is technically failing overall. The major studios have shrunk their film slates greatly over the past couple years alone. For example, Paramount Pictures just a couple years ago had a film slate of 22 films a year being released by their own produced productions. Now, they are barely producing 8-12 films a year now. The studios are not making enough money. Hence, why the major studios are now more focused on the distribution market then they are in the production market. This is why the independent film market is now 78% of all the produced films in the marketplace. Look, franchise films don’t have to go away but they can’t be looked upon as the only financial profitability for the major studios. The major studios need to downsize on big budget franchises & start bring back the mid-budget films (which many of the industry filmmakers want) which tend to make their money back more often then the big budget films do.

  11. LOL says:

    No Sony? They have a new Ghostbusters out this summer … wait … guess Doug Creutz clicked on the trailer.

    • Daniel says:

      If the franchise strategy failed more than succeeding he studios would not have the money to continue making them.

  12. tlsnyder42 says:

    Good story, Mr. Rainey. Very informative.

  13. cadavra says:

    Pardon my dated reference, but it’s more valid than ever: Studios need to be less like Reggie Jackson and more like Pete Rose. (Translation: Stop trying for home runs and often striking out, and just go for more singles and doubles.)

  14. Mark Valenti says:

    Things won’t change because there’s hardly a downside to failing. They might be cut loose from a studio gig now and then, but always with full payout, and a new gig is always around the corner.

  15. Ivan says:

    Here’s a crazy thought – get away from producing movies so they can have a number after them.

    Put more effort into writing/acting/production of stories that people want to see.

    I know those studio execs want to be known as the guy (girl) who originated a franchise, but I’d have more respect for a HBO like studio who put quality before quantity.

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