Oscar is golden, but film business shows some tarnish

Reuters, LOS ANGELES: Oscar week is upon Hollywood and the champagne is flowing freely at numerous parties celebrating the world's top movie honors, but when the film industry wakes up with a hangover from Sunday's awards, it faces a cold reality.

Digital technologies are rapidly changing the way movies are delivered to consumers. DVD sales are continuing their multi-year decline with no end in sight. Theater attendance is off a whopping 23 percent so far in 2011 compared to the same point one year ago. And not even 3D is saving it, anymore.

Financial and analysts say movie makers and distributors need to keep up with rapidly changing consumer behavior in an era when entertainment is cheap and readily available on the Internet. Many in Hollywood agree, and are working to change. But profitable new ways of doing business have been slow to come, and the consequence could be an industry on the decline in much the same way as music industry was in the 2000s.

"The trends that we see today are similar in many ways, although I don't think we're the same as the music industry," said Mitch Singer, chief technology officer for Sony Pictures Entertainment, a division of Sony Corp. "Revenues are declining, people are finding other ways to access our content," he said.

Attendance at U.S. and Canada theaters so far this year is down to 173 million tickets sold compared to 225 million for the same time period in 2010 -- a decrease of 23 percent, according to tracking firm Hollywood.com Box Office.

There are bright spots for the movie industry, especially internationally. The Motion Picture Association of America on Wednesday said global box office receipts in 2010 hit $31.8 billion, an increase of 8 percent from the year before.

The Asia Pacific region saw the most growth with a 21 percent uptick. But the trade group acknowledged U.S. and Canada box office results were flat in 2010, at $10.6 billion.

Worse, consumers bought only $10 billion in home video entertainment products in 2010, compared to $14 billion in 2004 when the DVD market was booming, reports IHS Screen Digest.

'ARE STUDIOS DEAD?'

Jeffrey Korchek, vice president of legal and business affairs at Mattel Inc, recently wrote an opinion piece for The Huffington Post titled "Are Studios Dead?" in which he argued movies are becoming low-value commodities because companies such as Netflix and Coinstar's Redbox make renting so cheap.

Redbox rents movies for $1 a day at kiosks, a price studios grumble about, and Netflix, with some 20 million subscribers, lets consumers stream all the movies they want for $7.99. Amazon.com this week rolled out a streaming movie service for customers who pay $79 a year for free shipping on other items.

Overall spending in home entertainment rentals has declined to $6.3 billion last year from $8.6 billion in 2001, according to IHS Screen Digest.

"Where is the movie business' Steve Jobs, the person who knows what people want to see before they do, knows that giving content away for free on the Internet isn't such a good idea and who creates excitement, brand loyalty and an enduring corporate culture?" Korchek wrote.

But if there is no single superhero leading the industry, the studios are taking some steps to secure the future.

They have invested in 3D and looked at ways consumers can receive movies in homes faster, as well as created systems for selling digital copies of films directly to customers.

There are now 8,455 screens with 3D technology in the United States, accounting for over 20 percent of all screens, according to the National Association of Theater Owners.

Thanks in part to higher ticket prices of $3 or more, 3D movies could account for 30 percent of box office results in 2011, said Eric Wold, an analyst with Merriman Curham Ford.

But already there are signs of weakening in the 3D market, and Matthew Lieberman, a director in PricewaterhouseCoopers' entertainment division, said consumers are becoming more thoughtful in choosing which films they want to see in 3D.

"The ability to maintain that price premium is definitely a point of concern," Lieberman said.

Elsewhere, several Hollywood studios this year will roll out a system called Ultraviolet, which will allow consumers to register a movie purchased online so they can stream the film through laptops, Blu-ray players and any future device.

"We anticipate a lot of consumers signing up for Ultraviolet," said Sony's Singer, who oversees Ultraviolet. He added that the overall market for digital downloads of movies and TV shows could grow to $480 million this year.

But compared to the billions of dollars Hollywood is accustomed to raking in from movies, that figure looks far less than golden -- the color of an Oscar.