Bigger Picture Research

2009 box office and admissions round up: China, France, Italy, Netherlands, Poland, Slovenia, Spain and the US

As expected, various trade bodies, film agencies and commercial data providers have released year-end box office and admissions numbers over the last couple of weeks, and the picture is a positive one for theatrical exhibition around the world. Here's the first tranche:

China saw its annual box office gross rise 44% above the level recorded in 2008, totalling 6.2 billion yuan ($910 million).

Numbers issued by the China Film Group also include the fact that China produced 456 domestic films in 2009. Nonetheless, the two top grossing movies of 2009 were US studio pictures: 2012 ($67.5 million), and Transformers: Revenge of the Fallen ($63 million). Chinese films shared 56% of the home market, and the best performing local title,  The Founding of a Republic, grossed $61 million.

France also witnessed an impressive year at the box office. Admissions totalled 200.85 million according to estimates by the Centre national de la cinématographie (CNC). This marks a rise of 5.7% over 2008, and the annual total is the second highest in forty years.

French films shared 37.1% of total admissions, which is lower than 2008’s market share (45.3%, largely down to the success of Welcome to the Sticks). US features shared 48.8% of total admissions.

Italy saw box office revenues grow in 2009 (by nearly 5%, to €623 million), but total admissions fell slightly, down 0.3% to 99 million, according to data released by Cinetel.

The Netherlands (whose main public film bodies have recently merged into a new film institute known ominously as eye) fared much better, with a 15.2% increase in ticket sales in 2009 (totalling 27.2 million). Dutch films recorded a market share of 17.4%, pretty much unchanged from 2008.

Poland scored a record high with 38 million admissions in 2009, up from 34 million in 2008 (+11.7%). According to  Dorota Hartwic, writing for Cineuropa.org, the 29 Polish features on release garnered 8.7 million admissions, a market share of 22.9%.

Staying with Eastern Europe, Slovenia saw annual admissions rise 8% to over 2.6 million, according to Matevz Rudolf writing for Film New Europe. Over 140 films were distributed in the country, of which five features and two documentaries were made in Slovenia. These local pictures shared less than 2% of total admissions, and the most successful local title, Slovenian Girl, sold 18,000 tickets.

Provisional data from Nielsen EDI indicates a successful year at the Spanish box office. The territory saw 110 million admissions, with box office grosses totalling around €675 million, the ‘highest  figure in the history of Spanish cinema’, according to Cineuropa.org’s Sergio Ríos Pérez. Local film market share is expected to be around 15%.

And finally, news broke last week that the US box office out-performed sales of feature films on DVD and Blu-ray for the first time since 2002.

Figures compiled by Adams Media Research show that US box office receipts stood at $9.87 billion in 2009, compared with DVD and Blu-ray feature film sales of $8.73 billion (sales of all works on DVD and Blu-ray, including TV shows, stood at $13 billion). Film DVD and Blu-ray revenues fell by 13%, while box office gross rose by 10%.

The table below summarises these numbers, including the UK’s provisional box office total published last week, which the UK Film Council will confirm on Tuesday along with UK films' share of the home market.

Table 1: Selected 2009 admissions, box office revenues and national market shares

Sources: China Film Group, CNC, Cinetel, Cineuropa.org, Film New Europe, Nielsen EDI, UK Film Council, Adams Media Research.

'-' = data unavailable

Montage: film in Russia and alternative cinema content globally

In between toiling to service the debt I call home and navigating the twinkly distractions of the festive season, there’s just time for a quick round up of recent(ish) film research developments, beginning with last week’s publication by the European Audiovisual Observatory of a report on the Russian movie business.

The Film Industry in The Federation of Russia (November 2009), produced for the Observatory by Nevafilm and Rfilms, covers a gratifyingly wide terrain. Starting with an overview of Russian state film policy, the report includes data on cinema exhibition for the period 2004 to 2008 (admissions, box office revenues, screen numbers, digital screen growth etc.), a summary of Russian film production activity between 2004 and mid-2009, and provides a sizeable slab of DVD market intelligence for good measure (which is very welcome given the paucity of publicly available home entertainment data in most territories).

Some noteworthy headline data:

• Russian cinema admissions have grown at an average annual rate of 14% between 2004 and 2008, and average admissions per head have almost doubled over the period.
• Rising ticket prices have helped to increase box office takings, which have grown on average 32% every year since 2004. 
• This is remarkable given that the overall number of screens in Russia has almost halved since 2005, although older screens are being replaced by modern ones in malls and 'entertainment complexes' at an unprecedented rate. By July 2009 Russia had 1,949 ‘modern’ screens in 756 cinema sites. 
• Digital cinema has taken off since arriving in October 2006. By July 2009 there were 161 digital screens in Russia (8% of all ‘modern’ screens).
• Over RUB 25 billion (just under $1 billion) was invested in feature production between 2004 and mid-2009, but since 2008 there is evidence that production has ‘cooled’, partly in response to a reduction in funding for new features by the Ministry of Culture.
• 83.8 million DVD units were sold in 2008, up nearly one quarter (24%) on 2007. Russian content accounted for around 20% of all DVD releases in 2008. However, the market in 2009 looks to be less buoyant, and the report quotes a trade journal forecast predicting an 8% fall in unit sales this year.

The report presents plenty more detail for the interested reader, and it comes highly recommended not least because the Observatory has made it available as a free download in English and Russian. Spasiba!

(Incidentally, Nevafilm’s web site also has links to dedicated reports on digital cinema in the Russian Federation along with other aspects of the local business; it's well worth checking out: http://nevafilm.ru/english/reports).

On the subject of digital cinema, last October I posted about Martin Barker’s audience research study looking at alternative content at the cinema (e.g. live opera and stage performances beamed by satellite into cinemas). Towards the end of last month details of a new report on the subject appeared in The Hollywood Reporter.

The Screen Digest research (Alternative Content in Cinemas: Market assessment and forecasts to 2014) predicts earnings from alternative content will top $500 million globally by 2014, rising from $45.7 million at the end of 2008.

Recent growth has been fueled by the increase in digital screens, which number over 12,000 globally, and there's clearly a buck to be made thanks to high ticket prices (according to The Hollywood Reporter, ‘some opera-in-cinema tickets in the U.K. sell at £35 [$59] and boost occupancy rates in what are often traditional downtimes’).

Further details, and a full list of contents, can be found over on the Screen Digest site.

Montage: Sweden H1 2009 admissions and box office; US DVD rental kiosks; Pinewood Shepperton trading report

Figures released by the Swedish Film Institute reveal strong growth in cinema admissions during the first half of 2009.

7,570,828 tickets were sold in the first six months of the year, a rise of 27% on the same period in 2008. Total box office gross also rose, up 36% to SEK 655,031,193.

It’s heartening to see that Swedish films shared 32% of the market, largely down to the success of local title The Girl with the Dragon Tattoo, which clocked over 1 million admissions. According to Thomas Bryntesson, Head of Statistics at the SFI, these figures 'show again that during a recession, cinema attendance tends to remain strong.' (quoted in Cineuropa.org).

Table 1: H1 admissions and box office gross in selected countries

Sources: Filme B, Nielsen EDI, CAA, Danish Film Institute, Cineuropa.org, Federation of Spanish Cinemas, State Administration of Radio, Film and Television, Korean Film Council, Cinetel, Bunka Tsushin, boxoffice.pl, CNC, Swedish Film Institute.
Notes: Figures have been rounded. ‘-‘ = data not yet available

Moving to home entertainment, and the latest issue of Variety provides further coverage of strained relations in Hollywood over the growth of the DVD rental kiosk business, led by Coinstar’s Redbox service. Correspondent Marcy Magiera cites a new study by NPD that forecasts the DVD-rental kiosk business (which offers overnight rentals for $1) will hold 30% of the rental market by the close of 2010 (up from 19% currently).

As Magiera notes,

‘Hollywood is clearly divided over Redbox and its rivals. There's been a flurry of litigation over the kiosks -- Warner Home Video, 20th Century Fox Home Entertainment and Universal Studios Home Entertainment are trying to impose a delayed window of 30 days or more on kiosk rentals, and Redbox is suing them as a result.’

These studios are concerned that cheap rentals cannibalize new DVD sales, and evidence from Rentrak does indeed reveal a slump in DVD sales in the first half of 2009 (-13.5%) compared with a rise of 8% in consumer spending on DVD and Blu-ray rentals. Still, at least these punters are actually paying for content and not (exclusively) frequenting unauthorised online sources...

Finally, Pinewood Shepperton, the UK studio and facilities group, recently issued a trading statement (Regulatory Announcement) for the period 1 January 2009 to 30 June 2009, providing a nifty vantage point from which to gauge UK production activity.

Revenues totalled £20.3 million during the first half of the year, down 6.5% from £21.7 million in the first half of 2008. Operating profit was also down, from £4.8 million in 2008 to £3.3 million, and profit before tax stood at £1.7 million.

Commenting on the results, Ivan Dunleavy, Chief Executive of Pinewood Shepperton plc, said: 

'The marginally lower year on year film revenues reflect the impact of the Screen Actors Guild dispute. The results reflect a solid performance in television and demonstrate the value of our Media Park where revenues increased. Looking forward, film revenues for the remainder of the year will depend, as ever, on the timing of new film starts in the latter part of the second half. Television revenues are expected to be stable, despite broadcasters' programming cuts. Media Park revenues should remain robust.'

While the SAG dispute played its part, film revenues were also affected by what the Announcement calls ‘wider economic pressure’, which has ‘tightened the access to film financing’. The result: ‘producers are taking longer to commence productions’.

We’ll no doubt see the continuing effects of this on the wider UK production sector when the UK Film Council publishes feature production statistics for the third quarter 2009 in October (see their statistics release calendar for details).

US DVD and Blu-ray market, H1 2009

There's more intelligence for the first half of 2009 to report, this time concerning the US home entertainment market. But first here's a related item from earlier in the week when the International Intellectual Property Alliance (IIPA), a coalition of trade associations representing U.S. copyright-based industries (video games, business software, film, TV, music and publishing), released its twelfth economic study, covering the period 2003-2007.

The report, Copyright Industries in the U.S. Economy: The 2003-2007 Report, was prepared for IIPA by Stephen Siwek of Economists Incorporated. In presenting the key findings, IIPA’s press release leads with news that the real annual growth rate of the copyright industries stood at more than twice that seen by the U.S. economy as a whole in the years 2004-2007, and that in 2007 the core copyright industries contributed 23% of the real growth achieved for the US economy as a whole. In other words, the copyright industries are a key driver of the wider economy.

The IIPA hopes these numbers, along with others in the report detailing the copyright industries’ contribution to employment and the US trade balance, will help to secure continued government support for anti-piracy measures. To this end the study was launched at an event at the US Department of Commerce, attended by Secretary of Commerce Gary Locke. 

Eric H. Smith, of the IIPA, makes the case:

“This study, like those that preceded it, strongly supports the continuing need for our government to focus its full attention on the economic and social importance of the creative industries within our 21st century economy.  Because these industries that depend on creativity and innovation contribute so significantly to economic growth and job creation in today’s economy, our government, and governments throughout the world, must redouble their efforts to provide a safer environment for them to prosper.”

Smith goes on:

“Only through the legal and secure transmission of valuable copyrighted content over the Internet can this continued growth and productivity be fully realized. Piracy threatens that growth and all governments must redouble their efforts to combat it.”   

Far be it for me to belittle this contribution to what is clearly an important and highly charged debate, but I can’t help feeling representatives of the copyright industries need to take care when making their case. After all, the report presents a slew of impressive numbers. But wasn’t this growth achieved against a backdrop of rampant piracy? Given the horror stories we’ve been fed about the scale of piracy over the years, it’s hard to imagine the problem will get any worse, especially now that authorised  online distribution channels are taking off, and illegal ones (like The Pirate Bay) are turning legit. In making the case for how vital the copyright industries are, there is surely a danger in over-selling their success.

Be that as it may, the news from one sector of the US copyright industries, rental DVD and Blu-ray, looks positive for the first half of 2009. According to data from Rentrak and reported by Marcy Magiera writing in Video Business, consumer rental revenue for DVD and Blu-ray rose 8% to $3.4 billion in the first half of the year compared with the same period in 2008. Growth was driven by consumer interest in Blu-ray and by the roll out of rental kiosks offering over night DVD rental fees for as little as $1.

Meanwhile, data released by the Digital Entertainment Group (DEG), once again reported in Video Business, shows overall US home entertainment revenues fell by 4% in the first half of 2009. There was a steep decline in DVD retail revenues (down 17% according to Video Business calculations), although this was offset to a large degree by rising Blu-ray sales (up 91%), the growth in rental activity (described above) and online distribution (up 21%).

DEG puts the US home entertainment market at $9.73 billion for the six months to the end of June 2009, which includes nearly $1 billion in digital sales and rentals (including cable and satellite VoD).

Against this backdrop, isn't it time industry reps started to bang the drum more loudly about the opportunities offered by digital channels, rather than the threats?

Montage: Spain and China box office, H1 2009; UK DVD and Blu-ray, H1 2009; digital cinema; state of the UK film industry

Spain is the first of two more territories for which box office data are now available for the first half of 2009. John Hopewell, writing in Variety, reports numbers released by the Federation of Spanish Cinemas (FECE) that show Spanish box office gross rose 13% in the first six months of 2009 over the same period in 2008, the first such rise in five years. Takings totalled Euros 296 million ($414.4 million), and cinema admissions were also up by 8%, to 48.8 million.

These are certainly encouraging figures, but as nothing compared to the growth seen in China since the start of the year. Box office there grew by 43%, to stand at $330.16 million (RMB 2.26 billion), according to figures published by the State Administration of Radio, Film and Television (SARFT). ScreenDaily.com’s coverage reports that local cinema managers and analysts predict the year-end total ‘should be between $732 million and $805 million (RMB5-5.5 billion).’

Now for news closer to home. Earlier this month the British Video Association (BVA) released home entertainment figures based on data from the Official Charts Company, which reveal that over 3 million Blu-ray Discs have sold in the first half of 2009, a rise of 231% on the same period last year.

The BVA’s press release quotes Hannah Conduct, BVA Marketing Manager, as saying:

“There are now almost 1500 Blu-ray releases in the market covering a breadth of titles […] Older releases such as Trainspotting (4DVD), Bladerunner (Warner Home Video) and The Day the Earth Stood Still (20th Century Fox Home Entertainment), have all experienced sales success on this exciting format, years after their initial DVD release.  Many more Blu-ray titles are anticipated in the latter part of this year so consumers will have plenty of opportunities to add to their home entertainment collections.”

The BVA points to evidence that the shift to Blu-ray may be displacing DVD sales, which recorded a fall of 9.5% year-on-year (I assume this is the decline in unit sales numbers rather than sales value).

Other, less positive, factors are also felt to have played a role. Lavinia Carey, BVA Director General, is quoted as saying:

“The home entertainment industry has weathered the recession extremely well during the last year but, sadly, with the loss of around 900 high street stores at the start of the year, following the demise of Woolworths and Zavvi, the sales generated from impulse purchases have been hit.  This changing retail landscape has had a huge impact on our half year result. We hope as the year progresses that new retailers will fill the gap by stocking home entertainment products to give consumers a wider choice.”

Turning from home entertainment to exhibition, the good folks at Dodona Research have recently launched a report into digital cinema roll out across the globe, and Digitalcinemainfo.com offers the following taster:

Dodona say there are currently close to 12,000 screens converted to digital projection worldwide, with 5,000 of these 3D enabled, numbers which will rise to 18,000 and 10,000 respectively by the end of this year – in time for the release of James Cameron’s Avatar. Further out, Dodona see scope for the number of 3D screens to continue to climb over the next few years, perhaps representing 20% of the 110,000 cinema screens worldwide by 2012. But beyond this the company is more sceptical, pointing to the fact that a wholesale shift to 3D on the part of the film production industry seems unlikely in such a short timescale, and to the apparent absence of an alternative driver of conversion.

The full report, Digital Cinema Briefing, is available to purchase direct from Dodona.

And finally, a piece by Vanessa Thorpe caught my attention in yesterday’s Observer. Headlined ‘Why the British film revival is in danger of being killed off’, the article rakes over the smoldering embers of the debate about the state of the British film industry, which usually flares up around Oscar-time, Cannes or whenever somebody in officialdom casts their eye over public policy for film.

Thus, taking her cue from the ongoing Lords Communications Committee enquiry into British film and TV, Thorpe runs through various bits of contradictory evidence of awards and box office success on the one hand, and a local production sector that some claim is in ‘terminal decline’.

Perhaps unsurprisingly the piece is short on any definitive remedies, but this is in part due to the lack of a clear diagnosis of the problem. If nothing else, the article confirms that if you ask half a dozen industry luminaries what they make of the current situation you’re likely to get as many different answers in reply. Tim Bevan, co-founder of Working Title and soon-to-be ensconced as Chair of the UK Film Council, identified piracy as the key threat in his evidence to the Lords committee, whereas producer Andrew Eaton (formerly Deputy Chair of the UK Film Council), sees this as "a bit of a smokescreen".

Instead, he and screenwriter Jonathan Gems seem to share the view that we “are in thrall to the American industry”, and this is the seat of the problem. What’s needed, according to Eaton, is a “discussion about how you make the economy of the British film industry work.”

Gems goes further, offering the view that while we have plenty of talent in this country, 

“our industry is just an adjunct of the American film industry. Hollywood dominates. Of course, at the moment Hollywood has the best overall product, but we invented cinema in many respects and yet we don't have our own cinema."

His solution? Convince the European Commission to pass legislation imposing a quota on the proportion of films shown in European cinemas that are made in Europe (50% is the figure quoted). "Then we would get our own industry pretty quickly," Gems says- although quite how this will deliver a more robust British industry remains unclear.

The debate, as framed in this way, is hamstrung both by the lack of a coherent vision of what’s happening on the ground (and it is a complicated picture- there is no single, homogeneous industry), and consensus about what the key issues are. How do you measure the strength and vitality of the film industry (especially given its heterogeneity)? Which indicators might we turn to, and how should we interpret them?

Big questions, indeed. We’ll have to wait until later this year to see whether the Lords Communications Committee can shed any light on the matter. In the meantime we can at least look forward to publication of the Q2 UK production statistics by the UK Film Council’s Research & Statistics Unit (due to appear this Thursday).

Montage: Home entertainment market; Film in Turkey; Spanish film sales; Bradford city of film

Here’s a selection of blog-worthy items culled from the news media over the last couple of weeks:

Writing in The Financial Times, Matthew Garrahan reports new data from Screen Digest that show a decline in global home entertainment sales, which fell by more than $2.6 billion in 2008. Total revenues from DVD and Blu-ray rentals and sales stood at $26.4 billion in 2008. Revenues from DVD (which accounted for two-thirds of the total) fell by 4.8%.

Although sales of Blu-ray media saw a fourfold increase to $482m last year, the format has not seen nearly enough growth to counteract the decline in DVD sales.

Helen Davis Jayalath, senior analyst at Screen Digest, told the FT, “we expect Blu-ray to account for 6.9% of international video spending this year – assuming there is strong promotional activity [by the studios]. However, despite consumers’ interest in the high-definition format and demand for packaged media, the current challenging economic climate means that we don’t expect Blu-ray to be driving even minimal sector growth until 2010.”

Staying with the FT, Pelin Turgut has contributed an interesting piece on the state of play in the Turkish film business, where production levels have risen from 17 films in 2004 to 70 last year. Total box office gross stood at $225 million in 2008, and Turkish films had a market share of 60%, up from 12% in 2004, despite accounting for only 18% of all releases. Turgut quotes Adnan Akdemir, chief executive of AFM Cinemas, Turkey’s largest exhibitor, who notes that international sales are thriving and can expect further growth in countries outside Europe:

“Turkey’s export market isn’t Europe. On a mass scale, my expectation is that the next step is to start exporting films to countries with similar cultural backgrounds, like parts of the Balkans, Central Asia, Russia and the Middle East. Not India, nor Italy. The stories, the background, the way movies look – these need to be culturally applicable.”

While on this subject, figures released by FAPAE, the Spanish Federation of Audiovisual Producers, reveal the strength of Spanish film sales internationally. Sergio Ríos Pérez, writing for Cineuropa.net, reports 72 Spanish productions and co-productions were released in 17 foreign territories in 2008, generating a combined box office gross of €132 million. The most widely distributed title was The Orphanage (in 19 countries), followed by [REC] (14) and Vicky Cristina Barcelona (9).

Overall, Spanish films performed best in France, with box office gross totalling €61.15 million, followed by the US and Canada (€18.92 million), Germany (€13.73 million) and Mexico (€13.57 million).

...And finally, I can’t finish without congratulating Bradford for becoming the first ever UNESCO City of Film. By 'eck!

Oz box office, admissions and home entertainment update, 2008

Shifting focus from New Zealand, subject of my previous post, to Australia, where Screen Australia has just updated its Get The Picture (GTP) research site.

I posted in January that Australia saw its total box office gross rise 6% in 2008, to an all time high of AUS$946 million ($662.2 million), based on preliminary figures published by the Motion Picture Distributors Association of Australia. GTP confirms this annual total stood at AUS$945.4 million for the year, the highest total on record (unadjusted for inflation: data go back to 1976).

However, cinema admissions fell by 1.2% in 2008, to 84.6 million. The average ticket price stood at AUS$11.17, up from AUS$10.57 in 2007.

Unlike the situation in the UK, 2008 saw a fall in the number of titles released in the cinema. A total of 301 films secured release, down from 317 in 2007, making it the lowest total since 2003. Of these, 52% were from the US and 11% were Australian (up from 8% in 2007).

The top ten boffo performers are listed in Table 1. Baz Luhrman’s Australia was the top grossing local film in 2008, taking AUS$26,915,773. Despite this success, Australian-produced films earned AUS$35.5 million of the total Australian box office in 2008, a market share of 3.8% (down from 4% in 2007, and below the 10-year average of 4.4%).

Table 1: Top ten films by box office gross, 2008
On the exhibition side, there were 1,980 active cinema screens in 493 theatres in 2008, with 54 digital projectors operating (double the number in 2006).

In terms of the retail home entertainment market, the value of DVD and Blu-ray sales rose in 2008, totalling AUS$1,306.6 million (DVD= AUS$ 1,280.6, Blu-ray= AUS$26.0). The low volume of VHS sales means the format has finally bitten the dust in the data record. RIP.

US home entertainment revenues, Q1 2009

According to a report in Home Media Magazine, data provider Digital Entertainment Group (DEG) estimates consumer spending on DVD, Blu-ray and content through digital distribution channels totalled $5.3 billion in the first quarter of 2009. This result is better than anticipated in view of the economic downturn, and marks a fall of just 5% on 2008's first quarter total.

Blu-ray discs remain a small part of the overall picture, but spending grew to $230 million in the first three months of the year. Digital distribution also saw growth, with consumer spending hitting $487 million in Q1 2009, up 19% on the same period in 2008.

Feeling the digital heat

The last few weeks have seen a flurry of news stories and events linked by a common theme: the opportunities and threats posed to the film business by digital technology.

Let’s deal with the threats first. For starters, a court in Sweden found those involved in Pirate Bay guilty of breaching copyright laws. That same week, figures released by Italy’s Federazione Anti-Pirateria Audiovisiva (FAPAV) put the annual loss to the local cinema industry at around $699m (Euros 530m). The research, conducted by IPSOS, estimated the number of Italian jobs at risk due to piracy to be around 250,000.

According to the study, just under one third (32%) of Italians (around 16 million) have used illegal copies of films over the past twelve months. These figures include all types of pirate activity but, significantly, online/digital film theft (e.g. illegal downloading and file sharing) accounted for 21% of illegal activity.

Closer to home, last week I attended an event in London hosted by the Film Theft Task Force entitled Digital Heat. The gathering provided a forum for the content and distribution sectors of the industry to consider ‘how digital technologies can be turned into legitimate business for the UK film and TV industries’.

The discussion hinged around the question of how best to capitalise on the opportunities presented by digital distribution while managing the attendant risks. A short AV presentation kicked off proceedings with some indicative data:

Opportunities…
• 67% of UK households had access to broadband in 2008
• 23.5 million people use the internet every day
• 16-24 use it most (77% every day)
• 20.2 million people have used a legitimate online content service - doubling use since 2007
• Most (96%) used free streaming sites

Threats…
• Annual loss to the UK audio visual industries from film theft is estimated to run at around £500 million
• 62% of people who use illegal online services would think twice if they faced suspension by their ISP
• 66% of adult file sharers would stop accessing illegal content if they thought they had a greater chance of being caught

The AV was merely a warm-up act for the main billing: a panel discussion chaired by Michael Gubbins (former editor of Screen International) and featuring Stephen Garrett (Joint MD Kudos Film and Television), Andrew Keyte (CEO FilmFlex Movies), Simon Morris (co-founder and Marketing Director, LoveFilm), Jonathan Lewis (Head of Digital Media at Five TV) and Steve Purdham (CEO, We 7).

I can’t possibly do justice to what turned out to be a highly informative and entertaining debate, but the discussion boiled down as follows:

1. We’re living in a digitally converged age- it’s no longer just around the corner, it’s a reality and it’s time to face up to the fact.
2. The vast scale of online film theft demonstrates one simple truth: there is huge demand for accessible, good quality audio visual content. The legitimate business has so far failed to meet this demand, and file sharing and other forms of film theft are flourishing.
3. Whatever business models are developed to tap this latent demand, they must satisfy three criteria: 

• Online content is very price sensitive (the pirates are offering the stuff for free!)- so download to own or rent, or streaming services, must be offered at very competitive rates, or free to the user (funded by advertising, sponsorship etc.).
• Consumers want content whenever and wherever they can get it: release windows and DRM create barriers and must be scrapped.
• Consumers will switch to legitimate platforms provided they get a good service (something the file sharers cannot provide, or have no interest in providing). That means reliable delivery, high quality product and a user interface that makes purchasing or consuming as straightforward as possible.

There was broad agreement across the panel for points 1 and 2, but less consensus about the solution outlined in point 3.

Steve Purdham was the most vocal advocate of the new approach. His company offers users free music through a streaming and download service supported by advertising (although Purdham is bankrolling the service at present, as he builds the subscriber base). Users have to listen to an advertisement ‘grafted’ onto the start of the free stream, and then they are offered the option of buying the track to download.

Purdham is confident that advertising-led services can flourish, and he made a convincing case for the potential of such a model. By asking users to register for the free service, the door is opened to selling and marketing to them in more conventional ways. Peer-to-peer transactions are anonymous, but there’s an opportunity for legitimate business to build a marketing database on a global scale.

Yet as Stephen Garrett noted, this model may work well for music but the cost of making top quality TV or film content is too high to be carried by advertising-based models alone. He described the situation in the indie TV sector, where companies like Kudos finance production on the strength of future income- and that includes the lucrative DVD and pay-TV markets. The big question is whether online revenues will ever provide the sort of income stream offered by existing ancillaries.

But the matter need not, of course, boil down to an ‘either / or’ option. Looking around at the legitimate online services currently being offered, there are encouraging signs of a mixed economy of services developing. For example, Danny King, writing last week in Video Business, reports growth in Netflix’s first-quarter profit and subscriber numbers. Netflix straddles the physical, packaged media market (DVD rental by post) and has moved into online distribution with its streaming service.

The company saw net income rise by 68% to $22.4 million, as sales rose 21% to $394.1 million. The Netflix subscriber base grew by 920,000 during the quarter, up 25% from a year earlier to 10.31 million, making it the biggest movie-rental service via mail company in the US.

Netflix’s video-streaming service now has 11.5 million customers, and it appears to be augmenting, rather than cannibalising, the existing DVD business: “While it’s clear that instantly streaming movies … is energizing our growth, our subscribers in total are renting more DVDs and Blu-ray movies than ever,” Reed Hastings, CEO, said. The company anticipates the DVD market will peak between 2013 and 2018, but has ruled out a streaming-only subscription option anytime soon.

New online movie services, like iReel.com in the US, are developing all the time, while existing ones are jazzing up their consumer offer. For example, Amazon.com announced last week it plans to launch HD (high-definition video) content to its on-demand service.  "Our customers have been asking us for two things: HD and the ability to watch movies and TV shows instantly on their television," said Bill Carr, Amazon vice president of music and video.

But for all this activity, there is still no single destination offering the breadth of content, viewing flexibility and the value for money demanded by consumers- a point taken up by LA Times columnist Patrick Goldstein in his The Big Picture blog.

‘Why has Hollywood been so slow to put its movies and TV shows online?’ Goldstein asks. Quoting technology columnist Farhad Manjoo, he offers a plausible explanation, citing lessons to be learned from the pirates:

As Manjoo confesses: "I would gladly pay a hefty monthly fee for [a download service] -- if someone would take my money. In reality, I pay nothing because no company sells such a plan. Instead, I've been getting my programming from the friendly BitTorrent peer-to-peer network. Pirates aren't popular these days, but let's give them this -- they know how to put together a killer on-demand entertainment system."

Neither Netflix, iTunes or any of the other legitimate services offer anything like the variety and accessibility of peer-to-peer networks for one obvious reason: they are hamstrung by ‘a "byzantine set of contractual relationships" among studios, distributors, cable channels and a variety of other parties.’

The studios won't release movies online day and date with their theatrical release, fearing the availability will cannibalize their performance in the theaters, not to mention enraging theater owners. After movies arrive on DVD, they are also becoming available on pay-per-view, then a few months later they go to premium, HBO-style pay-cable channels, which get a 15- to 18-month exclusive window in which to show the film. As Manjoo explains: "That's why you can't get older titles through Apple's rental plan -- once the movie goes to HBO, Apple loses the right to rent it."

Movies then "make a tour" of ad-supported cable and broadcast networks before returning to outlets like Starz for a second run. Only years after its initial release, when a film enters its "library" phase, are companies like Netflix allowed to license it for streaming. There's a growing generation of consumers eager to see studios shorten or do away with all these windows, but the studios are in no rush -- they say these deals are worth billions, so why sacrifice built-in profits for an uncertain future?

Goldstein concludes with a warning: if the business fights to protect its existing revenue streams it risks continuing to lose out to the pirates. Consumers will go where the content is- and unless legitimate alternatives are offered in double quick time, a golden opportunity to grow the business in news ways may be missed:

You have to wonder if by the time Hollywood makes movies easily available online, the dogs will have barked and the caravan will have moved on. In other words, it might be too late.

Digital copy: adding value to DVDs

Writing in last week’s Video Business, Jennifer Netherby reports a US study by the National Consumers League that found the majority of consumers expect DVDs they buy to include a digital copy, which can be saved to a computer. The NCL has been looking into consumer attitudes towards Digital Rights Management (DRM), and the survey adds weight to arguments for loosening restrictions on backing up legal purchases.

The research was conducted by Opinion Research Corporation and involved 1,000 consumers aged 18 to 64. Among the other findings, over half of those surveyed (55%) said they purchased fewer DVDs last year, while two fifths (41%) expect to buy even fewer over the coming year.

That’s an obvious cause for concern for the business, but there is evidence that the inclusion of a digital copy on DVDs may entice consumer to buy more. Two fifths (40%) of the sample said the ability to backup DVDs might convince them to purchase more discs in future.

The survey found that despite overwhelming demand for the option to make a back-up copy of purchased movies, few have actually done so to date. But that could well change as the technology develops and people warm to the idea of uploading their movie collection to portable devices like iPods and the like.

“Consumers’ attitudes towards saving content have been shaped by their ability to freely copy the contents of their CD collections to their computers and iPods”, said National Consumers League Executive Director Sally Greenberg of the findings. “Our survey shows that they are eager to have that same ability with their DVDs and are frustrated that the market has not adapted to meet that desire.”

Will this help preserve the DVD (and packaged media in general) from the onslaught of downloading and streaming content? It's hard to imagine why anyone would want to buy a DVD just so they can store it on their PC when they have the option of downloading it in the first place. But with the studios keen to extend the life of packaged media for as long as possible, perhaps digital copy is the way ahead- for the time being at least.

The full report (in PDF) can be downloaded here.

DVD versus digital distribution revenues

Author and blogger Scott Kirsner moderated a panel discussion at the recent SXSW 2009 event (in Austin, Texas), about how indie filmmakers can maximise their revenues from DVD and digital distribution ('The Future of DVDs and Digital Distribution'). Panellists included executives from New Video, Cinetic Rights Management and SnagFilms, plus filmmakers Gary Hustwit and Morgan Spurlock.

Scott’s entertaining and informative Cinematech blog carries an account of the event, and I was intrigued to learn about the relative value of DVD and digital revenues to indie filmmakers.

According to the Cinematech post, the panellists ‘seemed to agree that there's about a 90/10 breakdown today, in terms of the ratio of DVD revenues to digital.’

Kirsner reports that Hustwit’s documentary 'Helvetica' has earned in the region of $60,000 in digital revenues despite being among the top ten documentary downloads on iTunes.

Meanwhile Spurlock's acclaimed 'Super Size Me' doco earned just $1,200 from SnagFilms over a two-month period (and that includes money from 19 other titles supplied by the filmmaker to the site). That compares with 70,000 ‘Super Size Me’ DVDs sold in the US in the last quarter of 2008 alone.

"If you’re looking to pay your rent [with digital distribution], not so much,” Spurlock told the gathering. “But if you’re looking to pay your phone bill, you have a great chance."

By happy coincidence I recently came across some comparable numbers from a UK indie distributor (Metrodome- which released titles including the extreme sports IMAX documentary ‘Steep’, ‘Fear(s) of the Dark’ and ‘The Warlords’ in 2008).

Metrodome Group plc (to give its full name) is a listed company with an investors’ page offering a preliminary financial statement for the year ended 31 December 2008. There’s plenty one can learn about the state of UK independent distribution from the financial data presented (the subject of a future post, maybe), but in the context of Scott Kirsner’s post I want to draw attention to the breakdown of the Group’s distribution revenue in 2008. As we're talking about distribution revenues not filmmakers' income it's not a like-for-like comparison, but I think it's instructive nonetheless.

According to the figures presented in the statement, Metrodome Group derived a hearty 84.4% of its revenues from DVD sell through in 2008, totalling £5.5 million (up from 76.8% in 2007). DVD rental accounted for only 2.2% of total revenues, and cinema sales generated just 2.3%. Meanwhile Video on Demand, which includes sales through multichannel TV platforms as well as online distribution channels, accounted for 5.5% of revenues (£364,000), up 171.6% on the 2007 total.

So while digital distribution remains a relatively small revenue stream, in line with the experiences recounted by filmmakers at SXSW 2009, it does at least appear to be a growth area for Metrodome. It'll be interesting to see how this trend develops over the next year or so, particulary in view of the uptake of Blu-ray (physical media's last gasp?) and the continued expansion of high speed broadband networks (a key driver for online distribution).

Future prospects for DVD and Blu-ray

A number of stories broke last week that offer some interesting insights into the changing dynamics of the home entertainment business, which has long been the film industry cash-cow. But the market appears to be faltering (on both sides of the Atlantic) and a growing number of indicators suggest that in the long-term, the days are numbered for what’s known quaintly in the business as ‘packaged media’.

First up, consultants SNL Kagan forecast strong growth of Blu-ray within the next four years before tailing off as video-on-demand over the internet takes off.

According to SNL Kagan, Blu-ray player sales in the US will triple in 2009 to $765 million, peaking at $6.86 billion by 2013 before dropping below $3 billion the following year as the market reaches maturity.

Consumer spending on Blu-ray discs will surpass the billion-dollar mark this year, and disc sales are expected to hit $10 billion by 2013 (matching standard-definition DVD market share).

Thereafter, however, uptake of video-on-demand services will continue to grow so that by 2017 around 99 million US homes will have a high-speed Internet service, compared with 115 million homes with high-definition disc players.

Here’s what the SNL Kagan press release had to say:

“Blu-ray will be the driving force behind the video retail market throughout the next decade,” said Wade Holden, analyst at SNL Kagan. “The current economic climate, however, will slow the growth of this new format and likely keep it from reaching the heights that it may have in better times. VOD services will continue to improve in both technology and content over the next decade and begin to draw consumers away from Blu-ray and DVD by 2017.”

Meanwhile, Jennifer Netherby, writing last week in Video Business, reports that Universal Studios Home Entertainment, Summit Entertainment and 20th Century Fox Home Entertainment are joining other studios in ‘shutting the window between DVD and video-on-demand as DVD sales weaken and more consumers warm to the idea of on-demand movies.’ Warner Home Video remains the only studio putting most of its titles out day-and-date, a strategy it admits helps VOD and retail sales but can adversely affect physical media rentals.

US DVD market 2008

US DVD market data released a couple of weeks ago paints a dispiriting picture of the home entertainment sector in general decline.

Writing in The Hollywood Reporter, Georg Szalai reports figures released by Digital Entertainment Group that show consumer spending on DVD fell for the second consecutive year, by 5.5% to $22.4 billion (these numbers are on a par with equivalent data published by Video Business, which show consumer spending on rentals and purchases of DVD and Blu-ray Discs fell by 5.7% to $21.7 billion).

According to DEG’s press release:

‘While US DVD sales were off by 9 percent at $14.5 billion, rental transactions (including kiosks) were flat at $7.5 billion. The growth in Blu-ray helped offset the maturing DVD market bringing the overall category to a single digit drop of 5.5 percent in total consumer spending.’

Using data sources from Adams Media Research, which put consumer spending on digital rentals and purchases of films and TV shows over the Internet at $488 million (up 73% of 2007), Video Business estimates that home entertainment consumer spending including downloads and cable VoD fell by 3.5% from the previous year.

Estimates vary as to the size of the Blu-ray market in 2008. Video Business quotes studio estimates at around the $750 million mark, whereas Adams Media Research put the total at $901 million, including $270 million in rental income.

And the outlook? According to Video Business, ‘the general consensus is that 2009 will be a transition year, with another single-digit percentage setback in DVD/Blu-ray spending. Studio chiefs are cautiously optimistic that the industry should rebound to growth in 2010’.

We’ll see.

US home entertainment market: a year in review

With the closing bars of Auld Lang Syne fading once more into bleary memory, along with wistful recognition of another year gone by, we can take cheer from the fact that around this time of year there’s an outpouring of information about what the previous twelve months have served up.

A great example appears in the latest edition of Home Media Magazine (28 December- 4 January), available for free as an e-publication.

Erik Gruenwedel and Chris Tribbey provide a staggeringly detailed account of the highs and lows of the year in home entertainment, one month at a time. They recount the key events in an extraordinary year (for all the right and wrong reasons), including who bought out whom, what flopped (HD DVD, consigned to history back in February) and what flew (Warner’s The Dark Knight shattered records shifting 13.5 million units worldwide in December).

Scanning the past twelve months in this way highlights the daunting speed with which things changed as the economy soured. Thus in February Lionsgate confidently projected DVD sales for the year would be up 6% on 2007. By November the mini-major had released 17 employees (8% of its workforce), despite strong home entertainment sales.

And there was plenty of scope for hubris in 2008. In March, shares in Netflix reached record highs ‘after analysts say the online DVD rental pioneer was too cautious in fiscal projections’. Not cautious enough as it happens: a month later (April), shares in the company nosedived after it lowered full year earnings ‘due to costs associated with offering free streaming to subscribers’. 

The year also saw the first flowering of the enormous potential of legitimate digital downloads. In May, Apple’s iTunes began offering movie downloads to purchase on the same day as DVDs. By June Apple announced that its customers were downloading around 50,000 movies a day on iTunes. And in July, Bob Iger, Disney president and CEO, informed analysts his company had sold 5 million movie downloads on iTunes since 2006. The competition started heating up in November when Sonic Solutions bought movie download service CinemaNow, with its 6,000 title catalogue.

Best of all, Rentrak Corp., the box office tracking company, announced in July it was working with studios to track streamed and downloaded content. Which means better quality data about Internet revenues should be available through the company’s Digital Download Essentials service.

2008 was also the year Blu-ray finally began to take off (after laying its rival format to rest). In October, Paramount’s Iron Man sold 7.2 million DVDs in its first week, and more than 500,000 Blu-ray units. In one day alone it shifted 260,000 Blu-ray units, a record for the format. And in December, NPD Group reported that 147,000 standalone Blu-ray players were sold in the US during the week after Thanksgiving.

UK cinema admissions, October 2008

The Cinema Advertising Association has published UK cinema admissions data for October.

The month saw 13,038,645 admissions, compared with 12,155,575 in October 2007, which means cinemas sold a total of 138,390,384 tickets between January and October 2008, up by 0.1% over the same period last year (see chart, below).

That’s not bad considering the wider travails affecting the economy. It is commonly held that cinema going is largely recession proof, because, the argument runs, people continue to visit the picture palace in search of relatively cheap entertainment while reining in other types of expenditure.

But the evidence is far from clear on this point. And in any case, there are good reasons to assume the present recession may be different. Unparalleled leisure opportunities compete for our attention inside and outside the home, and the ready availability of pleasing diversions online may give us pause before heading out the door. In this context, a modest rise in admissions is actually rather heartening.

October’s tally was driven by the starry-eyed popularity of High School Musical 3 (a half-term opener that amassed £15.9 million during the month), plus Quantum of Solace’s record-breaking debut on Halloween.

Long running Mamma Mia! continued to play its part, clocking up £4.2 million during October, although it has yet to top Titanic’s record box office gross (£69.03 million, unadjusted for inflation).

Last weekend (21-23 November) the film grossed £87,646 from 291 screens, taking its cumulative total to £68,116,092. If we estimate an average ticket price in the UK of £5.00 (last year it was £5.05, so this is an underestimate) that would put Mamma Mia’s admissions around the 13.6 million mark. The average ticket price in 1998 was £3.83 (according to the bfi Film and Television Handbook 2000), so Mamma Mia! still falls well short of Titanic’s titanic admissions total of 18 million.

But Abba fans can take heart. Variety reports the film shifted a record 1.7 million DVD units on its first day of sale in the UK (24 November), putting Titanic’s first day total (1.1 million) in the shade (although the overall DVD market was much smaller in those days).

Montage: Converging media; Danish admissions; BFI research guide

This week law firm Olswang published the results of its annual ‘convergence’ survey, examining UK attitudes to different media platforms. Taken together the findings indicate that viewer choice and control are important drivers of consumer satisfaction, which suggests anything impeding easy access to content, like Digital Rights Management or release windows, is a demand-side no-no.

The research is based on a survey of 1,162 respondents (235 children aged 13-15 and 927 adults) conducted by YouGov between 25 September and 3 October 2008. YouGov also hosted a number of focus groups, designed ‘to explore in more detail the effects of convergence on the activities of distinct types of consumer’. These groups include ‘kids’, ‘mainstream’ adults, ‘tech vanguard’ and ‘laggards’. This last category comprises late adopters, rather than Luddites; the survey and focus groups were conducted online, so all respondents had access to the Internet.

Montage: MySpace and movies; Forecasting Blu-ray in Europe; Mamma Mia! update

If you want to reach the 15-24 age group your best bet is to do it via MySpace according to new research by Nielsen NRG. Marc Graser, writing in Variety, reports MySpace ‘is the top online destination for 15- to 24-year-olds looking for information about new film releases’.

Nielsen NRG surveyed 11,000 15-24 year olds and found that 29% use MySpace first to search for film information. Yahoo and Google were used first by 23% and 14% went to AOL.

Furthermore, just under half (46%) of 15- to 24-year-olds who viewed film information or advertisements online saw the material on MySpace compared with 26% on Yahoo, 18% on Fandango and 12% on AOL’s Moviefone. Nearly 70% of respondents in this age group have an active profile on MySpace.

Here’s a little something for the forecast watchers among you. Home Media Magazine reports Futursesource Consulting’s prediction for shipments of Blu-ray players in Western Europe. Futuresource puts the number at 1.8 million units by the end of 2009, excluding Sony Playstation 3s. This is despite the deepening economic downturn, which the forecasters are confident will help home entertainment markets as consumers invest in longer term durables offering cost-effective diversions. As reported in Home Media Magazine:

'The report cited economic slumps between 1980 and 1983, and in 2001, which revealed that sales of VCRs in the United Kingdom rocketed 440% in the early ’80s, while sales of digital cameras and DVD players continued to grow sharply after 2000.'

And finally… another week goes by and I feel it’s my continued duty to report the latest tally for Mamma Mia! (always finish what you begin…). In its 16th week on release the film took £257,705 from 284 screens. This brings the cumulative box office haul to £66,827,983, still just shy of Titanic’s 1998 total although it is now the highest grossing UK film of all time (judged on box office figures unadjusted for inflation). Now the film faces stiff competition from High School Musical 3, which opened in the number one spot with £8,409,375. And then this weekend the Bondwagon rolls into town with Quantum of Solace so Mamma Mia! may struggle to top £68 million all in. We shall see.

DIY distribution: the emperor’s virtual clothes?

Yesterday I was pleased to attend Power to the Pixel’s Digital Distribution and Film Innovation Forum in London. It was an excellent event: lively, engaging and informative. The line-up was varied and the speakers came across as articulate, intelligent and very, very capable individuals who have managed, by hook or by crook, to bring their creative vision to the masses, or help others to do so.

But…there’s always a but (the proctologists’ motto). As I mentioned in my last post, I went to the event in the hope of finding evidence (i.e. concrete, tangible, bite-me-on-the-bum, QED hard data) of a self-distribution business model capable of creating sustainable enterprises. And I have to say, though it pains me to do so, I came away disappointed.

Digital technology has definitely delivered on its promise of democratising production. No doubt about it. But so far it has fallen short of enabling filmmakers to generate sufficient amounts of cold, hard cash to develop businesses that can thrive in the medium to long-term.

Montage: UK boffo news; Tory film policy; US DVD trade; Slovenia update; Power to the Pixel!

Rather belatedly I stumbled across Charles Gant’s first UK box office post on the Guardian Film blog (posted on 13 October), and it’s worth drawing attention to. Gant is Heat’s Film Editor and a Sight and Sound contributor, and his post provides an elegant and informed thumbnail sketch of the weekend’s top box office performers in the UK.

Significantly, the post came out on Monday afternoon, making it by far the timeliest publication of UK weekend grosses. The equivalent figures in the US appear all over the place as soon as they are available, but in the UK Nielsen EDI keeps a tight rein on publication. For example, the UK Film Council is not allowed to publish its table of the top 15 performers until Wednesday, which is deeply frustrating for all concerned (as blurredvision commented on Gant’s blog post).

By the time you read this, Gant’s second post may already be up (assuming he’s planning to post every Monday). Make the most of it- timely data is a precious resource. The only caveat is that Gant's box office ranking only goes as far as the top ten, plus other new releases.

Before taking a look at the latest DVD retail and rental figures from the US, I’d like to stick with the UK theme a moment longer to bring news of the Conservative’s film policy ideas.

Montage: Boffo updates for Finland and Germany; Netflix slowdown; film studies for free!

The Finnish Film Foundation has just published a box office update for 2008, and it’s good news for local films. They have so far attracted more than 1.1 million Finnish cinemagoers. This puts the market share of Finnish films at around 20%, and, as Cineuropa’s correspondent reports, there is every chance the final tally for local films will exceed last year’s total of 1.3 million admissions.

Meanwhile, German box office results for the third quarter (July to September) are decidedly mixed. Martin Blaney, writing in Screen Daily, reports figures published by Nielsen EDI showing a 7% fall in admissions against the same period last year, although box office gross remained on par for the quarter. Year to date totals (January to September) are down 2.4% for admissions (at 87.7 million) and 1.3% for box office gross (Euros 544.4 million).

Over the pond, Dawn C. Chmielewski, blogging for the LA Times, reports that Netflix, a US based DVD-by-mail and online film download company, suffered a lousy August and only a tepid September due in part to the wider problems afflicting the US economy. 

"Net subscriber growth in July was in line with expectations, but August was unusually weak," Chief Financial Officer Barry McCarthy said in a statement. "In September, the business regained momentum with results slightly below original expectations, likely due to the economic climate."

Michael Pachter, of Wedbush Morgan Securities, told the LA Times:

"The average consumer couldn't help but be scared in the month of September, with all that’s going on," Pachter said. "Even though Netflix is a very low-cost way to watch movies, it’s still hard to commit (to a monthly subscription) if you’re not absolutely secure you're going to have an income, have a job."

Netflix currently has around 8.7 million subscribers, up 23% from the same time last year. So it’s not all bad news.

And finally, here’s a great link. Catherine Grant, writing in her Film Studies for Free blog, has posted a list of Film and Media Studies e-journals available online for free. ‘Free’ is a great draw at times like these (with the free market in freefall), but Dr Grant’s mission goes beyond simple parsimony. Her blog is part of the growing movement towards ‘open access’, promoting ‘free, immediate, permanent, full-text, online access, for any user, web-wide, to digital scientific and scholarly material, primarily research articles published in peer-reviewed journals’ (that's according to Wikipedia’s entry on ‘open access’). In other words, Freedom of Information in the truest sense. Bravo.