Film Fund-amentals: A Day at the Market

Maybe we need to change the name of this column. Something a little more upfront, like The Wall Street Journal. Since you will soon be able to bet on the weekly box office gross,  you’re going to need some solid advice on the betting spread along with the celebrity gossip.

Cantor Fitzgerald LP’s Cantor Exchange is one of two companies looking to run a system for investors to trade on the weekly box office in a manner akin to the current system for farm commodity trading. So this is all pretty much built on a standard Wall Street model of investment opportunities.

Unfortunately, the Motion Picture Association of America is opposed to the idea. They feel it would cheapen the good name of Hollywood by associating the film business with speculative investments that would result in problems like insider trading based upon advanced, non-public knowledge and information leaks concerning upcoming productions.  In other words, what they deem unacceptable is the unapproved release of film financing information that a) the studios tend to be clueless about and b) is largely hidden behind a veil of secrecy. Yes, the proposed idea would force the studios to produce some real financial figures.

It’s a good thing that the MPAA has recently released their 2009 Theatrical Market Statistics Report. Though not the most gripping read, this annual report is about as close as you get in the business to some real data, mixed in with some fanciful assumptions. Primarily prepared for studio executives (well, actually their assistants have to read the darn thing) and theater operators, this report is a guide to some parts of the industry.

Front and center in the report are some lovely graphs showing how the box office has increased from $27.8 billion in 2008 to $29.9 billion in 2009. What does this really mean? Well, it means the increase in ticket prices has almost covered some butts. The 10.1 percent difference in the figures is roughly the same as the increase (not quite, but close). OK, it also means that Avatar took in enough money to make a dismal year look almost good.

The actual attendance breakdown (both US and Canada) shows a 5.5 percent increase. Again, not bad. But if you look at the chart for 2000 to 2009, it would appear that attendance is in (at best) a slow climb from the major drop that took place between 2004 and 2008. Sort of good news, but framed within some not so good news. I believe this is what they call mixed results.

But the really interesting material is in the demographics section of the report. Not surprisingly, only 10 percent of the population is categorized as frequent moviegoers, while the non-moviegoer population is at 32 percent. Since we’re ruling out the possibility that all of these folks are Amish, that means the home market is continuing to take a steep toll on the theatrical side of the industry. With the rapid increase in alternative forms of distribution (e.g. downloadables), this gap will continue to widen during the next few years. By 2012, the non-moviegoer population could creep past the 50 percent mark (which may be the event predicted by the ancient Mayans).

Even more interesting is the gender breakdown. Hollywood is heavily focused on chasing after the interests of teenage boys, but women comprise 52 per cent of the audience and buy 55 per cent of the tickets sold. The actual teenage audience is basically 24 per cent of the house, while the 25-to-49 age bracket makes up 38 per cent. Likewise, female attendance outranks male attendance in virtually every age category (the only exception being ages 2 to 11). So the studios are largely fixated on the teenage male audience while primarily women are buying the tickets. Obviously there are some major screws loose in the Hollywood machine. By comparison, horse racing is a lot more rational.

Production and release of movies are in decline overall. The number of movies produced in the US dropped by 5.4 percent between 2008 and 2009. The number of films actually released theatrically is down by 11.8 percent. But even more interesting, the vast majority of films that do get released are actually indie movies getting released through small distributors. Without these indie movies, many theaters could find themselves stuck offering free screenings of TV shows (as is now being done in some places). So the indie movies are making up the backbone of the industry even while they are being treated as third class citizens. What else is new?

From a betting perspective, the figures suggest some strategies. The safest bet (for the moment) is any piece of tripe currently being unloaded in 3D. However, due to the way the system is rigged, you’re not going to get much return on your bet. The big money is finding the right oddball film with (most likely) a large female appeal that will catch everyone off guard. Unfortunately, these movies often do not have a strong opening weekend, as they normally build their business through long and steady cumulative box office returns (e.g. My Big Fat Greek Wedding). Since the proposed system is focused on the opening weekend receipts, it will favor the tent pole productions (requiring little guesswork and resulting in lower returns).