With only one day to the end of the annual Cannes Film Festival, summer season is just about to begin according to Hollywood’s calendar and all the blockbusters are ready to be released, generating both revenues and entertainment.

The film industry has changed vastly in the past couple of years. Given the dynamics of the new technological advancements and the change in consumer demand, the revenue model has reshaped.

In the past, screening on movie theaters was a dull business where the revenues were simply driven from number of tickets sold; cinemas earn about 50% of the ticket sales and about 90% of the cafeteria sales, whereas film-makers share the rest of the tickets sales revenues. For film-makers, showing their movies in theaters was just to promote their movies. Real money came in from home entertainment.

Now as the industry has reshaped, global box office sales grew by 7.6%, however, total revenue of Hollywood’s biggest studios fell. This was mainly due to the increase in revenues from screening in movie theaters and the decrease in home entertainment sales.

In 2008 and 2009, DVD sales fell by 17% as a result of other cheap alternatives, such as movie rental service and the increase in piracy.

On the other hand, global box office sales have increased by 20% in the past two years. This growth was attributed to a number of factors such as the rise in multiplex theaters (cinemas with more than seven screens) and diversification of products, which were helped by the recession as people were looking for cheaper entertainment.

The surge in the number of multiplex theaters unlocked the untapped demand. By showing more movies with different timings, consumers had more options. The number of movie theaters grew from about 3,000 to 16,500 screens from 2006 to 2009.

Movie theaters no longer just offer the same product of a large screen and many rows of chairs. The products are becoming more diversified to take advantage of price discrimination. 3D theaters are becoming more popular as they were the major growth driver in box office sales in 2008. Although they charged a premium, consumers flocked to major blockbusters such as Avatar and Alice In Wonderland. Moreover, theaters that offer IMAX screens and premium seating are charging about 50% above the regular ticket.

Tags: Avatar, Films, Hollywood, Recession

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