‘05 Box-Office Slump May Be a Blip in the Big Picture

With apologies to “Chicken Little,” one of the hit movies of 2005, the sky isn’t falling on Hollywood.

Yes, it’s true that box-office receipts in the U.S. and Canada were down about 5% from a year earlier, to $8.9 billion. But that doesn’t mean the movie industry is about to derail.

That’s because smaller crowds at the multiplex don’t have as big an effect as they used to on both the local businesses that rely on Los Angeles-based production and the entertainment conglomerates that fund those shoots.

Movie studios make more money selling DVDs than they do releasing films theatrically. And it is television shows, not feature films, that dominate local shooting.

Here’s a look at why the much-hyped box-office drought won’t cause much of an economic ripple -- at least not yet.

* Domestic box-office revenue is overrated.

Hollywood’s weekend ticket sales get so much attention in part because they are easy for the average moviegoer to digest. Americans like to know who’s No. 1. TV and radio reporters treat the results like a horse race, announcing them during Sunday broadcasts as they would the finish in the fifth race at Santa Anita.

But domestic box-office sales are a shallow indicator of how well the movie business is doing. Since the early 1990s, U.S. receipts have been eclipsed by the box office overseas. Movies that appear to be duds in the U.S. can -- and often do -- turn into hits in foreign markets. Some countries, such as China and Russia, are experiencing a theater building boom, which will increase demand for Hollywood films.

How a movie opens in the U.S. isn’t meaningless -- a good premiere can give a movie momentum, boding well for future DVD sales and boosting the rates that studios can charge down the line for pay-per-view and cable runs. But given the growing effect of global ticket sales, domestic moviegoing is paid a disproportionate amount of attention.

* The local entertainment economy remains robust.

Soundstages are jammed, but movies are only a small part of the reason. TV production in Southern California is sizzling thanks to the soaring demand for original programming from networks and cable channels. A record number of pilots were shot in 2005.

California added about 3,000 entertainment industry jobs in 2005, most of them in television, estimated Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. That would bring Los Angeles County’s employment level in the entertainment industry to about 250,000, one of the highest ever.

Film production appears to be coming back as well, reversing a slide that began in the late 1990s. Thanks in part to more favorable currency exchange rates with countries competing for film shoots, permits for feature production were up about 10% in 2005, said Steve MacDonald, president of Film L.A. Inc., the agency that coordinates local film permits.

* Sea changes take time.

Through 2005, doomsayers predicted that the box-office drop was caused by permanent changes in moviegoing habits. As the theory went, people would rather stay at home and watch films on high-definition TVs than put up with seemingly endless commercials and noisy talkers in theaters.

But the downturn isn’t occurring across the board. Warner Bros., the box-office leader in 2005, enjoyed a record year with such hits as “Harry Potter and the Goblet of Fire,” “Charlie and the Chocolate Factory” and “Batman Begins.”

John Fithian, president of the National Assn. of Theatre Owners, believes that the drop in ticket sales was a result of fewer hit commercial movies being released last year.

Fithian noted that 2005’s slip came on the heels of three huge years in which the industry had such blockbusters as “Shrek 2,” “Finding Nemo” and the “Spider-Man,” “Lord of the Rings” and “Harry Potter” films. Last year’s surprise hit “The Passion of the Christ” also made year-to-year comparisons difficult.

What’s more, Fithian said, people went to more movies over the last five years than they did in the 1970s through the 1990s.

“A 5% decrease is not the kind of year that causes any panic or changes plans. It ain’t a disaster,” Fithian said.

“The hand-wringing has been overblown.”

As long, that is, as movie studios start releasing more movies people want to see, said Russell Schwartz, president of domestic marketing at New Line Cinema.

“This,” he said, “is about making better and more original movies.”

* Old habits die hard.

In the wake of the box-office slump, studios will be watching production and marketing spending even more closely.

“Every picture costs too much and studios always want to spend less. I’m always fighting that battle, and I’m at the top of my game,” producer Jerry Bruckheimer said. “Anytime you have a down year, it’s tougher in the executive suites and they’ll be second-guessing their decisions.”

But don’t expect a wholesale overhaul of the business. Even though studios are trying to keep marketing costs from ballooning, they still have so much invested in big movies -- sometimes $200 million or more -- that they dare not cut back too much.

“It’s still crucially important that we open these movies,” said Warner Bros. domestic marketing chief Dawn Taubin.

Studios are shifting their ad dollars from traditional outlets such as TV and newspapers to growing advertising outlets such as the Internet. But that would be happening regardless of last year’s box-office numbers.

“It’s simplistic to suggest that this past year changes everything,” said Universal Pictures Vice Chairman Marc Shmuger, who oversees the studio’s worldwide marketing and distribution units.

* Hollywood has problems that transcend the box office.

A bigger problem for studios than slowing theater attendance is a slowdown in the growth of DVD sales -- a plateau that arrived sooner than expected.

That’s one of the reasons that Warner, despite its box-office success, is cutting costs, including trimming about 5% of its studio staff.

Studios also are under the gun from parent companies that in turn are being pressured by Wall Street to boost returns. Warner Bros. parent Time Warner Inc., for example, has been fielding unrelenting criticism from investor Carl Icahn, who is trying to break up the company.

“Today, the pressure on the studios is coming from the parent companies -- the media conglomerates -- whether you have a good or bad year,” said Richard Zanuck, a veteran producer whose latest film was “Charlie and the Chocolate Factory.”

* Down years happen.

Some contend that 2005 should be seen as a blip on the radar, not the start of a trend.

Mike Campbell, chief executive of Regal Entertainment Group, the largest theater circuit, said that despite the slump, Regal would continue to build new screens this year. Regal will add about 150 screens to its existing 6,500, he said.

“We continue to believe that the downturn at the box office in 2005 is primarily cyclical and not secular in nature,” Campbell said.

Times staff writer Kim Christensen contributed to this report.