Aging Script Used on Business Side of Movies Needs a Rewrite

Imagine a business that hasn’t changed much in 64 years. Price and quality aren’t related. There’s often no easy way to find out which products are available. Credit cards aren’t accepted, and you can’t order by phone.

Now imagine that your business, an unusually risky one but a linchpin of the region’s economy, depends on this other business. Wouldn’t you be a little concerned?

One hopes so. We’re talking here about the movies. A large part of Southern California’s economy--the film business--depends on a collection of exhibitors whose way of doing business has changed little since “The Jazz Singer” revolutionized the industry in 1927.

It’s a truism by now that the entertainment business is vital to this region. A study by the Los Angeles Area Chamber of Commerce estimated that industry-related employment in L.A. County is 178,300. The $11-billion business is also crucial for tourism and even helps the state’s apparel industry, which benefits from Hollywood glamour and design. Without Hollywood, the U.S. trade deficit would balloon.

Yet movies depend on an archaic delivery system that may not be able to keep up with the times. There are already too many theaters chasing too few patrons, and over the long run, technology and the exhibitors’ slowness to adapt will likely continue taking a toll. As if to foreshadow what may be coming, this summer was one of the worst at the box office in 20 years.

“I suspect there really is a secular shift going on, based on demographics and technology,” says Harold Vogel, an analyst at Merrill Lynch & Co. whose perceptive book “Entertainment Industry Economics” is a standard work in the field.

Forget the big box-office figures you so often see bandied about. Adjusted for inflation, box office since 1970 has grown just 0.2% annually, a snail’s pace. Ticket prices in constant dollars actually fell, and U.S. population grew by nearly a quarter. Yet ticket sales have been stuck at about a billion a year for most of that period.

Already, U.S. theatrical releases account for just 16% of major studio revenue, Vogel says. Foreign theaters chip in 9%. But home video, once bitterly opposed by the studios, now contributes 39%.

Not only isn’t theatergoing growing. In the future, its importance will diminish.

Technology is one big reason. Stereo TV sound is already prevalent. High definition television may be a while in coming, but it can’t be stopped. And new ways of delivering entertainment--cheaper and easier ways--are knocking at the door.

Consider a remarkable GTE experiment in Cerritos, where a group of homes has been wired with fiber optic cable, giving residents instant access to a panoply of information and entertainment--including movies on demand, delivered right into their homes. All you have to do is dial and watch.

Theater owners haven’t always helped their cause. They didn’t sell tickets by phone, didn’t accept plastic, didn’t make it easy to learn about sell-outs in advance, didn’t improve their sight-lines and didn’t please customers (and make more money) by offering cappuccino and crudites.

Finally, some are trying. In Southern California, the Mann and AMC chains have signed on with Tele-Ticket, an interactive system that lets customers charge tickets over the phone for an extra 75 cents per ticket. But you may still have to line up at the theater to get a good seat; Del Banjo, senior vice president of Pacer-Cats, a theater-services firm that owns Tele-Ticket, says the system can provide assigned seating, but theater owners don’t like the idea.

AMC is also working on ATM-like ticket dispensers that take plastic and sell snack vouchers. Several AMC theaters have cafes.

Bruce Corwin, president of Los Angeles-based Metropolitan Theatres, is adapting to changing demographics. Metropolitan has twinned some theaters in Latino areas, showing movies with Spanish subtitles on one side and movies dubbed into Spanish on the other. The concession stand serves Mexican snacks.

But demographics are also a threat to movie theaters. America is graying--the median age is up 5 years since 1970--and sooner or later the baby boomers’ prolonged adolescence will wane. Although the high divorce rate helps--movies seem to offer indispensable context for the mating ritual--the trends aren’t good. Looking at seven other industrialized countries, for example, Vogel finds ticket sales trending sharply downward since 1970.

On the other hand, foreign TV sales have boomed. The rise of private TV overseas is opening up markets, as will the collapse of the Iron Curtain. Despite all this, the fate of most Hollywood films depends on theatrical release. “If the picture doesn’t do well at the box office, you can’t sell a lot of cassettes,” says Tom Sherak, executive vice president at 20th Century Fox.

It’s an expensive system. The studios, which spend an average of $27 million to make a movie and another $10 million advertising it, lay out $1.7 million per picture just for prints, or copies, of the film, which must be schlepped to every theater that will show the thing, no matter how briefly.

That all this will someday change isn’t really so bad. On the contrary, the easier it is for people to get a product, the more they’re likely to buy. And when the studios figure out how to sell a movie without relying on theatrical release, they’ll stumble into a whole new set of opportunities.

It’s hard to quantify, but judging from the people I know, this country is full of grown-ups ransacking the video stores for something to watch.

This is probably because the theater audience is very different from the potential video audience, but so far no way has been found to make and deliver the kind of movies the latter will watch.

As for going to the movies, it’ll never die out altogether. As Corwin says, “People want to get out.” All the theaters have to do is make it less of an ordeal.