Movie costs hit new high

The average cost of making and marketing a movie soared above $100 million for the first time last year, according to data released at the annual ShoWest theater owners’ convention, which got underway Tuesday.

Production and marketing costs climbed to an average of $102.8 million for the Motion Picture Assn. of America’s seven member studios. In his characteristically colorful language, MPAA Chairman Jack Valenti likened spiraling costs to a “tapeworm nibbling and chewing at the fiscal molecules of our business.”

Domestic theatrical admissions declined 4% in 2003 to 1.57 billion. Valenti took pains to point out that despite the decrease, admissions were still higher than the 1.49 billion tickets sold in 2001.

No Valenti speech would be complete without dire warnings about piracy. While no hard data suggests that the illegal copying and selling of bootleg DVDs is yet having a significant impact on theatrical grosses, the problem will get only worse as technology improves and transferring movies via the Internet gets faster, Valenti warned.

Valenti also announced that this would be his last time at ShoWest as chair of the MPAA and that he was hoping to officially retire in May after 38 years at the helm of the motion picture industry’s lobbying organization.

“You always want to leave before people want you to leave,” the 78-year-old Valenti said at an early morning press conference at the Paris Las Vegas Hotel. “The time is now for me to depart as CEO. I feel that in my gut.”

Valenti’s impending departure comes at a time of immense challenges facing the industry. While movies are still one of the most reliable forms of entertainment and a leading export around the world, the studios are increasingly spending ever-higher amounts making and marketing movies.

The per-movie average amount of money the MPAA’s member studios paid in production costs last year climbed 8.6% to $63.8 million from $58.8 million in 2002. The average cost of marketing a film also went up from $30.6 million to $39 million.

Those costs, coupled with the decline in domestic admissions from 1.63 billion people in 2002 to 1.57 billion in 2003, point to the continued risk of erosion of domestic box office for the major studios.

In addition to the lack of a studio blockbuster on the level of “Spider-Man” or an indie breakout such as “My Big Fat Greek Wedding,” one reason for the box office drop may have been the increase in R-rated films released last year.

Because the R rating limits the audience, exhibitors usually prefer films to carry a PG or PG-13 rating. Of the 940 films that were rated in 2003, 646 were rated R compared with 539 in 2002. (Only 473 of the films rated last year were released.)

International box office revenue was up 5% to $10.85 billion, surpassing domestic box office returns for the second consecutive year, although overseas admissions also declined. The MPAA’s official U.S. tally was $9.49 billion. For its statistics, the organization includes Canadian box office as part of the international total rather than adding it to the U.S. to arrive at a North American total.

As the international box office continues to grow, the sale of DVDs and videos is also skyrocketing. But piracy remains a serious threat.

With 90% of the films being uploaded and swapped on the Internet coming from camcording in theaters, an observer asked John Fithian, head of the National Assn. of Theater Owners, if the movie industry should release DVDs on the same date as a film’s theatrical opening.

Adhering to their official positions, Fithian and Valenti were adamant that nothing could replace the theatergoing experience.

“There is an alchemy that you get in a theater that you just can’t get in somebody’s den,” Valenti said. The point of going to the movies, he said, is “to be entertained and to have an alluring social experience.”

Fithian added that theater owners did not want to see the window of time between a movie’s theatrical opening and its video/DVD release continue to shrink. That average span of time decreased from five months, four days in 2002 to four months, 23 days in 2003.

Still, Fithian and Valenti were optimistic about the state of the business, maintaining that while the 2003 box office was down, admissions were at their second-highest level since 1957.