Impact of Recession on Movie Industry
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Writing this dissertation was a long and exhausting process which included many setbacks and failures. Nevertheless it also was fulfilling and exciting as I was driven by my passion and interest in movies and cinemas in general. I always intended to work for the movie industry one day and hold well- grounded hopes of achieving this goal in the near future. Maybe this dissertation will help to convince the studios of my passion and capabilities.
My thanks go to Mr Nick Bowen, who was an outstanding tutor and helped me through rough and inconvenient times with his competence and great sense of humour.
I also would like to thank me interviewees Mr Arwed Fischer and Mr Jan Fantl, who provided me with many important information and an inside into the industry. Without them, a big part of the report would not have reached the standard it has now.
Finally, I am very grateful for the help of my parents who made it possible for me to go to London and provided me with everything I needed in order to be successful and happy in the future. I do not want to forget to thank everybody else who supported me during this tough time and cheered me up after one of the occasional setbacks.
Recently the film studios are experiencing a boost of attendances and ticket sales despite the financial crisis. This already happened in past recessions and therefore will be analysed in this report. One reason for that economical immunity seems to be the technological development such as sound and colour in the past or 3D cinema nowadays.
Nevertheless there are some issues the industry has to deal with at the moment, e.g. piracy or substitution goods like videogames. Although 3D movies did fail continuously in the past in terms of economical success, the studios tried it again with an advanced technology and exceeded all expectations when Avatar was released. In this context factors such as rising ticket prices or the limited number of 3D capable cinemas play a big role as well in order to determine the future potential the 3D technology. A few companies already started to produce and sell 3D capable TVs which are supposed to the next economical success the movie landscape. IMAX cinemas suffered a long period of very low attendances and decreasing ticket sales until advanced 3D technology has been used to produce movies. Since then the IMAX group notes record breaking attendances and boosting profits. Two surveys have been analyzed and compared to each other. One, published in 2005 by Opinion Dynamics Corporation already showed some curious facts on 3D cinema and its likely success in the future. The second one has been generated online by the author of this report in 2010 amongst a group of people from 10 countries.
In terms of forecasting a success of 3D movies it is very hard for the studios to forecast the success of a single movie or even a whole new technology. They mostly try to find what is most appealing to the audience (unlike independent productions) and therefore have their analysts forecasting risks and returns. Nevertheless DisplaySearch 3D Display Technology conducted a forecast which is quite optimistic and expects increases in every sector of the movie industry (cinemas, home cinemas etc). The recommendations include the author's personal opinion of how the 3D technology will influence the cinema landscape and the options studios have to market it properly. By interviewing people from the movie industry the author gathered some inside knowledge which he tried to apply to his recommendations. Therefore it is expected that the boom of 3D movies will slow down slightly but continue to strengthen again. In the long term it is expected that the new technology will have a positive impact on the movie industry.
According to Dreamworks Animation CEO Jeffrey Katzenberg, the upcoming 3D movie technology is "the greatest innovation to occur in the movie business in 70 years." (CNN Online, 2008) This statement shows the hope of the whole industry for more attendances and a revolution in the movie market. An increasing amount of movie studios shift their productions towards the new technology. As a result this is discussed in a rising number of TV-shows, magazines and newspapers. Despite the fact that videogames are becoming more popular and the financial credit crisis has reduced average income, going to the movies still seems to be a big part of daily life all over the world. This happens even though the whole film industry seems to be in a crisis, as will be explained below.
Initially 3D movies were produced using 2 separate projectors to produce one double image and running two separate rolls of film. Nowadays the technology is far more advanced which means that digital projectors are installed in cinemas producing sharper and steadier images. There also is a difference in production between 'real' movies and animated ones. Animated movies are not produced with real cameras but use computers to create and render every single shot from two angles. Live action movies on the other hand are filmed by new dual lens digital cameras that are able to capture two points of view. (BBC news, 2009)
Movie attendances in the United States decreased by 2, 6 %, falling to its lowest level since 1997, whereas revenues fell from $1,484 billion in 2004 to $1,364 billion in 2008. In the same period the amount of screens jumped from 35,993 to 39,476. To be able to show 3D movies, it is necessary to upgrade to digital screens; here the number increased from only 138 in 2004 to 4,576 in 2008, a rising trend. (Marche du film, 2009)
Linking these data leads to the conclusion that the movie industry is keen to establish and invest in a new technology in order to make going to the cinema more attractive to its customers and increase attendances in the short and long-term.
The following report analyses the current status of the movie industry and shows the likely economic impact in times of recession on the worldwide market. The industries' main current issues and a forecast based on trends and profound market research are also examined.
2. Literature Review
This chapter summarises and evaluates the related research of what has been written about the research topic. Opinions and data from many different people, working for the movie industry or being close enough to venture a forecast, have been taken into account and evaluated objectively. The chapter also defines and explains the new 3D movie technology, its history and its characteristics from different perspectives. Furthermore it covers several models and theories and talks about reports and how to estimate their importance. This is followed by an evaluation to point out weaknesses or gaps in the literature. The final part will consist of a link to the initial research question and what the plan for proceeding is. Overall, there are 3 main questions to be covered in this chapter:
1. How did big studios fight back in past recessions?
2. How have technical developments influenced business in the past in different markets?
3. What are current issues in the industry?
It also is evident that due to the newness of the topic chosen, there are certain constraints in terms of what kind of literature is currently available. Therefore the main sources cited are websites as well as primary research.
2.1 Comebacks of the Studios in Past Recessions
After the first big Wall Street Crash in 1929, admissions rose by 58% compared to the previous year. (Entertainment times online, 2008) According to John Fithian, president of the National Association of Theatre Owners in America, this means that “In the past four decades there have been seven recession years in this country, and the box office has climbed strongly in five of those years,” (Entertainment times online, 2008) According to the Academy of Management Journal (1996), between 1936 -1950 property based resources such as long-term contracts with stars and theatres helped financial performance to stabilize. Contrary to the period of 1951-65, when knowledge- based resources such as coordination and production talent and budgets increased financial performance. (Academy of Management Journal, 1996, pp. 519-543)
Asking some of the most important and powerful people in the U.S. and UK movie industry shows that the majority believes that the current recession either is an opportunity or even a reason for rising sales. But what is the reason for that surprising success in economic downturns?
Besides new technologies, which unfortunately are not always released at the right time, the studios decide to publish more comedies and action movies, to help the audience to escape from their monetary problems. In the USA, three of the top-five movies in terms of gross profit of 2009 are comedies: "Mall Cop," "He's Just Not That into You" and "Bride Wars". (CNN movies, 2009)
This permits us to draw the conclusion that a recession does not necessarily lead to a break-down of sales in the movie industry. But did past recessions really have no impact or even a positive impact on the movie industry?
Not everyone agrees with the theory of increasing sales in recessions though. Gerald Peary, a documentary filmmaker and critic in Boston, Massachusetts, believes that the market will be flooded with intellectually less challenging movies since they are the ones that are more likely to succeed on the audience with smaller budget. In his opinion "The dumber the movie is, sometimes, the more money it makes," which states that "Those movies are somehow both critic proof and depression proof." (CNN movies, 2009)
Another point of view is represented by Basinger, the film historian who assumes that it is still too soon to predict any trends concerning the recession and movies. She points out that recessions leads to faster changes in the movie scene. Also for her, going to the movies is not highly affected by the crisis, as it still is "[...] the cheapest and fullest way to abandon your troubles and lose yourself in a story." (CNN movies, 2009)
Even in some of the worst recessions, economy ever has experienced, the movie industry mostly has been of the few sectors that was able to maintain its position in the market or even increase admissions. This is due to peoples' not changing consumer behaviour. Even though they got affected by economic downturns, most of them still wanted to escape from their misery for a few hours. It also is an opportunity for independent film makers to realize low-budget productions, as movie studios get more cost- conscious when their stocks fall during a crisis. Henceforth studios prefer to invest little money in innovative productions and directors hoping for a reasonable return of investment.
2.2 Technological influence on Business in the past
Around 120 years ago, films were little more than drawings that seemed to come alive with motion. Then, in 1877 Emile Reynaud had patented a machine, the ‘Praxinoscope', which projected seemingly moving paintings onto a screen. An upgrade of his invention, the 'Projection Praxinoscope', which was a large-scale Praxinoscope, got patented in 1888 and was used for public projection. Reynaud started to screen his films, accompanied by music on a regular base. Yet that early atmosphere and technology were very similar to today screenings. (Kinogeschichte, 2009) Using spools to feed and take-up the extended picture band, sequences were no longer limited to short cyclic movements. This was the first and important step for commercial use which has been so essential for successful cinematography. (Exeter, 2000)
Nevertheless, there were still many issues concerning films, amongst other things the length of them or the lack of sound. To compensate this problem, it was tried to create a more realistic, narrative and psychological atmosphere using on-screen text and a pianist accompanying the film. Back in 1927, after the introduction of movies with full sound, cinema attendances jumped up from 57 million to 90 million in 1930 (Shmoop statistics, 2009) and made them even more popular. This demonstrates that introducing a revolutionary technology can lead to soaring attendances and higher box office sales for the studios. Also the lack of colour on screen was tried to be compensated to improve the movie experience. One of the first ideas was to tint the film reels but later prising companies such as ‘Technicolor' and ‘Eastmancolor', made it possible to use new ways of colouring and achieved the objective of a deeper and more intense atmosphere. (Inventors library)
Nowadays black/white movies disappeared almost completely from the world of movies. Although, the success of films like ‘Schindler's List' (Steven Spielberg, 1993) and ‘Clerks' (Kevin Smith, 1994) shows that it is still possible to achieve commercial and critical success with monochrome. (David Parkinson 1995, pg 112)
After releasing the first full-colour, La Cucaracha (1934), coloured movies became more and more popular. In the late 1930s, the films,Snow White and the Seven Dwarfs' (1937, Disney), were a huge success. Last one still is considered a milestone as it was thefirstfeature-length animated film. (Filmsite, 2007) Introducing new, revolutionary technologies and giving them the chance to go to maturity stage of the product lifecycle always has been very profitable for movie studios. Be it the implementation of sound or the introduction of colour, people loved to spend their money on being amused in cinemas.
2.3. Current issues in the industry
There are more problems and issues the movie industry has to deal with besides the current substantial crisis and recessions. These will be examined in the following sections.
2.3.1 Videogames as substitution goods
Amongst many threats for the movie industry such as the highly developed internet, DVDs and an increasing amount of home activities, one of the main problems for the movie theatres and studios is the rising and durable success of videogames.
First released in the 1980s, videogames have been designed for a significantly smaller target audience. This was attributed to the fact computers were still in the early stage of their product life cycle and thus the presence of computers in the average household was a much less common occurrence. The commercial use of computers was much more prominent during this period, than their household residential usage. Even with the introduction of platforms such as the SNES (Super Nintendo Entertainment System) in the 1990's, the Videogame industry was still viewed as a niche market. It was never anticipated to develop into a competitor of the movie industry as it is nowadays. Currently, the profit generated from videogames equates to that of their movie counterparts. Current trends indicate that consumers have a tendency to spend more on buying videogames as opposed to going to the movies which has been identified as a huge threat for the studios.
Just recently, in the beginning of November 2009, Activision Blizzard Inc's released "Call of Duty: Modern Warfare 2" and anticipated more than $660 million in sales from 11-13 million sold units by the end of 2009.
Also previous games were big hits in terms of sales as the table below shows.
Top video games sales on their first day
Grand Theft Auto IV
( Reuters, 2009) Figure 1
These data can be compared to Top Hollywood worldwide opening weekends:
Harry Potter and the
Warner Bros 2009
Pirates of the Caribbean:
At World's End
( Reuters, 2009) Figure 2
As aforementioned and illustrated by the tables (Figure 1 & Figure 2) above, it is evident that data solidifies the trend that an increasing number of consumers are changing their consumer behaviour and purchasing videogames which they may enjoy at home. Another possibility for the rising success of videogames could be the fact of potential consumers rather staying home than spending money on transport for getting there and quite expensive snacks and drinks in the cinema.
This data backs up the trend that more and more consumers tend to shift from going to the movies to buying videogames which they can enjoy at home. Even if they are more expensive (around $50/ unit depending on the platform) the duration of playing them is far higher than only two hours. This makes them a substitution good with which the studios have to deal with now and most likely even more in the future. On the other hand this also creates new opportunities for the movie and the game industry to work together and create profits by co-operating. This is already working in terms of converting movies to videogames but also the other way around.
Another very recent issue and problem for the movie industry is the rapid spread of illegal movie copies, also known as pirate copy. In 2007, downloads of movies rose by 50 % in Germany, mostly saved as digital copies. ( Welt online, 2009) According to The Institute for Policy Innovation (IPI), the cost of motion picture piracy is significant high and an essential threat to the studios and the whole industry. The loss for the movie industry was $6, 1 billion in 2006. Taking all industries into account that are related to the movies that number would add up to $20.5 billion annually. This means that not only the studios and related companies lose money. It also means that people are losing jobs. Piracy being absent, 141,030 new jobs would have been added to the U.S. economy in 2006 (IPI, 2006) Henceforth the studios are in an on-going war with the movie pirates trying to reduce losses. The enormous impact on U.S. and worldwide economy forced the industry to consider distinct strategies to decrease or even stop piracy. Besides Ads, showing movie pirates chased by police and going to prison as for every other federal crime, the industry also adopted a hard line by suing them for compensation. This found its peak in sending four men to prison for one year and ordering them to pay $3.6 million of compensation to major film companies such as Warner Brothers, Columbia, Twentieth Century Fox, Sony BMG and EMI. (CNN Piracy, 2009) They operated a Swedish movie pirate website which has been judged of being illegal.
In total, piracy and the recession have reduced DVD sales in the UK by around 10 % and in the US by even 13 %. The problem for the studios is that DVD sales are responsible for half a title's long-term profits and more than double the revenue than from tickets sold. (Independent Online 3D Revolution, 2010) Hence Hollywood always tries to find new ways of protecting their movies and anticipate copyright theft.
Consequently they always need new technologies which cannot be hacked but according to Arwed Fischer (Fischer, 2010), it is almost impossible to find the perfect safety. Hackers are able to break any copy protection within days or hours. In fact, this made him quit the job as resources seem to be wasted on nothing. Critics on the other hand state that the way of how to calculate losses for the movie industry is neither transparent nor comprehensible. The studios claim that each single pirate copy is the same as one loss of attendance. This is one of the reasons why mentioned losses are extraordinary high. People that just downloaded the movie and never considered going to the cinema or buying it on DVD are not included in these statistics which makes them quite subjective. On the other hand, the new 3D technology makes studios feel quite safe at the moment as it yet is impossible to pirate 3D featured movies. Hence people who want to experience this new way of cinema must go to the movies and pay for their tickets.
James Cameron also is aware of this unique selling point when he says: "You can pirate a 3D movie but you can't pirate it in 3D, so you can't bottle that 3D experience." (New Yorker Online, 2009) Although this is a justifiable and legitimate objection, piracy remains one of the industries' biggest problems. Even if not each ‘pirate' can be considered a loss of attendance and ticket sales, it remains an act of stealing. The studios spend millions of Dollars to produce profitable movies which are linked to many jobs. That should not be undermined by downloading movies instead of going to see them in the cinemas and pay the entrance fee.
3. Research Methodology
This chapter explains the approaches used to facilitate a precise and specific answer to the initial research question. In order to gather relevant and accurate information both, quantitative and qualitative data will be used. However the author's focus will be on qualitative data collection. The potential bias of primary is quite low due to a wide range of interview partners, all from different sides. Secondary data has been gathered under same criteria in order to minimise the risk of potential bias.
Where, if possible, the author tried to look for alternative explanations and to show that he was aware of any potential bias.
3.2 Justification of Research Perspective
Every research requires distinct methods recommended for structuring research programs. In this dissertation, it has been chosen to base all outcomes and results on actual data or professional forecasts like interviews, surveys and questionnaires. Copies of them can be found in the appendix. A high level of discipline was necessary and essential at the beginning of the research. Even though it got disappointing at some points, as the researcher took a wrong path, objectives from books by Mark Saunders (2009) helped the author to keep focused and motivated.
According to Saunders
* “Data are collected systematically
* Data are interpreted systematically
* There is a clear purpose; to find things out”
(Saunders et al, 2009)
3.3 Primary Data Collection
The author attempted to use all the important primary data collection methods such as interviews, networking and surveys in order to analyse the data objectively. This leads towards an accurate answer to the initial research question.
Interviews with people from the movie industry such as former employees of copyright companies and cinema owners have given a deep insight into the topic.
* Arwed Fischer, former employee of X-Protect GmbH in Munich
* Representative of the 'Kinopolis' group, one of the biggest German cinema chains, who wants to stay anonymous.
* Jan Fantl, producer, production manager and former director
Several approaches for the interview structure have been considered and led to the following conclusion: Although unstructured interviews have the advantage of "complete freedom in terms of content and structure" ( Kumar R, 2005), the author of this report decided to mostly use structured or hybrid interviews for his research purposes. This represents a spot in-between the unstructured and structured interviews in Figure 3. That was given due to the fact that face-to face interview were not possible for a number of reasons such as travelling cost or lack of time of the interviewees. Nevertheless personal interviews would have given the author some advantages such as observing his interviewee as well as listening to him or the chance to gather the data more efficiently. (Hollwitz, J. & Wilson, C.E. 41-52)
Therefore it has been decided to make use of telephone interviews, which are far less costly than personal ones, and mail questionnaires which require accurate question design to match reading comprehension of the interviewees. (Using Structured Interviewing Techniques, 1991) Especially mail interviews have been proofed to be quite efficient because interviewees took their time to think about the questions before answering them.
An online survey has been generated and distributed by the author of this report. 47 people aged 22- 50 and from 10 countries filled out this online survey which has been piloted before with 5 people in order to make it more precise and accurate for a wider audience. It was created on the 07.April 2010 and has been closed on the 07.May 2010 .To generate it the online platform www.surveymonkey.com has been used. The complete survey can be found in the appendix of this report. Due to easier access given times and resources it was not possible to have interviews in other countries like the USA or India. At a later point in this report it has been compared to another survey taken by Opinion Dynamics Corporation in 2005 before the 3D technology boomed yet. This will show the process and change of customer's opinion on 3D movies. Also a questionnaire has been conducted by the author. It has been sent via to several people of the movie industry. The response rate was rather poor as asked people seemed to be busy. Standard questions have been used in order to facilitate the collection of data and due to limitations in terms of time and resources. The questionnaire can be found in the appendices in section 8.1
As aforementioned, the potential bias has been considered in the evaluation process.
Another option to be deemed is the use of a supervisor or mentor. He made sure that collected data was rather objective than subjective and could provide the author with constructive criticism.
3.4 Secondary Data Collection
Thanks to a wider range of secondary data available, the author collected a lot of relevant information on the topic. He did this through a critical evaluation of literature, not only from the USA but also from Europe to accomplish a fair and accurate picture of the industry and its potential in the future. Parts of the research were also based on past and current trends and forecasts that justify arguments and recommendations. In order to sufficiently cut down the total amount of data, the author interpreted data sourced mainly from smaller subgroups rather than “all possible groups” (Saunders et al 2009, p 150 & 152)This method saves the author valuable time and also makes research and evaluation of data more efficient by using a smaller pool of information.
As every other method, this one also has disadvantages, such as gathering the wrong kind of data or using irrelevant data which cannot answer the initial research question accurately. Also some academic literature such as the "The Academy of Management Journal" has been used to provide a different angle of the research question.
A SWOT analysis on the current situation of the 3D Technology and outline possible threats and opportunities for the whole movie industry has been carried out. As a planning tool a SWOT analysis has many benefits like the simplicity of taking one. Nevertheless this can lead to problems like underestimating the value of a SWOT analysis or to an imprecise and weakly conducted analysis. (Ferrel & Hardline, 2007, p. 119-120)
More benefits can be seen in Figure 4:
No need of extensive training or technical skills, only comprehensive understanding of industry and company
Since there is no need for training, costs for conducting a SWOT decrease.
A SWOT analysis can be conducted without using extensive marketing information systems as well as using them to make analysis smoother and efficient.
Integration and Synthesis
Opportunity of integrating and synthesizing qualitative and quantitative information. SWOT can deal with a wide diversity of information sources.
SWOT analysis encourages collaboration between different functional areas.
(Ferrel & Hardline, 2007) Figure 4
3.5 Conclusion of Methodology
Using all the aforementioned methods and approaches, the author attempted to find an accurate answer to the research question. Giving the reader a deep insight into the topic and a widespread view of the 3D Technology opportunities and risks has lead to a complete understanding of the subject. All data has been analyzed and evaluated neutrally so a conclusion has been objectively drawn.
4. Findings and Analysis
This chapter starts with an explanation of the technical side of 3D technology used today followed by an overview of the history of 3D movies and a SWOT analysis. After that, the role of 3D movies in general and in combination with IMAX cinemas as well as the importance of Avatar will be discussed. The chapter will concluded with the comparison of two surveys (for further information please see research methodology) and a forecast.
4.1. How does 3D technology exactly work?
First of all, the binocular vision system is based on the fact that the eyes of a human being are spaced 5 cm apart. Consequently each eye sees the picture from a different angle. At the same time the binocular vision system in a brain is using the difference to calculate the distance. The brain also has the ability to show a relationship between those images even though they are slightly different. The brain can choose objects in the two scenes and work out how far an object is between those images. (How Stuff works 3D glasses, 2010)
The reason for wearing 3d glasses is to provide different images into your eyes. The movie screen in fact shows two different images and the glasses cause one of the images to go into one eye and the other one to enter the second eye. There are two widespread systems of doing it
* Polarization: The majority of the big studios such as Disney or Universal the first choice are polarized lenses for the glasses because they allow colour viewing. Two synchronized projectors project two individual views onto the screen, each with a diverse polarization. The glasses only let one of the images to enter each eye because they hold lenses that are polarized as well. This is comparable with the polarization of sunglasses.
* Red/Green or Red/ Blue. Since polarization cannot be used on a traditional TV screen (unlike on upcoming 3D TVs which will be dealt with later on in section 4.7) the red/green system is used. Again 2 images are displayed on the screen, one in red and one in blue/green. The filters of the glasses only allow one picture to enter each eye. The brain has to correlate those pictures as aforementioned. It is not really possible to use a normal colour movie when using those glasses which makes the image quality far poorer than the polarized one.
(How stuff works, 3D glasses, 2010)
* There also is the possibility of rapidly showing two alternate images one right after another. Special LCD- glasses obstruct the vision of one eye and then the other one in fast sequence. This technology allows colour viewing on a normal TV if certain equipment is provided. One weakness is the high price of the equipment needed.
(BBC News, 2008)
4.2 History of 3D Movies
The movie industry is experiencing the third big wave of 3D movies after two big failures in the past in the 1950's and 1980's. In the beginning it was promoted as the "The Miracle of the Age!!!" or a "lover in your arms"(Independent Online 3D Revolution, 2010) In 2008 the big studios tried the establish 3d movies again which has been quite successful ($240 million box office) but only Avatar in 2009 helped the new technology to finally become popular and the 'miracle" studios expected it to be. Hence more and more movies are produced or post-produced in 3D to the point that today 3D screenings have outperformed their 2D counterparts by more than double in attendance rates and over three times in profits. The graph below (Figure 5) shows 3D film releases over the years starting in the 1920's until the point when HD technology gets released. It also takes into account the IMAX and its peak in terms of attendance in 1997.
(The 3D revolution, 2009) Figure 5
The table below (Figure 6) summarizes the main differences between 3D movies in the 1950's and 1980's and today:
3D movie booms in the past ( 1950's and 1980's)
Current situation/ Today
Screening System/ Technology
Two sets of projectors and movies needed --> comparably higher cost to set up and run them
General use of digital 3D makes it more feasible to implement 3D screening systems
Movie Content/ Genre
Mostly Horror movies, over the top 3D effects --> causes eye train, nausea
ü Increased Know-how in showing 3D makes viewing more relaxed
ü Widespread use of CGI makes it easier to produce 3D movies.
Figure 6 (Created by the author)
4.3 SWOT Analysis
A SWOT analysis also has been conducted to determine and evaluate possible opportunities and threats as well as current strengths and weaknesses of 3D featured movies.
* Still competitive advantage over home cinemas at that price level.
* New cinema and movie experience for demanding audience
* Impossible to pirate 3D movies yet
* Premium prices for tickets allow studios to re-invest higher amounts of money
* Completely new opportunities for directors and film makers: 3D as a another colour in their palette
* Customer complaints about "annoying glasses", "dim colours."
* Ticket prices still very high compared to conventional movies
* Uncomfortable for wearers of glasses since they have to wear the 3D glasses on top
* 3D effects can lead to dizziness, headaches or nausea
* Only one size of glasses
* Disadvantages for smaller studios due to high starting investments which they cannot afford
* High investment of upgrading cost of around €140,000 for each auditorium to be capable of showing 3D
* Not enough cinemas, capable of showing 3D movies yet: Nineteen 3D movies have been announced so far for 2010, some of them will be released at the same time but there are only 4,000 cinemas yet that are able to show 3D movies. Usually, big movies start in over 10,000 cinemas. (Preisgenau News, 2010)
* Expanding opportunities in the home cinema market including co-operations with television and equipment manufacturers
* Re-publishing of former blockbusters such as Star Wars or Lord of the Rings as additional source of income.
* Possible creation of new genres using 3D
* Another step towards 4D cinemas and movies ( moving seats, inflowing smells, real actors in front of the screen etc)
* Showing of sports or music events in 3D in cinemas in the future
* By using a new technology by Technicolor, costs of upgrading screens are about to fall drastically. ( $4000- $ 6000 per screen plus rent of a special lens for $12,000/ year compared to $75,000 for a screen before)
* Home cinema market as a threat in the long-term
* According to the Eyecare Trust "12 per cent of people have a visual impairment that means their brains are unable to correctly process the individual images which are transmitted via their left and right eyes" (Eyecaretrust, 2010)
* No 3D effect for partially sighted people
* Piracy as a threat once 3D televisions and equipment got released and established
4.4 Avatar as an Example
With an estimated production cost of $500M (including marketing with $150M though) Avatar started in over 2,500 3D screens all over the USA. This is a comparably small number as usually potential blockbuster start in over 10,000 screens which is due to the fact that not all of them are 3D ready yet. Avatar was the first movie that has been shot with the new 3D technology from the start on. This is one of the reasons for higher production cost. It also is adherent a much higher risk because in the beginning it was not certain how many screens were going to be upgraded to actually show Avatar in 3D. James Cameron himself said that "This film integrates my life's achievements. It's the most complicated stuff anyone's ever done.” (New Yorker Online, 2009) This quote shows the huge complexity of the movie and the preparation and effort needed to get it done.
Figure 7 below from December 2009 compares the biggest blockbusters of the last years. The first column only talks about production cost and does not include marketing of any form. It is evident that- in this graph- production cost for potential high grosser movies are immense but justified as all of them earned at least three times the money compared to their cost. This is excluding revenues from DVD or rentals or any other form of merchandising.
(The Wrap online, 2009) Figure 7
4.5 Importance of 3d movies
Due to the fact that 3D movies got widely accepted by the audience an increasing number of box office sales fall upon those movies using an advanced technology.
There are several reasons why it seems that 3D movies overall earn more money than traditional movies.
1. Ticket prices: Due to higher ticket prices, box office sales seem higher even if less people went to the movies. 3D movies get higher revenues because of premium ticket prices. Sometimes up to $18 in some areas in the USA.
(Business Insider, 2010)
According to the New York Times (2010) "More than 20 3D movies were released in 2009 - including the blockbuster hitAvatar- and this propelled a boost to $1.14 billion of 3D ticket sales in 2009, from just $240 million in 2008" which shows the enormous increase of sold tickets for 3D movies. Unlike tickets for traditional movies that exist for many years, 3D movies are still between the introduction and the growing phase of the product lifecycle. Hence it is attracting more and more customers. Although there is a slightly distinct situation as 3D movies already partially bring in more money than traditional movies. Therefore it is hard to determine where exactly in the product lifecycle 3D movies can be seen. If one assumes that it is between the introduction and growing stage, prices are still high and customers are still being sought and attracted. Normally there is no pressure for profit yet which again is different in this case. Studios invested a huge amount of money for immediate profit generation. There also is only a limited number of 3D movies available due to a small number of distribution channels. In fact, more and more cinemas are being upgraded to show 3D movies. In the growing stage normally competitors enter the stage and prices fall. As a matter of fact even smaller studios outside the circle of the big five will try to produce 3D movies if they seem to be successful in the long-term. As soon as producing those movies gets cheaper more studios will have the opportunity to enter the market. This also will affect smaller studios that cannot afford cost intensive 3D movies at the moment which gives financially stronger studios a significant competitive advantage.
(Sääksvuori A. & Immonen A., 2008) Figure 8
2. Rising number of customers: Despite the aforementioned fact that ticket prices adulterate the actual success of a movie, 3D movies do attract more customers than conventional ones.
In total 2009 was an extraordinary successful year for the studios. 1.42 billion people went to the cinemas which is the highest value in the last 5 years. (Spiegel Online, 2010) This rapid growth and new record shows the massive eagerness audiences continue to have for great and enjoyable films.
3. Increasing number of 3D capable cinema screens: Another fact for the on-going success is the growing number of upgraded cinema screens that are capable of showing 3D movies. According to the graph below the projected number of 3D capable cinemas is rapidly growing and will reach more than 15,000 worldwide which is more than twice as much as in 2009.
(Sony Online 3D, 2010) Figure 9
4.6 The role of the IMAX group
The IMAX Corporation is "an entertainment technology company, specializing in motion picture technologies and large-format film presentations" (Marketscreen, 2010)
In recent years the group was struggling with decreasing box office sales and a declining audience, as can be seen in Figure 10 below which clearly shows the decrease and stagnation between 2005 and mid 2008.
(Advfn Financials 2010) Figure 10
It is also evident that turnover started to recover in mid 2008 and still keeps increasing.
A similar evolution can be seen in the following graph which demonstrates the Share price performance previous 3 years of the IMAX Corporation.
(Advfn Financials 2010) Figure 11
After a weak 2007 and its lowest share price in 2008, just after the global crisis struck, it also started to recover and almost quadrupled until December 2009.
One of the reasons undoubtedly is the enormous success of block-buster "Avatar" which became the highest grossing film in IMAX history. It is obvious that there is a direct correlation between its release date on 17th of December 2009 and the boosting share prices in the same month.
According to the IMAX group Avatar worldwide earned more than £125 million until 21.02.2010. This conducts a huge increase compared to the previous high grosser Batman: The Dark Knight which earned £41.3 million. (Imdb Batman, 2009)
Therefore, the new technology is an essential factor for the new success of the IMAX cinemas after years of financial underperformances. The gross operating profit almost doubled and grew from $ 55 million in 2008 to $ 100.1 million in 2009 according to the annual report of the group. (Advfn Quarterly Report, 2009)
Many people, working for the industry also expect a further rise in sales within the next years as well they anticipate the new technology to prevail. One of them is Jan Fantl who stated in the interview that "3D is the next best thing and will generate huge amounts of profits in the near future". (Fantl Interview, 2010)
IMAX cinemas will get more important as they will stand for an own experience which justifies higher ticket prices than for 2D movies in traditional cinemas. Whereas digital 3D cinemas and IMAX cinemas almost offer the same price for adults in standard categories on 15.03.2010 as the following table shows (Figure 12)
Although ticket prices for IMAX and digital 3D cinemas are almost the same, the huge success of Avatar and Alice in Wonderland led to an increase of ticket prices in the IMAX cinemas to $20 in the end of March 2010. (Celebrifi, 2010)
The Wall Street Journal states that (2010) “At some theaters in the northwest, adult admission is rising to $11 from $10 for a conventional film, to $15 from $13.50 for a regular 3-D showing and to $17 from $15 for Imax 3-D.” This is due to the fact that going to the movies gets popular in general so that cinemas also can set prices higher for conventional films.
A justification for higher prices can be the aforementioned screen which is four times bigger (588m²) than the ones in traditional theatres. The audience normally sits very close to the screen which leads to the feeling that the screen is almost surrounding them. The following drawing (Figure 13) gives an idea of how it works:
IMAX cinemas also are able to show 3D movies using bothLCDshutter technology which leads to the following section. In the future, IMAX cinemas will get affected heavily by the new 3D technology and are very likely to increase their revenues.
4.7 3D technology in home cinemas
For future prospects it is also inevitable to analyse the upcoming home cinema market. After the first few waves of 3D featured movies in the cinemas have been released, studios and home cinema equipment manufacturers are keen to take opportunities to make profit further. Therefore Panasonic will be one of the first ones to enter the stage and to sell the first 3D home cinema instead of just demonstrating it on exhibitions. (Panasonic, 2010) And more companies are to follow such as Samsung that already launched its 3D kit and Sony that will start selling it in summer. Although only fifteen 3D movies will be available in the beginning it is expected to double up to over 30 by the end of 2010. Pricing also plays a big role for the success of the new technology. According to Bill Foster, a consultant at Futuresource Consulting, the 3D chips only cost about $20 (€15). Nevertheless, necessary shutter glasses will cost more and he expects them to be sold at $99 (€73) (Futuresource, 2010) It is evident that 3D is considered to be the next big thing in the world of entertainment. Estimations state that by 2011 ten out of 100 TV sets sold will be 3D ready.
The importance of this technological movement is emphasized by DreamWorks' chief executive Jeffrey Katzenberg who already has called the development "as important as the introduction of sound or colour". (Independent Online 3D Revolution, 2010) DisplaySearch predicts that the number of 3D-ready TVs will increase from 0.2 million units in 2009 to 64 million units in 2018. It is also forecasted that 3D-ready TV will be the largest application in terms of returns in 2018 with $17 billion.( Digital Today, 2010)
Nevertheless many of the forecasts are biased as the movie industry itself conducted them or assigned a company to do it for them. It is obvious that they rely on some kind of a 'self-fulfilling prophecy' by telling potential customers to not miss out on the next revolution of the entertainment industry.
4.8 Comparison of Surveys from 2005 and 2010
In this section two surveys have been analyzed and compared to each other. One, published in 2005 by Opinion Dynamics Corporation already showed some curious facts on 3D cinema and its likely success in the future (subsequently called Survey A). The second one has been taken by the author of this report in 2010 amongst a number of people from 10 countries (subsequently called Survey B). For further details please have a look at section 3.3
4.8.1 General findings of survey A
Opinion Dynamics Corporation conducted research on this issue on November 29-30, 2005, with 900 adults in the United States. Findings are as follows:
• 12 %, which represents around 26 million American grown-ups', say they would go to the movies more frequently if there were more 3D films. Another 6% (13 million adults) say they would go more regularly, depending on the films being presented in 3D.
• 14% (over 30 million American adults) say they would be willing to pay $2-3 more to see a feature-length film in 3D, while an additional 6% (or 13 million) would pay more depending on the films being offered in 3D.
• Consumers are somewhat split over the type of 3D effects they might enjoy the most. Over one-third (37%) say they prefer effects that appear to come out of the screen at them, while 31% say they prefer 3D effects that give better depth to the images on the screen.
• Nearly half (48%) of American adults say they have seen a 3D movie (of any length or type) before. One in five (22%) has seen a 3D movie at a regular movie theater, 19% have seen one at an IMAX® Theater, and 7% have seen 3D movies at both types of theaters. It also has been essential in 2005 to examine the possible future of 3D technology. (Opinion Dynamics Corporation, 2005)
4.8.2 Survey Comparison
"Would you go to the movies more often if there were more feature-length films released in 3D?" with the subsequent result:
This result seems rather disillusioning as the vast majority of 74 % would not go to the movies only for its 3D feature. Nevertheless it is important to have a closer look at the target and age group of this survey. 18-29 years old adults state that they are more likely to go to the movies for their 3D features. This exactly is the main target group of most of the studios and movies which explains why they still invested in 3d movies despite surveys like this one.
Compared to survey B (Figure 15), it is evident that many potential customers still would not go to see a movie only because of its 3D feature. Nowadays the movie itself is far more important for them and their decision making with 36 %. Subsequently, studios cannot only rely on marketing the 3D feature but also must provide the audience with quality movies.
Survey A (Figure 15) also took into account the differences between IMAX and regular cinemas. According to this survey question 48% of adults 18-29 had seen a 3D movie yet by the end of 2005, which is quite impressive as there was only a little number of regular cinemas that provided 3D movies at that time.
Survey B (Figure 16) on the other hand shows the increased number of people (46 %) that have seen 3D movies at both a regular and IMAX theater. The number of people that went to see a 3D movie at a regular cinema also significantly went up from 22% to 33%. In fact, 3D featured movies and cinema became more and more popular and successful during the last years.
Most likely one of the most important questions for the studios and cinemas is the following.
In Survey A (Figure 17) the great majority answered that they were not ready to pay more only to see a 3D movie. Only 6 % stated that it depended on the movie. Nevertheless the survey takes can be divided into age groups to emphasize the difference. Adults 18-29 years old (15%), adults 30-45 (16%) and adults 46-54 (17%) are about twice as likely to pay $2-3 more for a feature-length 3D film than adults who are 55 years old and older (8%). Consequently the future for the studios lied in the youth in 2005.
In Survey B (Figure 18) only 17 % refused to pay more for a 3D movie. The majority stated that it was the movie that counts. A quarter of the survey takers were prepared to pay a little extra though only because the movie is shown in 3D. Since Survey B was conducted in 2010, a significant difference to Survey A is obvious in a very positive way for the studios.
Summed up, the most obvious changes between the survey A and B are the increased willingness of paying more money of potential customer of a younger target group (18-30) as well as the enlarged interest in 3D movies in general. From all this data gathered, studios can be optimistic in their future views.
For the studios it is very hard to forecast the success of a single movie or even a whole new technology. They mostly try to find what is most appealing to the audience (unlike independent productions) and therefore have their analysts forecasting risks and returns. Nevertheless, "On averageonly23%of allwide-released pictures in the last 10 years cleareda profit at box officesin North America...and even less worldwide." (Filmforecasting, 2010) Consequently roughly only two out of 10 movies amortize.
This number got even worse in 2007, when only 17 % of the movies cleared their production budgets on the box office. (Filmforecasting, 2010) According to the aforementioned website, most of the movies could have made profitable if they would have repaired errant script components and miss-castings.
Nevertheless there is a different situation to be evaluated since 3D movies follow their own laws. Using a new technology there is a vast number of new opportunities to market those movies. Even if a movie has not been in 3D in the first place, studios do anything to make them 3D in the post production like with the action movie "Clash of the Titans" released in April 2010. The studios know about the huge attraction of a 3D stamp which leads to very optimistic forecasts.
3D display returns are about to reach $22bn by 2018 which would be a massive increase from $902 million in 2008. It can be seen in the graph below that a regular grow for every single year is expected. (Digital Today, 2010)
According to Jennifer Colegrove, director of Display Technologies at DisplaySearch, “A number of manufacturers of consumer electronics devices, including TVs, monitors, notebooks, Blu-ray disc players, and digital cameras/camcorders/photo frames have aggressively promoted 3D in the home. In addition to consumer use of 3D displays, the technology has also been used for many professional applications and advertisement/public displays.” (Digital Today, 2010)
According to a forecast, created by DisplaySearch 3D Display Technology (2009) and Market Forecast Report the findings are as follows:
•3D-ready monitors will grow from 40K units (0.02 percent penetration) in 2009 to 10 million (3.6 percent penetration) in 2018.
•3D notebook PCs are forecast to grow from 66K units (0.04 percent penetration) in 2009 to 17.7 million (3.2 percent penetration) in 2018.
•Mobile phones will be the largest 3D display application on a unit shipment basis in 2018, with 71 million units with 3D capability.
•LCD will be the primary display technology used for 3D displays, as a result of its wide range of display applications ranging from small mobile phones to large public displays and TVs.
•Eyewear will be necessary for most 3D applications for many years to come, due to the limitations of auto-stereoscopic (no glasses) technologies.
•DisplaySearch forecasts there will be more than 7,000 new 3D cinema screens installed in 2010 and an additional 9,000 in 2011.
(DisplaySearch 3D Display Technology, 2009)
It is evident that this report emphasizes the strong increase of profit and distribution of 3D featured equipment or movies. This can be dangerous as forecasts barely ever come out to be true as happened twice to 3D technology already as well as in other industries such as cars (a forecast of 90% of electric cars in 2010) or even aerospace
(Stations on the moon by 1982 and going to Mars by 1990) (Ruediger, G., 2007)
Forecasts mostly play with people's desires and fears to give them what they unconsciously ask for. Therefore this forecast also is most unlikely to turn out right but even if there will be only a increase half as good as predicted the studios and manufactures shall be satisfied as costs for upgrading screens and shooting 3D movies will fall due to advanced technologies and economies of scale.
Jan Fantl, (http://www.imdb.com/name/nm0266931/) is a successful producer, production manager and former director, who also analysed the current situation, future prospects and whether it would change his work. Based on his answers and all the data gathered over the months the author has reached a number of conclusions which are set out in section 5 of this report.
After evaluating all the aforementioned data and facts a non-ambiguous forecast is barely possible due to the newness of the topic. Since 3D movies just started to become popular and showed their potential with the worldwide blockbuster Avatar it may be the start of a new era of movies. Like former revolutions of cinema such as introducing sound and later on colour people might get used to this new cinema experience. This would lead to increasing ticket sales which are necessary for the studios since shooting 3D movies is far more cost intensive than doing it the traditional way. Even if studios produce a movie in a traditional 2D way and only want to turn it into a 3D experience afterwards, estimated costs are between $8M and $15M and still providing a far worse 3D experience than movies like Avatar which has been shot in 3D from the beginning.
On the other hand, critics state that 3D only is a trend, just something new and exciting for a short period of time which will disappear in the near future. Trends like certain genres that became successful for a few years and then almost completely vanished from the screens are hold as an example. Those genres were the horror films in the 1970's, the patriotic and not very intellectual challenging action movies in the 1980's (such as Rambo, Die Hard etc) and the romantic comedies in the end 1990's (e.g. American Pie). Those genres have been very successful for a while until the audience got bored of it and lusted for a change in the movie landscape. Henceforth this is one of the biggest fears of the studios and they try to work on solutions and an increasing customer loyalty towards 3D movies.
Also the home cinema industry and the IMAX group are likely to benefit from a constant and increasing 3D movie trend.
Although the amount of movies published in theaters dropped by 12% last year, 3D technology could change the film industry forever. However it is doubtful that these box-office numbers can remain as high as they are, especially since Avatar was arecord-breakerandcompetition will be severe. (Business Insider, 2010)
To conclude, Tim Burton who is more successful than ever, also thanks to 3D technology shall be quoted: "We're surely going to see a lot of bad 3D films in the near future, because Hollywood cannibalises every recipe for success. That's how the industry works ... It's a great thing when you use it as a technical tool and not as a wonder weapon." (Independent Online 3D Revolution, 2010)
This statement emphasizes the ambivalence when it comes to this revolutionary technology and the fear of exploiting it for economical reasons only. Therefore it will be interesting to see which way the movie industry will choose and how deep changes will be in the cinema landscape in the future.
Due to limited resources and the newness of the topic the following recommendations reflect the author's personal forecast of a potential change in the cinema landscape.
In general it is assumed that there is a big effect on the industry which can be seen already. Especially after AVATAR, expectations are yet higher although the whole industry was very keen to see the outcome in terms of profit of AVATAR. The 3D movies Ice Age 3D before and Alice in Wonderland after AVATAR were a test run for the studios aiming different main target groups as can be seen in Figure 21. All of them worked which proved the potential of 3D.
Ice Age 3D
Animation in 3D
Action Adventure developed and shot stereoscopic
Alice in Wonderland
shot in 2D posted for 3D
Big movies - ultra wide releases - for large audiences worldwide will become more popular and successful. This is where 3D will work. After a while the momentum will slow down
* Because it becomes a commonly known fact how 3D works,
* Because bad movies will be shown in 3D, as a wave of mass production down to c-level horror films.
* Because it always will be more expensive in terms of production than 2D.
It will continue to strengthen what started before and what has increased due to the world financial crisis: Polarization. Young audiences- the main target group- will not be able to go to the cinema that often anymore due to a shortage of financial resources and increased prices. They only go if they consider it a valuable entertainment experience (e.g. well made 3D movies). On the other hand lower and low budget arthouse for the core fans of movies will still be a niche market that is unlikely to disappear. It is obvious that there will be problems for the midsection and it most likely will disappear. Hence only potential high- grossing or very low budget movies will push out everything in between This situation can be compared to the food industry and its polarization: Junk food or culinary high class food are the most profitable businesses. 3D just adds an opportunity to make the theater house very attractive and appealing again which no other application like home cinema can offer yet. Above all, the benefit of copyright protection is a huge advantage for the whole industry.
It also is essential to take into account the change of the work procedures for directors, producers etc. Now everyone who is responsible for realising a movie has to consider of 3D is necessary and even more important if it is affordable. It is still 15%- 35 % more expensive than conventional movies (Jan Fantl, Interview, 2010). It also is necessary to think about the logistics in regards of time, directing, camera, lightning as which differ from shooting traditional movies as well as the artistic approach of the director. This includes things like "language of framing", the picture as an expression of storytelling that will have to be changed. In fact, every project that only has a low amount of dynamic moving cameras and/or small budgets should be shot in 2D in the future to avoid an over saturation of the market. This also would be advantageous for people that get seasick or a headache watching 3D movies. In the end this of course will be the decision of the producer and the director of what dynamics shall appear in the respective film.
When it comes to market a 3D movie, Jan Fantl also stated that he, like the whole industry will scream:" "Look here it's in 3D! Come and see!" (Fantl Interview, 2010) This shows that, after all, it still is show business and all about profits like in every other industry as well. Although this might open some opportunities once 3D movies have been established, smaller studios might market their movies in the opposite way: " It s in 2D, here you see a movie and can relax at the same time" (Kinopolis representative Interview, 2010)If the studios do not overuse 3D technology in the beginning, the impact on the movie industry will be very positive.
ü Interview with Jan Fantl, former director and current producer of movies, 31.1.2010
ü Interview with Arwed Fischer, former employee and Investor of X-Protect GmbH, 25.03.2010
ü Interview with a representative of the Kinopolis Chain in Germany, 08.04.2010
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