Hollywood's marketing dilemma
An interesting article by Edward Jay Epstein at Slate.com ("Dumb Money", 6/6/2005) discusses the strange economics of Hollywood marketing. It starts with the revelation that the average big-studio Hollywood movie now spends $34.6 million to advertising to promote the film -- that's independent of production costs, stars' salaries, special effects, and so on. The average movie brings in around $20 million at US theatres. So, as Epstein explains:
Given the fleeting attention span of the target audiences (mainly TV-watching teens) and the unmemorable nature of the ad copy, the studios believe they must show the same ad on the same programs at least eight times in order to draw an audience. As a result, the studios spend more to lure a teenager into a theater than they receive at the box office, which is reminiscent of the joke about the idiot in the garment business who "loses money on every sale but makes it up on volume."
The point is that the theatrical run is a loss leader. What that run does is effect the aftermarket sales, which are potentially far more lucrative. The sales of (formerly) video tapes and now of DVDs is directly impacted by the first run popularity. In addition, Pay-TV fees and foreign box office are, in great part, based on the size of the original US audience. That's why a film can gross far less in the theaters than the massive combination of production and marketing costs, and still be a big success. The key is packing them in on those first few weeks at the cineplex.
But there are new problems with this model. DVDs, unlike the VCR tapes once sold to Blockbuster and its competitors, are treated like books by the large retailers. If Wal-Mart buys 50,000 copies of your DVD and only 5,000 sell, they get to return them and get their money back. The studio gets a warehouse full of unsellable discs. Add to that digital piracy eating away at DVD sales, and it gets harder and harder to make the marketing model work.
Furthermore, the DVD audience is not primarily made up of the teen market that movie advertising drums at drawing in for the first few weeks. Ore DVDs are bought by adults, who are unlikely to respond to the typical marketing appeal for a teen movie.
Because of the fear of piracy, studios now open major films across the world at the same time, So an ad blitzing the US will not help draw people in other countries, and by the time word-of-mouth has gone around, the movie is already old news, out of the theaters. As the article notes,
The latest episode of Star Wars opened on the same weekend in the United States and in 59 other countries. With these simultaneous openings, the U.S. box office obviously came too late to help get better foreign play dates.
The studios are puzzled at where to go from here. As Epstein points out:
All of these changes add up to a growing disconnect between the money poured into advertising for a large theatrical gross and the earnings realized in the markets that the studios depend on for their money.
The problem is that the movie industry has become a one-trick pony in terms of generating sales through the high-intensity advertising method. Constantly in search of blockbusters, they end up trying more of the same as ever higher costs, and there are just enough examples of films that have hit the jackpot using that method to keep encouraging them.
The most obvious solution is more and more films that have instant mindspace, Take for example, the War of the Wold with Tom Cruise, a remake of a well-known movie. Or sequels (more Harry Potter), or films based on mediocre shows (Bewitched), or anything that will bring instant results. That's one of the reasons the studios are cutting back on independent and foreign films, which have not the slightest chance of becoming blockbusters.
