The Future of Movie Theaters

I’ve been having a big debate with the guys here at work about the future of movie theaters, and I’m wondering what you think. Here’s my hypothesis:

Home video never hurt the theaters because of the movie industry’s staggered distribution schedules, from box office to DVD to cable. If DVDs were available the same day of a movie’s theatrical release, it would have hurt movie theaters badly.

Now here’s how it comes into play in the future:

Like in any other form of media, the Internet screws up traditional controls over distribution. Many people, confronted with the option of downloading a copy of a movie on the week of release (lesser-quality, cheap) or going to a movie theater (high-quality, very expensive), will choose the former. Of course, this assumes that downloading movies will inevitably be as fast and as simple as downloading music. (Which, in turn, leads to better ways of playing downloaded video on your TV with portable video devices or networked media players.)

Not everyone, of course, because seeing a movie in the theater is a different experience. It’s social and it’s great quality, focusing your attention completely. But going to a movie will become a more elite experience, like the $14 tickets at the Arclight.

But enough families and normal folk (the bread and butter of neighborhood megaplexes) will stop going to affect their livelihood.

This Forbes article, written in March 2001, discusses the state of the movie theater industry. Even without taking the Internet into consideration, movie theaters aren’t doing well as it is, and three of the top five chains went out of business in 2001. (I can’t verify it, but I’d wager that the rising ticket costs and increases in in-theater advertising was designed to offset these losses.)

Meanwhile, compare these 2003 statistics for the home video market to box office sales. The gap between home video sales/rentals and the box office has increased dramatically in the last few years.

The only thing saving the movie theaters is their exclusive access to new films for the first few months of their lifecycle. If the Internet loosens that hold, movie companies will be forced to adapt, most likely by radically minimizing the gap from theater-to-video or offering an iTunes Music Store for films. Earlier this year, Robert Occhialini nicely summarized this situation.

Predictions of the movie theater’s demise have been common (and wrong) for the last century, first by the television and then by the VCR. I’d argue that both did, in fact, erode at the popularity of the movies. But they survived because of their distribution rights. Any opinions?

January 5, 2005: IMDB reports that the number of tickets sold in 2004 fell 2.5 percent from the previous year, and is down 7.5 percent since 2002. Despite this, there was a slight increase in dollar totals. I can’t think of another reason besides rising ticket prices.