Hollywood’s Death Spiral

In Slate, Edward Jay Epstein, author of The Big Picture: The New Logic of Money and Power in Hollywood, discusses what he calls “Hollywood’s death spiral,” the increasing reliance on profits acquired from the home entertainment divisions of major studios, specifically through pay-per-view and DVD sales and rentals. Epstein challenges recent claims about a “box-office slump,” noting that studio revenues have actually increased in the first quarter of 2005 over the same time period last year, adding that the declining audience in theaters “came mainly at the expense of independent, foreign, and documentary movies. For the Hollywood studios (and their subsidaries), in fact, there was no slump at all.”

In his article, Epstein also argues that the supposed lull in DVD purchases has also been manufactured to some extent, specifically criticizing media reports about heavy returns on Dreamworks’ Shrek 2 DVD that speculated that the DVD boom had reached its peak. In fact, sales of the Shrek 2 DVD outpaces sales of the original film over the first few months of each film’s release. But Epstein’s larger point is more crucial: “In any case, the attempt to divine an overall “slowdown” in DVDs from the sales of any particular title is dubious: No one knows whether consumers who elected not to buy the title in question bought another title instead (in which case overall sales would be unaffected).” In fact, DVD sales now account for 59 percent of the feature film revenues for studios. Epstein’s research is documented in several charts, which show studio receipts for the first quarter of 2004 and 2005; DVD and VHS revenue during the same 3 month intervals; adn finally, what he calls “the rise in the home entertainment economy,” in which he tracks the decreasing percentage of revenue derived from theatrical box office.

Essentially, Epstein’s major point is that what has changed in the last few years, and dramatically so since 1980, is “the location of the studios’ crucial audience.” As Epstein notes, in 1948, studios receieved all of their revenues from the box office, but with the advent of video, and now DVD (and other new formats), those numbers have changed considerably. More importantly, the “window” between a film’s premiere and its release on DVD has shrunk dramatically. In 1980 (when 55% of profits were still based on box office), when studios wished to “protect” films running in theaters, they established a six month gap between theatrical premiere and DVD release. That gap has been reduced to as little as three to four months for many films, especially for studios seeking to market summer blockbusters as Christmas gifts.

I’ve summarized Epstein’s argument in some detail not only because I find it rather persuasive, but also because I think it points to a significant change in our habits of film spectatorship, a question that ought to be fairly important for film scholars and theorists. Because the home entertainment divisions have established themselves as the power centers in the studios, this may eventually dictate what films receive the greenlight, and it will certainly limit the opportunity for smaller films to slowly build an audience theatrically. Another result is that theaters themselves now rely more heavily on concessions in order to make a profit.

But I also wonder how these industrial factors effect how viewers access films or how they experience them, and this is a difficult argument for me to unpack. We clearly have a situation where more viewers are seeing films at home rather than going out to theaters, and one of the aspects of the filmgoing experience that I value most is the “public” nature of that activity. Even though I’ll occasionally have an oblivious tall person sit directly in front of me, I enjoy watching a film with a larger audience, especially when they respond deeply to the film (whether laughing at a comedy or shrieking at a horror film). I realize that watching films at home doesn’t imply that you’re watching films alone, and there are benefits to watching films at home (it’s cheaper, you don’t have to watch the pre-show infotainment), but I have to wonder what else is driving this ternd to stay at home rather than seeing movies in the theater.

Thanks to Green Cine for the links.


  1. Tim Said,

    July 27, 2005 @ 1:55 pm

    Hi Chuck, I love your blog. Read it often, even if I don’t usually comment.

    I wanted to add to a couple of things you are saying. I agree that this change will affect which films may get greenlighted, but I wonder if that will always be negative. Being able to project a film for a niche audience on DVD down the road may push a studio to produce even if they expect a low box office. I wonder if this kind of rational is operational, for example, with Serenity coming out this fall.

    Second, I also wonder about what drives the trend to stay home rather than go to the theater. Part of it, I think, has to do with displays of consumption. Many people can shell out $10 for a ticket, but fewer can afford the full range of technologies to make a “home-theater.” This is probably not a big part of it, but I think it needs to be in the equation.

  2. Chuck Said,

    July 27, 2005 @ 3:10 pm

    Thanks for the kind words about the blog, Tim. I probably shouldn’t have made the “Hollywood death spiral” sound quite so dire. You’re certainly right that studios may be able to produce films with an eye towards strong DVD sales (and other “ancillary materials) based on the strength of a major niche figure such as Joss Whedon.

    You are certainly right about the “displays of consumption” argument. The Best Buy ads capture that ethos (and sell to it) very effectively. I do wonder about the social factors that might compel people to stay at home (if that is really what is happening).

  3. Making the Movie Said,

    July 28, 2005 @ 11:03 am

    The fall of Hollywood?

    Marginal Revolution is wrong. Hollywood is far from dying.

    First off, this summer’s supposed b.o. slump compared to last year is really just a lack of Passion of the Christ and Fahrenheit 9/11. Those brought audiences into theaters who don’t regular…

  4. McChris Said,

    August 1, 2005 @ 2:37 pm

    The assertion that all studio revenue in 1948 came from the box office is true, but I thought it needed a little more elaboration. Maybe 1948 is a significant year for your and Slate’s readers, but 1948 saw the Supreme Court decision in United States vs. Paramount, which led to the Paramount Decree. It’s pretty hard to compare the industry between now and 1948, considering the business had been substantially restructured by the courts.

    In addition, regular television broadcasts began in the US in 1946, but the first Hollywood movies weren’t licensed to broadcasters until 1953. 1948 seems like a convenient year to use for looking at box-office receipts, but the studio system then and the movie industry now are so vastly different in terms of organization and financing that making comparisons are a little silly.

    I don’t remember where I saw it, but did you see this piece on cinema as social software? It probably requires a particularly technophilic outlook to compare social encounters in physical space to software applications, but I think you might agree with some of his arguments about the communality of the cinema experience.

  5. Chuck Said,

    August 1, 2005 @ 2:41 pm

    I wondered why Epstein never specifically rferenced the Paramount decision in the Slate article. That decision led to a monumental shift in how moview were distributed.

    I’ll take a look at the “Cinema as Social Software” article and happily throw in my two cents….

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