How big would the movie industry be if there were more screens?

One of the examples I use in the book to illustrate the distorting effect of limited "shelf space" in traditional markets is Hollywood box office revenues. The American megaplex theater network has only has enough screens to show about 120 films per year. Meanwhile, there are about 13,000 films shown in film festivals each year. So only a tiny fraction of the movies made get enough theatrical distribution to register any sort of significant box office revenues.

How much bigger would the movie industry be if it didn't have this distribution bottleneck suppressing measured demand for niche film? I get that question all the time, for various markets, and usually I can only guess at the answer. But now Kalevi Kilkki, Principal Scientist at Nokia Siemens Networks, has actually done the math. Building on the work in his earlier paper on this subject, he finds that for movies, the "latent demand" for films that don't get adequate distribution is 60%-70% as big as the existing industry.

In other words, if we had a more efficient delivery system for theatrical films so the carrying capacity of the theatrical network were increased many-fold (using something like digital distribution and projection, which takes most of the cost out of distribution and adds ultimate flexibility over where the films run and how long), box office revenues could theoretically be 60-70% larger than they are today.

In practice, there are other economic barriers to giving all 13,000 films their day on the screen, such as the cost of marketing, the theaters and the screens themselves. But we do have another distribution system that does ahve unlimited capacity and the ability to play on an infinite number of screens. That's Netflix, which currently offers 80,000 DVD titles, and as I've shown before its rentals do follow the powerlaw model very neatly.

Here's how Kilkki comes up with his estimate: If you rank films by their box office revenues and plot the results on a log-log scale and you get the following. The dotted blue line is the real data from 2006; the solid blue line is what the powerlaw/long tail model would predict, and the red line represents curve fit of the real-world data.

Once you have equations to describe both the predicted demand and the measured demand, you can figure out how much one differs from the other. The answer varies from country to country, but the US gap is the largest. If you're into powerlaw math, you can read more in his research note. It's a clever model he's come up with and you'll find that it can be applied to markets of all sorts. This one's for you, math geeks!

Comments

[Kyle Gilman]

But theatrical distribution is the opposite of niche. The nature of theatrical presentation is that you have to herd a group of people into a particular room at a particular time. You don't get around that by building more theaters. Have you ever gone to an art house theater on a Tuesday evening? 9 times out of 10 you'll see 15 people in the audience.

Let's imagine that there were enough new screens to show every movie available for theatrical distribution, and also assume there's a network that instantly delivers HD (or better) versions of the films for playback on fancy digital projectors. In the real world, those screens would be built very small and because of the nature of niche interests, the screenings would be even more sparsely attended than they are now. Eventually as you increase the volume, the screens get even smaller and the audience for each screening dwindles to one or two. Do you know what that sounds like to me? It sounds like home video.

Theatrical presentation and home video are not two different things, they complement each other. In almost every case, theatrical is a money-losing advertisement for home video.

Now, if we could get over the stigma of releasing films directly to video, that would really be something. If respectable media outlets would review niche indie movies released directly to video rather than ignoring them and lumping them in with the fifth American Pie sequel then it would be financially viable to release all those movies that don't make it through the theatrical bottleneck that exists for very real reasons which aren't going to be solved by technology.

And if you've seen even a fraction of those 13,000 movies that supposedly screen at film festivals every year (where does that number come from?) you know that most of them aren't really of interest to anyone outside of the friends and family of the cast and crew.

[Douglas Karr]

I think it would just take installing cappuccino machines. If I'm going to throw away $7.50 on a crappy movie, I'd love to spend $4.25 on a grande mocha to keep me awake through it.

[Demetrius Bagley]

Kyle, my experience is say abou 20% of those shorts/features want to come home with someone, at least for a night. In fact, I'm chomping at the bit, often finding the most popular flicks sold out if I'm not ready pre-festival. As well, sometimes that simply doesn't fit the schedule. I'm noticing an easy 1-2 year lag time for that film to hit dvd, or even limited first-run release! WTF!!

I'm more than ready to forego film festivals IF I can screen - and support - some of that work at home. YouTube's immense popularity (and viral gems) tell me the same. We want more content that speaks to us, and if it's really good. Someone will let us know.

Likewise for international film yet to find its way Stateside in a profitable form.

[Mary Warner]

I have to agree with Kyle here. What might illustrate his argument about home viewing complementing theatrical viewing is to look at the sales of home theater technology and those giganto-screen TVs. Of course, even if we could afford one of those TVs, and could get it into our 100+ year old house, we don't have a room large enough to accommodate comfortable viewing. How would the home movie industry open up if we could make every house big enough to have a home theater? I think at a certain point in any theoretical situation, you reach a certain breaking point that has more to do with other physical limitations than the one you've originally started with.

[Paul Kamp]

While I agree that there is something there for movie distribution we have the problem pointed out by others, limited attendance at those screens.

One of the more interesting things I have seen over the last few years is turning distribution upside down. A recent internet film, four eyed monsters, was looking for screens to show their film. The film houses did not want to take the risk of showing the film and no one coming. Four Eyed Monsters created a spot on their web-site to show interest in a showing of the film locally. Once they hit a certain critical mass in a particular location they contacted the movie houses.

The beauty of this is that it takes the risk out of the equation for the small movie house and provides an avenue to direct market back to those interested.

My point in posting is to show that combined with Long-Tail economics this would encourage more movie houses to start up along with the ability to get at the demand component more easily.

[Chuck]

I'm also with Kyle on this one. There is a huge difference between video and theatrical distribution, and my understanding is that most theaters believe they have over-expanded, that, in a sense, we need fewer screens.

Kyle is also correct to suggest that the theatrical run is usually not where the studios make the bulk of their profits (although the revenues don't hurt). What matters is a huge first week that can be used to generate interest in the DVD and other ancillary products (graphic novels, collectibles, video games, etc).

I live in a town with only two art house screens, and while I'd love to have more screens devoted to art house movies, I don't believe that this city could sustain such a thing, even with digital projection and distribution. And, yes, I'd love to see us learn to get past the "stigma" of direct-to-DVD releases. Some of the best films I've seen this year (Four Eyed Monsters, for example) were released to DVD after doing successful festival runs, so I think that will eventually change.

[Allejandro Mayagoitia]

120 movies per year? only the mayor studios and their subsidiaries, produce 600 movies a year... what do they do with the other 480?

There are 36,000 screens in the US, 150 seats per screen, 5 shows per day 365 days a year....
A total "installed" capacity of 10 billion tickets....before the sofisticated math formulas, some aritmetics would be very healthy

[Kent Larsen]

I'm not sure any of the comments so far have addressed what this means exactly. Latent demand means that a portion of the market isn't being served. The point is that the movie industry could grow immediately by 60% to 70% if it could figure out how to supply this demand.

Kyle may be right that home theaters is the answer at the low end -- for films that can't manage to get more than 10 bodies in seats in most areas. But it seems to me that there are also a substantial group of films that could fill hundreds of seats in most areas, but that also can't fill thousands of seats in most areas. For these films the system is simply broken -- they need an alternative way to be seen.

Unfortunately, I don't think that there is one solution. Netflix clearly addresses part of the problem, but not all since most films, even in the face of reality, are made to be seen in theaters. The recent trend toward multiplexes with theaters of different numbers of seats is also part of the solution.

But I'd have to say that the movie industry is still missing part of the solution. What will that solution be? I'm no industry expert, but it seems to me there needs to be a kind of mini-multiplex or modified version of the "filmotecas" that I keep hearing about, where visitors can see these films in 25 to 100 seat theaters in a more "on-demand" fashion or in a fashion that is more responsive to niche audiences.

The great thing about the long tail is that it gives me hope that someone will come up with a system that makes this possible. 60% to 70% of the film market is a big potential market for the right solution.

[IrmBrown]

Unrelated... but curious what you think of this:
http://money.cnn.com/magazines/business2/business2_archive/2007/06/01/100050985/

this sounds pretty Long Tail to me.

[PTRADES]

sounds good but wouldnt pay per view be booming then, or at least doing better?

[Jonathan Berkowitz]

I work in the Independent film industry at a distributor, b-side entertainment (www.bside.com). I'm a bit concerned with some of these numbers, looking for some clarification perhaps for someone more familiar with the analysis than me.

Here's a few things I'm seeking clarification on.

1. 13,000 films / year ... this is pretty far off, there's well north of 15,000 at this point ... one of the things I spend time on is surveying the film festival circuit ... so I'm relatively positive on this number.

2. 120 films in box office ... here I think I'm missing something. There's 550 - 600 / year ... a simple look here: http://www.longtail.com/the_long_tail/2007/06/how_big_would_t.html can confirm this for anyone who's interested ...

can anyone shed some light ... very interesting topic.

[Jonathan Berkowitz]

I apologize for the bad URL above, fingers too fast.

Look here for box office numbers:

http://boxofficemojo.com/yearly/chart/?yr=2006&p=.htm

[Eben Carlson]

The real question is: how big would the movie industry be if they didn't have an arbitrarily fixed pricing structure?

Giaganto.

Ditto for music, writing, TV adn just about all content.

The fact that they have been able to survive this long with socialist pricing give you a little idea about what this most desirable commodity will be worth once the iron curtain crumbles.

What's happening in the music industry currently—that's the curtain crumbling. Sooner or later they'll have to differentiate product quality by price.

And then it's a whole new world.

One described in detail at whiteg.com.

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[Manuel]

I believe, that the movie industrie could grow on cost of the tv industry. If there where more movies, I guess I would watch less TV shows.

[Jay Srinivasan]

I still see the Century theatres in the area where I live showing only 3-4 movies across 3 different theaters. It really doesn't make sense why one screen shows the same movie all day.

How hard can it be to change a movie reel? Or as you mentioned, digital projection. If theatres would rotate 3-4 movies per screen then they could show plenty more movies. The movie industry needs to do something, box office sales aren't exactly sky rocketing these days.

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[kabin]

thanks...
Kabin
Konteyner

[gifts for her]

How do you possibly suggest that cinemas STOP people from talking? Assign a member of staff to each individual in the screen and shush them as they open their lips? You’d probably suggest assign one member of staff to each screen? Think about the financial implications of this? Alternatively, you could look into what processes cinemas actually do employ – screen monitoring at irregular intervals. This is the most effective and probably the ONLY feasible way this could be policed.
Moreover, have you considered that its actually impossible to hear people talking over the volume in the screens?
Its all well and good you coming on here and moaning about people talking, but if you have a problem, go out and tell a member of staff. I would say this is a logical step that would take all of 30 seconds and would resolve your problem. You’re not a martyr, if you have a problem, speak up or shut up. Or alternatively, as i have done many times as a cinema goer, ask the people to be quiet yourself. Don’t be such a loser.
Secondly, lower the price? So you want more members of staff to police screens AND you want to pay less. I’m afraid that’s just plain idiocy. It’s a problem you will probably find in many more places than a cinema & I think you’ll find everyone wants to pay less and receive more.