Hollywood is headed toward another record year at the box office thanks to a lineup of blockbuster films, from the private lives of pets to foul-mouthed superheroes.

But while projections of $11.3 billion in U.S. and Canada ticket sales would seem like a cause for celebration, the rosy numbers mask underlying challenges in a cinema business that is facing rapid changes in a period of digital upheaval.

Higher costs of making and marketing big movies, as well as plummeting home video revenue, have dragged down studio profits. Once-bankable home entertainment sales — including DVDs and video on demand — have dropped more than 30% since 2010, according to Digital Entertainment Group.

The home video falloff has made theater-going even more vital to the studios’ bottom line. With expanded streaming and video game options in the home, fewer young consumers are watching movies on the big screen. And the box office has increasingly become a winner-take-all game, with grosses hoarded by a handful of dominant films such as Disney’s “Finding Dory” and Universal’s “The Secret Life of Pets.”


“It’s deceiving,” said Adam Goodman, a film industry veteran who previously led production at Paramount Pictures. “If you look at the box office, it looks healthy. But it’s just a couple of titles that are having this success.”

Profits among the seven biggest studios fell 17% during the first nine months of the year to about $3 billion, according to a recent research report by investment firm Cowen & Co. More than half those profits went to just one studio — Disney — the report by analyst Doug Creutz indicated.

While international growth remains a bright spot for the industry, Hollywood’s largest foreign market — China — experienced a dramatic slowdown in box office receipts this year.

In the U.S. and Canada, box office revenue is expected to grow 2% this year, but the increase is deceiving, inflated by ticket prices, not by more people going to the multiplex.


The number of tickets sold is expected to remain flat, at about 1.3 billion, according to industry estimates. That would be down 6% from 1.4 billion tickets sold in 2006, according to the Motion Picture Assn. of America.

The headwinds have pushed studio executives and theater owners to rethink one of the fundamental pillars of the movie business: so-called theatrical windows.

Warner Bros. Pictures and Universal Pictures have engaged in talks with theater chains to shorten the gap between a movie’s theatrical release and when people can watch it on home video — an idea that previously has caused revolts in the cinema industry.

One proposal would make new movies available in the home two to four weeks after theatrical release for about $50 each, people familiar with the talks say. That would be a dramatic shift from the current 90-day wait.


Film executives have long looked for ways to shorten the time consumers have to wait to buy or stream movies once they’re mostly out of theaters — a gap known as the “dark zone” when studios lose billions to piracy.

But only recently have they made progress in warming theater owners to the idea. Cinema owners have long resisted tweaking the window, fearing doing so would discourage many consumers from watching films on the big screen.

“A large part of the consumer base is willing to pay a premium to see the movies earlier,” said Benjamin Mogil, an analyst at investment firm Stifel who follows the movie business. “The studios see that they’re leaving money on the table.”

Studio executives and theater chain operators declined to publicly discuss the talks, but privately said the discussions were in “fact-finding” stages. Any deal likely would give theater owners a percentage of the revenue from home video sales. A deal could come together by early next year and may include only small and mid-budget films.


“This is inevitable to satisfy the impatient moviegoing audience,” said Jason E. Squire, a movie business professor at USC. “But it has to be on a picture-by-picture basis.”

In response to the challenges, cinemas have tried to boost sales with better accommodations, such as recliner seating, high-end food and beverage, and premium screening technology.

“You’re seeing a premium experience surface and take hold, with luxury theaters and inflated ticket prices,” said 20th Century Fox’s domestic distribution chief Chris Aronson.

Some analysts believe raising ticket prices to pay for the improvements may be keeping some consumers away from theaters.


The average ticket price (including matinees) hit $8.51 in the third quarter, up 3% from a year ago, according to the National Assn. of Theatre Owners. Patrons in major cities like Los Angeles and New York often pay twice that amount.

Studios also have been forced to adapt to the rising competition from streaming services and premium television shows. They are focusing more heavily on costly franchise films with lots of spectacle that are more likely to lure people out of their homes. If the movie isn’t a must-see, executives say, audiences opt to stay home and wait until it comes out on iTunes or Netflix.

“Rogue One: A Star Wars Story” is Disney’s latest attempt to expand the Lucasfilm franchise beyond its core timeline that started with George Lucas’ 1977 “Star Wars.” (Lucasfilm )

The Walt Disney Co. has turned its attention almost entirely to big-budget blockbusters like “Finding Dory” from its Pixar unit, “Doctor Strange” from Marvel and “Rogue One: A Star Wars Story.” The latest movie is the Burbank giant’s attempt to expand the Lucasfilm franchise beyond its core timeline that started with George Lucas’ 1977 “Star Wars.”


Rival Warner Bros., meanwhile, has put its energy and money into growing its DC Comics movie series, along with the Harry Potter spinoff “Fantastic Beasts and Where to Find Them.”

That means more of the industry dollars are concentrated among a smaller number of films than before. In the last two years, the top 10 movies have accounted for more than a third of the total box office. In 2011, the 10 biggest movies made up only 24% of the domestic grosses, according to entertainment data firm comScore.

“It’s definitely more concentrated, and it’s higher highs and lower lows,” said Greg Foster, chief executive of Imax Entertainment.

Clearly, not everyone is enjoying the spoils. Disney movies have accounted for five of the top 10 movies this year in the U.S. and Canada. If “Rogue One” does as well as expected, that number could grow to six.


Warner Bros. currently has three films in the top 10 (“Batman v Superman,” “Suicide Squad” and “Fantastic Beasts”), while Fox (“Deadpool”) and Universal (“The Secret Life of Pets”) have one each. Sony Pictures and Paramount, on the other hand, were shut out because of a lack a blockbusters.

“Disney had a great year at the expense of nearly everyone else,” Cowen & Co.’s Creutz said in a recent research report.

The risk of failure also has increased. This year, the major studios fielded high-profile films that almost nobody went to see. For example, “Billy Lynn’s Long Halftime Walk,” a $40-million movie with an Oscar-winning director in Ang Lee, multiple stars and a wide release from Sony Pictures, grossed less than $2 million in the U.S. Twentieth Century Fox’s “Keeping Up with the Joneses,” starring Jon Hamm and Zach Galifianakis, wiped out with $15 million. Even Disney fielded a big turkey with “Alice Through the Looking Glass.”

The swift and hard landing for such titles is partly because of social media. Audiences now know very quickly whether a movie is worthy of their time and money.


Goodman, now president of Le Vision Entertainment, said studios need to rethink how they pick movies. But that’s a difficult task given the lack of sophisticated data about what audiences want to see.

“The historical data set up until recently was pretty reliable,” Goodman said. “Now you may as well throw a dart against the board and pick something.”

ryan.faughnder@latimes.com

Follow Ryan Faughnder on Twitter for more entertainment business coverage: @rfaughnder


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