Correction to this article

SUMMER begins on May 7th, at least according to Hollywood's calendar. On that day “Iron Man 2” is due to be released in American and Asian cinemas (it appeared a week earlier in Europe, to take advantage of the May Day holiday). Like many modern blockbusters, the film trades on nostalgia. It is based on a comic-book series that began in the 1960s and even features a Russian baddie. This is appropriate, given the state of the film business. Technological progress and changes in tastes mean that Hollywood depends more and more on the old-fashioned practice of showing films in cinemas.

Film exhibition was until recently a humdrum business. The formula for success was simple: sell lots of tickets at the same price, then funnel punters past salty popcorn and fizzy drinks. Cinemas keep about half the price of a ticket and up to 90% of the money spent at concession stands. For film-makers, showing movies in cinemas was important not so much in its own right but as a means of drawing attention to a product, the most profitable incarnations of which would appear later. The real money was in home entertainment, especially sales of DVDs.

But now the pendulum is swinging back towards the box office. In 2009 global box-office revenues increased by 7.6%, but total revenue for the biggest Hollywood studios fell by 4.3%, “due to the collapse of consumer spending on DVDs”, according to Bernstein, a research firm.

Since 2005 North American box-office receipts have risen by 20% (see chart). Ticket sales grew strongly during the recession, as people sought a cheapish night out, and have not slowed. Box Office Mojo, which tracks films, estimates that box-office receipts this year are running at 6% above last year's level. Elsewhere cinema is healthier still. Ticket sales outside America and Canada have risen by 35% since 2005 and are now worth about two-thirds of the global total. A boom in multiplexes—that is, cinemas with at least eight screens—is unlocking latent demand. In 2006 Russians made a total of 89.5m visits to the cinema. Last year they made 132.3m. This is especially surprising in a country where the number of young people is falling.

Meanwhile revenues from DVDs, Blu-ray discs and digital copies of films together have fallen by 8% in America since 2005, according to the Digital Entertainment Group. That figure, which includes rentals and sales of such things as exercise videos, flatters Hollywood. Stephen Prough of Salem Partners, an investment bank, says DVD sales of new films fell by 17% between 2008 and 2009 alone. The main culprit, he says, is the emergence of cheap, convenient rental services such as Netflix and Redbox. Although the drop has been less steep elsewhere, people in other countries never bought many DVDs.

What is driving the cinema boom? The most obvious answer, for consumers, is the rise of three-dimensional films. Audiences have flocked to films like “Avatar”, a vaguely ecological fantasy, and “Alice in Wonderland”. In North America 3-D films drove almost all the growth in box-office receipts last year. Although the premium that cinemas charge for 3-D films has risen steeply from as little as $1 per ticket to $3 or more, consumers have not balked. “We still don't know how much they are willing to pay,” says David Passman, chief executive of Carmike, a cinema chain.

More important, though less visible, is the digitisation of cinema. The number of screens served by digital projectors worldwide rose from about 3,000 to 16,400 between 2006 and 2009, according to Screen Digest, a research firm. That primed the explosion in 3-D films: it is hard, though not impossible, to project a 3-D image using old-fashioned film. Digitisation has made it easier for multiplex owners to shuffle films around screens to cope with surges in demand. And satellite distribution is making it easier and cheaper for films to open simultaneously around the world.

Digitisation is a particular boon to IMAX, a Canadian firm that makes bigger, taller screens. Once associated with films of fish in natural-history museums, IMAX now offers its products to multiplexes (the first few rows of seats are sometimes removed to accommodate the bigger screens). For the past 18 months it has been converting two to three screens a week. This would have been almost impossible without digitisation. Its larger film size means it costs about $25,000 to make a single print of an IMAX film. The need to recoup such costs necessitated long film runs. Now that IMAX films can be delivered digitally for a few hundred dollars, they can be programmed more like ordinary films. Cinemas tend to charge 30-40% above the ordinary ticket price.

Name your price

Cinema-owners have long suspected that, by charging the same amount to see a $2m independent film and a $200m blockbuster, they were leaving money on the table. The response to 3-D films and IMAX proves that they were. Cinema is evolving from a commodity into a business that sells differentiated products at varied prices. The example of India suggests that there is room for further differentiation.

Multiplexes are rising in many Indian cities: Mumbai alone has added more than 75 screens in the past five years, says Anil Arjun, chief executive of Reliance MediaWorks. They appeal to, and are priced for, India's aspirant middle class. Fame, a cinema chain, charges an average of 141 rupees ($3.15) per ticket, in a country where daily income per person is just 120 rupees. Some cinemas have replaced rows of seats with widely spaced reclining chairs, with tray tables and waiter service. This model appears to be spreading to the West. Carmike has opened a cinema in Tennessee that serves alcohol and food, to great success. The draw seems to be not just comfortable seats, but the absence of teenagers.

Film-makers are adapting to these changes. India's new cinemas have given rise to “multiplex films”, focused on the concerns of affluent youngsters and with somewhat less singing and dancing than in standard Bollywood fare. Elsewhere the rise of 3-D and the super-sizing of screens are leading studios to focus on visual spectaculars. “French table dramas do not look much better on IMAX,” notes Julian Stanford, who manages that company's business in Europe and Africa. The growth of screens outside America also favours big action films: an explosion is an explosion, regardless of language.

The loser, as so often, is grown-up drama. In the past two years the big studios have shut or run down “specialty” divisions like Focus Features and Miramax (the latter may yet return, in a much depleted state, to Bob and Harvey Weinstein, who founded it). Fans of such films are out of luck. They should certainly steer clear of cinemas this summer.





Correction: We wrote that big Hollywood studios had shut or run down "specialty" divisions such as Focus Features, part of Universal Studios. This has happened to other specialty divisions, but not Focus. Sorry.