The award for stable box office revenues in the face of digital media goes to…

TMT Predictions 2016

Executive summary

Deloitte Global predicts that the value of movie theatre admissions in the US and Canada will fall by about three percent in 2016, to about $10.6 billion, with about 1.3 billion tickets sold. It is impossible to forecast beyond that with any precision: box office is so dependent on the slate of movies released. Since 2007, the trend has been for the five highest-grossing five films to generate over 40 percent of the box office, which accounts for most of the year-on-year volatility.

Between 1996 and 2015, the annual box office revenue change is nearly random, although it has never gone up by more than 10 percent or fallen by more than six percent and the number of tickets sold has never gone up by more than 12 percent or fallen by more than six percent. Given that, we expect average annual revenue growth on the near term to be about one percent, but within a range of plus or minus 10 percent, and the number of tickets sold to decline about one percent per year. Box office dollars are likely to grow, but at a minimal pace, and are actually likely to decline (also at a minimal pace) if inflation is taken into account. However, compared to what has happened to the DVD business, the DVD rental business, and other traditional media, cinema is doing better than most.

It seems likely that the greater ease and accessibility of legal and illegal movie streaming or downloading has had an effect on movie box offices. One estimate of the cost of piracy to the US studios was $6.1 billion a year. And although the dollar value of admissions has been relatively stable, the decline in the number of tickets sold annually in US and Canada since 2002 is down from 1.58 billion to about 1.33 billion in 2015. That 18 percent fall is actually not bad compared to other traditional media in the same time period. Also, it is not as serious as the previous decline in the movie business caused by the rise of TV, which saw US ticket sales fall from 4.7 billion in 1947 to one billion in 1964 – a 78 percent collapse over only 17 years.

What’s more, the focus on domestic box office performance is not even close to the full picture for the movie industry. At one time, international box office was almost an afterthought, but these days US studios assume that international will be 60 percent of total box office for any given film, with some films seeing 75 percent of cumulative box office coming from outside North America. Further, even global box office ticket sales are only about half the story. In 2012, nearly half (48 percent) of total revenues for the average film came from ancillary revenues: home video sales, pay-per-view and TV/over the top (OTT) licensing, syndication fees and merchandising.

The North American market is the world’s biggest box office at about $11 billion annually, but global box office revenues were approximately $40 billion in 2015. Between 2009 and 2013, the North American box office was up about three percent in nominal dollars, but the international markets grew by $6.5 billion or 22 percent in the same time frame, representing 70 percent of all ticket sales by 2013. Certain markets are growing even more strongly than the overall international market: as of December 2015, box office in China was up 49 percent year over year, to $6.78 billion. China is expected to surpass the North American market by 2017 or 2018. In terms of number of tickets sold, India is on top with 2.7 billion admissions in 2013. The rest of the global market is relatively stable: in 2014 Latin America rose two percent, while EMEA fell three percent.

Spending on making movies should assume flat-to-down theatrical revenues, but with an ever-increasing focus on franchises and sequels. Seven of the top 10 movies in 2015 were in this category, and the expected outlook for 2016 is for continued dominance. Sequels and franchises tend to be lower risk, and also enjoy better international success than standalone films. As of late 2015, Hollywood had 157 movie sequels in the works.

The award for stable box office revenues in the face of digital media goes to…

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