How to take advantage of “Hollywood's death spiral”

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My son is a film-maker, although he doesn't use film, per se. What he makes are digital movies. We talked about how this is a great time to be a film-maker because digital content can be produced and distributed is so many different ways now, most of which do not involve the nut-cases at the Hollywood studios. Why is this? Edward Jay Epstein has some very interesting answers:

What has inexorably changed is the location of the studios' crucial audience.

In 1948, with studios earning all their revenues from the box office, [100% of] that audience was moviegoers.

Even as late as 1980, when the audience had television sets and video players, studios still earned 55% of their money from people who actually went to movie theaters.

In 2005, however, those moviegoers provided the studios with less than 15% of their worldwide revenues, while couch potatoes provided it with 85.8 percent...

Through this reversal of fortunes, the stage has been set for what a top studio executive warned could be "Hollywood's death spiral..."

The spiral begins with a shortening of the delay, or "window," that separates a movie's theatrical release from its video release...

Essentially, we're headed for "one-off" movie theater events that tout the DVD, video game, pay-per-view, to the stay-at-home audience. Lots of press coverage, horse-race figures on opening weekend box-office gross and a quick closing at the theater.

The shorter the run, the less money the title takes in at the box office. As this spiral accelerates and studios earn a larger and larger share of their money from home entertainment, it adds to the pressure on studios to further reduce the video window.

How far can this cycle go? After Hong Kong collapsed its video window in 2002, there was a 70% reduction in theater attendance.

And, as a top studio executive pointed out after studying the problem, "A 6% reduction in attendance in 2000-2001 led to half the movie theaters in the world going bankrupt."

What's interesting is that once you go digital, the Internet (over broadband lines) becomes a gigantic distribution channel. And it isn't just an opportunity for distributing the digital content -- savvy marketers also have the opportunity to promote their films online as well.

The Hollywood studios will always have the ability to produce content. What's going by the boards is the distribution infrastructure that puts films into movie theaters. Some films will always be more enjoyable in the theaters, but most will eventually bypass that venue altogether.

If I were just beginning my career as a filmmaker today, I'd be licking my chops.