The fall of Hollywood?

OK, Sith is now the tenth highest grossing film of all time, and probably headed toward number seven.  But Wall Street is bearish on film stocks; on Monday Dreamworks shares fell more than 13%.  The big fear is that DVD sales are falling, as Shrek 2 bombed in this market.  Hollywood box office has been down for nineteen weeks out of twenty, and believe me Harry Potter won’t do Johnny Depp and Tim Burton any favors.  Daniel Gross opined that Hollywood is the next Detroit.  Others see a big mystery in falling receipts.  Yet others blame blue-state bigotry.  I will offer a few more fundamental hypotheses:

1. Hollywood cannot control its marketing costs or star salaries.  The growing importance of DVDs increases the "needle in the haystack" problem for any single film and thus locks studios into more marketing, creating a vicious spiral.

2. TV is now so much better, and offers artists greater creative freedom.  Why watch movies?

3. The Internet is outcompeting cinema, whether at the multiplex or on DVD.

4. Big TV screens are keeping people at home, which lowers box office receipts.  This also hurts the long-term prospects of many DVDs.

5. The demand for DVDs has fallen because movie lovers have completed their core collections, just as the demands for classical CDs have fallen.

5. The demand for DVDs was due to fall in any case.  Forget the collectors, you buy DVDs to have a stock on hand so you don’t have to run out to the video store on short notice.  Now everyone has a stock.  Stocks must be replenished every now and then, but there is no longer a large new cohort simultaneously building up a stock from scratch.

The bottom line: These trends do not appear reversible in the short run.  It is not just that this year’s movies mostly stink.


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