erik lundegaard

How Hollywood Is Outsourcing U.S. Movie Audiences

Let's talk about the billion-dollar movies for a second. As of today, September 10, 2011, there are 10.

“Titanic” was the first to gross over $1 billion worldwide, back in 1997, and it shattered the mark, pushing all the way to $1.8 billion.

The second film to break $1 billion was “Lord of the Rings: Return of the King,” which grossed $1.1 billion in 2003. Then “Pirates of the Caribbean: Dead Man's Chest,” with $1.06 billion in 2006. “Dark Knight” did it in 2008 ($1.001 billion) and “Avatar” in 2009 ($2.7 billion).

That's five movies. It was a relatively rare event.

In the last two years—a year and a half, really—we've doubled that total: “Toy Story 3” ($1.06 billion) and “Alice in Wonderland” ($1.02) last year; and the final “Harry Potter” ($1.3), “Transformers: Dark of the Moon,” ($1.1), and “Pirates of the Caribbean: On Stranger Tides,” with ($1.03) this year.

From a U.S. perspective, the most recent “Pirates” movie, the fourth in the series, is the biggest head scratcher of the bunch. It bombed, relatively speaking, in the states, grossing a mere $240 million, the lowest total by far of the series, and nearly $200 million off the second “Pirates” movie, “Dead Man's Chest,” which grossed $423 million domestically in 2006. Yet POTC 4's worldwide gross is on par with, and may surpass, POTC 2. How is it making up that $183 million deficit?

Two ways.

More money is being made from the countries to which the film has traditionally been distributed. Yes, some countries, following the U.S. example, and despite inflationary ticket prices, are way down from the 2006 gross. In the U.K., POTC 4 fell off of POTC 2's total by $44 million. It grossed $9 million less in Spain (despite Penelope Cruz) and $3 million less in Denmark. That downward trend is also apparent in Belgium, New Zealand, Sweden, South Korea, Greece, Italy, Austria and Iceland. Altogether, in these 11 countries, the most recent “Pirates” dipped $64 million versus its 2006 incarnation.

Chart 1: Comparing the international grosses of two “Pirates of the Caribbean” movies: “Dead Man's Chest” (2006) and “On Stranger Tides” (2011)*

Comparing the respective international grosses of "Dead Man's Chest" (2006) and "On Stranger Tides" (2011)

* All box office grosses are from boxofficemojo.com. “Stranger Tides”'s Indonesian and Swiss box-office totals are unavailable.

But the new “Pirates” more than made up for it in other countries, led by Russia-CIS, where it was up $36 million, and followed by Japan (+$24m), Brazil (+$19m) and Mexico (+$10m). Altogether, in these 28 countries, POTC 4 grossed $135 million more than POTC 2, for a net gain, from the traditional markets, of $71 million.

That's the first way it's made up the deficit.

The second way is that “Stranger Tides” has simply opened in more countries—32 more countries to be precise—including Vietnam, Qatar, Kuwait, India (surprisingly), and the big daddy of them all, China, where it's grossed $70 million this summer. Altogether, these 32 countries, 13 of which have yet to disclose box office grosses, added more than $100 million to the till.

Chart 2: Box office totals for “Pirates of the Caribbean: On Stranger Tides” (2011) in internatinal markets where “Dead Man's Chest” (2006) did not play*

Box office totals for "Pirates of the Caribbean: On Stranger Tides" in interntional markets where earlier "Pirates" movies didn't play.

* All box office grosses are from boxofficemojo.com.

Taken with the higher gross from the traditional markets, that makes up for the U.S. deficit.

This, I assume, will be the new norm for big international films. Inflation and aggressive distribution, and more leisure time in countries like China, will lead to more billion-dollar movies, even if the U.S. goes “meh” to the film.

Hollywood, like any industry, and Disney, like any corporation, is expanding its reach, and in doing so protects itself against a crappy product, as I believe POTC 4 to be. Business for this film was down in the U.S. because it was a poor film, with poor word-of-mouth, and it followed a crappy sequel, “Pirates 3,” which followed an overblown sequel, “Pirates 2,” which followed a not-bad movie, “Pirates,” way back in 2003. You can't keep doing that and not suffer financially. Yet, for a time anyway, Disney, with its aggressive expansion, has managed not to suffer financially for its poor product.

It almost feels as if moviegoers in the United States are being bypassed. It's as if we're being outsourced. First companies outsourced U.S. production; now they're doing it with U.S. consumption.

Expect a “Pirates 5.”

Poster: Pirates of the Caribbean: Dead Man's Chest (2006)   Poster for Pirates of the Caribbean: On Stranger Tides (2011)

“Dead Man's Chest” (2006) made 39.7% of its total box office in the U.S.; “Stranger Tides” (2011), 23.2%. Yet they've grossed virtually the same at the worldwide box office.


Posted at 08:18 AM on Sat. Sep 10, 2011 in category Movies - Box Office  
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COMMENTS

Reed wrote:

There's an additional big factor at play here, Erik. And it's a twist on the same game Hollywood has been at for decades. They measure box office in dollars. They never use dollars adjusted for inflation domestically. That's not necessarily what's massaging the numbers in this case, but it's something related.

As these BO totals are all in dollars, and value of the US dollar has been steadily declining for five years, the same number of tickets sold in most countries, even if they are at the same price, will end up being worth more U$D. Check out this chart:
http://www.fxstreet.com/rates-charts/usdollar-index/?version=1
...and filter by monthly with 501 records. Since 2005, there's been a drop in the index from around 90 to 77. That's equivalent to a 14% increase in value of “other” currencies.

Of course, your overall point remains the same. The worldwide markets are ever more important, and if the dollar continues to weaken, the trend will only continue.

Comment posted on Sat. Sep 10, 2011 at 02:04 PM

Erik wrote:

Reed, that's fantastic. I'll probably use it as a jumpoff for a future blog post.

Comment posted on Sat. Sep 10, 2011 at 08:01 PM

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