Opinion: Why are movie prices going up?
For years, the Motion Picture Association of America and the National Association of Theater Owners have touted movies as the most accessible and least expensive form of entertainment, since tickets to sporting events and live theater cost so much more. And, traditionally, during when the economy has been depressed, Hollywood's profit margin rises.
While much of that lucrative increase is due to the audience's desires to escape reality during the past few months, it's also credited to the revival of 3-D. As shown by the popularity of Avatar, Alice in Wonderland and How to Train Your Dragon in 3-D, audiences are willing to pay for the enhanced visuality of the increased technology.
For a studio, filming in 3-D from a project's inception, like Avatar, increases the base cost about $20 million. Converting a 2-D film into 3-D after it's already been shot, like the Clash of the Titans, can be half as expensive, averaging about $10 million. In general, the box-office split between studios and exhibitors is 50--50 domestically and 45--55 overseas. As part of their deal with exhibitors, studios have to pay for those 3-D glasses, either disposable or reusable, which can average $5 million to $7 million per picture. But in order to show 3-D prints, the exhibitors have to shoulder the costs for converting a screen to digital and that can come to $100,000. Studios are helping to defray some of this overhead by paying a "virtual" print fee, estimated at about $1,000 per print. And exhibitors make their profits is at the concession stand, where food/snack prices have always been exorbitant.
As an added worry for film executives, the DVD market has been down, and there's also the piracy issue. According to a Reuters report from the RAND Corp., organized crime is not only taking a larger role but the piracy profits have been used to support terrorist activities. Crime syndicates have become infiltrated the entire supply chain of illegal films, from their manufacture to their street sales, and digital technology as made counterfeiting far easier than, say, drug trafficking.
"The profits are high and the penalties for being caught are relatively low," explained Greg Treverton, the report's lead author and director of RAND's Center for Global Risk and Security. "If you buy pirated DVDs, there is a good chance at least part of the money will go to organized crime and those proceeds fund more-dangerous criminal activities, possibly terrorism."
A pirated DVD made in Malaysia for 70 cents, for example, was marked up more than 1,000 percent and sold on the street in London for about $9. The profit margin was more than three times higher than the markup for Iranian heroin and higher than the profit for Colombian cocaine, according to the report. Worldwide, the criminal penalties are relatively light and prosecution sparse. In France, selling counterfeit products is punishable by a two-year prison term and a $190,000 fine, while selling drugs is punishable by a 10-year prison term and a $9.5 million fine.
But, right now, the question is: Exploiting the novelty of the 3-D experience, will exhibitors price their audiences out of the theaters?