Dinner and a movie used to be the standard date night in America. But that's changed as home theaters have gotten better and the instant gratification of on-demand content has spread. The result may be a long, slow death spiral for the movie theater, once an iconic part of entertainment in America.
The Decline of the Box Office
For more than a decade, box office ticket sales have been in a slow and steady decline in the U.S. Ticket sales peaked in 2002 at 1.58 billion when the average cost of a ticket was $5.81. In the just over 12 years since, annual sales have fallen 20 percent to 1.27 billion last year and ticket prices have jumped 43 percent to an average $8.30. For a family of four, that means a $33.20 bill just to get in the theater.
From the industry's perspective, the problem has been masked by rising ticket prices, which have kept total box office revenue fairly flat. But if attendance continues to dwindle, the movie theater will be in trouble long-term.
For Hollywood, the downward trends at the box office don't have an easy fix because a number of factors have driven consumers away from the theater. In 2002, when ticket sales peaked, we were just starting to see widespread adoption of large-screen HD TVs, and today they're in most homes in the country. The theater experience has come into the home, taking away some of the box office's appeal.
The other big change in entertainment is the expansion of on-demand offerings. TV, movies and music are now available at the touch of a button instead of on the schedule of media companies. The on-demand world doesn't mix well with the regimented movie theater schedule.
As content has become on-demand and moved online, the time between a movie's box office release and streaming release has also been compressed. Last year's highest-grossing movie, "The Hunger Games: Mockingjay -- Part 1," was released Nov. 21 and will come out on iTunes Feb. 17, less than three months after opening weekend. Even a movie with an incredibly long box office run like "Frozen" took less than four months to hit DVD/Blu-ray. Compare that to 2004, when "Shrek 2," the year's highest-grossing movie, took nearly six months to move from theaters to DVD.
Unless you really want the "theater experience," why not just wait to see a movie via streaming or on DVD on your big screen at home?
Why Falling Ticket Sales Put Pressure on Theaters
For movie theaters, the problem isn't necessarily the lost ticket sales, but rather the lost concessions. A theater only takes a fraction of the revenue from each ticket sold, giving most of it to the studio and their distributor. Where the theater makes money is on a $5 bowl of popcorn or a $4 soda. These are incredibly high-margin items and they're the reason theaters make a profit.
But if fewer people are entering the theater each year, there are fewer opportunities to sell concessions. Not to mention, the sharp rise in ticket prices over the past decade may have some consumers thinking twice about spending even more on junk food.
The Future Looks Bleak for Movie Theaters
Theaters may also be biting the hand that feeds them: the movie studios themselves. As the box office has declined, movie companies have had to come up with new ways of distributing content. iTunes, Vudu, and others are making it easy to buy movies from the comfort of your home. Netflix (NFLX), Hulu, and Amazon (AMZN) have proved out the subscription streaming model and are now a key source of revenue once the box office and DVD sales channels have been exhausted. But streaming could be moved front and center in the future.
"The Interview" inadvertently tested the streaming distribution model, first being released on iTunes and now on Netflix less than a month after it "opened." That wasn't Sony's original distribution plan, but the movie reportedly made $15 million in online sales in the first four days after it was released and $16 million in the subsequent week. Granted, this movie was an unusual case, and its notoriety may have added to its streaming success, but if this model proves to be viable in the future, it could take content away from the box office.
The bottom line is that interest in the box office is waning in the U.S., and I don't see the trend reversing. Home theaters are getting better every year, more content is available on-demand, and the price of going to the movie theater has gotten prohibitively expensive.
Movie theaters were once a staple of American life (and dating), but those days are long gone. It's sad, but it's pretty clear that we're slowly witnessing the death of the box office.
Motley Fool contributor Travis Hoium owns shares of Apple. The Motley Fool recommends and owns shares of Amazon.com, Apple, and Netflix. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check outour free report.