Exit signs

Hollywood set a record this year that it would probably like to forget. For 19 straight weekends box-office receipts lagged behind the same weekends in 2004, the worst year-over-year losing stretch since the industry began tracking the statistic 25 years ago.

The good news for theater owners: A strong opening by Fantastic Four (see "story") during the July 8-10 weekend finally broke the slump.

The bad news: The 19-week slump seems to be part of a larger three-year trend of Americans making fewer trips to movie theaters, a trend that shows no signs of ending soon.

The pivotal year for movie attendance appears to be 2002. Theaters sold 1.63 billion movie tickets that year, according to the National Association of Theatre Owners. But then ticket sales began a long, steady decline, falling to 1.57 billion in 2003 and to 1.53 billion last year. Through June of this year, only 654 million movie tickets were sold, a drop of 9 percent from the first six months of 2004, when theaters sold 720 million tickets.

Meanwhile, a USA Today/CNN/ Gallup poll in May found that 48 percent of Americans go to the movies less often than they did five years ago, compared to only 15 percent who go more often.

What's behind the trend? A big part of it is money. With ticket prices rising-and with theater concessions becoming a case study in monopoly pricing power-many Americans are concluding that the cost of a theater outing is too high. In the May Gallup poll, 43 percent of respondents said they would be "much more likely" to see more movies if theaters would cut prices for tickets and concessions.

Bigger and better television sets and the emergence of DVDs have also made watching movies at home more popular. The Digital Entertainment Group reports that DVD rentals and sales last year increased 30 percent to $21.2 billion, generating over twice the revenue of theater sales.

Star Wars creator George Lucas predicts that at some point studios will begin releasing movies on DVD and in theaters at the same time. "You'll rent it for two dollars or buy it for 10 or see it on a giant screen in a social environment and have a good time," he said. "I think there will be room for all of it altogether."

But for all of the dark clouds facing theater owners, a strange countertrend is developing (and offering theaters a new revenue stream): the rapid growth of in-theater advertising. The amount that advertisers spent in theaters increased 23 percent last year, reaching $438 million, according to the Cinema Advertising Council (CAC).

The advantages of advertising in movie theaters-a screen that is bigger than a billboard, and an audience that cannot change the channel-seem to outweigh the disadvantage of dwindling audience numbers, and advertisers say more pre-movie commercials are on the way. "The [theater advertising] business is on a sustained path," Matthew Kearney, president and chairman of the CAC, told Mediaweek. "We anticipate double-digit growth for quite a few years."