The movie theater industry experienced a record-breaking year in 2018, both domestically and globally. In the U.S., $11.8 billion in box office receipts represented a 6.8 percent improvement over 2017 and an all-time record. Similarly, though less dramatic, the international figure of $29.8 billion also set a record, though that number represented smaller growth, at a 1 percent increase over 2017. These results certainly put to rest some doomsday predictions made during the slow summer of 2017. And given the plethora of entertainment choices today, this growth in a mature industry has to be reassuring.
To better understand the state of the business, however, a deeper dive may be in order. Not all territories achieved positive results in 2018. Breaking down the numbers in a more granular and regional way may offer insights about what is working and what isn’t. Though many of the following themes have become our mantra at NATO, it may be instructive to see how they apply to the performance of 2018.
Good and Diverse Movies, Wisely Distributed, Drive the Box Office
The most basic axiom of the exhibition business is “content is king,” and Hollywood offered an undeniably strong slate in 2018. From superhero blockbusters like Avengers: Infinity War and Aquaman to action movies like Jurassic World: Fallen Kingdom and Mission Impossible – Fallout, and from musically themed movies like Bohemian Rhapsody and A Star is Born to family titles like Incredibles 2 and Spiderman: Into the Spider-Verse and senior-skewing movies like The Mule, the major studios brought four-quadrant tentpoles of mega-proportion.
But several other, newer developments augmented growth. The year 2018 represented perhaps the greatest leap forward in successful diversity in casting. Black Panther, with an entire cast of African and African American actors, wore the box office crown in the U.S. and did very well internationally as well. The strength of the title nonetheless varied tremendously on a region by region basis. Nowhere in Europe did Black Panther come in first, and the movie struggled to make the top 10 in countries like Italy and Spain. Crazy Rich Asians also represented the biggest success in the U.S. for an all-Asian cast, but that movie too had challenges in some other territories, including disappointing results in China.
Beyond diversity in casting, the year 2018 also represented a bit of a breakthrough for diversity in genre. Documentaries did very well in the U.S., with four titles exceeding $10 million in gross (Free Solo, RBG, Three Identical Strangers, and Won’t You Be My Neighbor.)
Outside the U.S., box office success relies as well on local content, not just Hollywood fare. Scandinavia, for example, experienced tremendous growth with particularly strong local titles in countries like Denmark and Sweden. Similarly, in the United Kingdom, strong admissions growth resulted in part from the success of UK co-productions including Mamma Mia: Here we Go Again! and Bohemian Rhapsody. And in Poland, Wojciech Smarzowski’s Clergy did tremendous business. By contrast, Germany’s dismal year was driven in part by the lack of any successful local movies.
Distribution patterns also matter a great deal. Theater operations continue 12 months of the year, for all 365 days. Yet historically domestic distributors hesitated to release important titles in the “dead months” like January–February and September–October, preferring instead the months of summer school holidays or winter break. At least domestically, 2018 represents a year when all 12 months were successful. Black Panther brought records to the month of February, while two titles (Halloween and Venom) helped produce a record-breaking October.
The ability to spread movies across the calendar was inhibited a bit overseas by the scheduling of the World Cup football tournament. And in some territories, old and bad distribution habits continued. Italian cinemas had their worst performance in a decade, in part because distributors continued to skip the summer months for fear that all Italians go to the beach and don’t watch movies then. Fortunately, it appears that 2019 may represent a new day in Italy as at least three major titles are set for release in the summer.
An Enhanced Moviegoing Experience is Essential for Growth
People go to movie theaters to see great movies—and to have an enjoyable experience like they cannot have at home. In 2018, innovation and enhancement in the exhibition experience drove growth. In the U.S., two developments in particular helped to enable the record year. First, the penetration of luxury recliners grew substantially, offering patrons the most comfortable movie-watching environment ever. Just listen in to any of the quarterly conference calls of the publicly traded companies and you can hear the Wall Street analysts check in on the pace of re-seating.
Similarly, domestic operators widely expanded the offering of upscale food options, and adult beverages too. Upscale food and beverage not only drive consumption per capita spending but increase ticket sales as well.
Around the world the pace of innovation, or lack thereof, also affects box office returns. In the UK, for example, patrons are responding to upgraded cinemas. In Germany, by contrast, the market has been shrinking in part because the infrastructure is aging. Most of the multiplexes in the country were built in the 1990s and have yet to see the improvements that are common in North America or in Northern Europe.
Ticket Prices Matter
Ticket prices always constitute an important factor in the frequency rates of moviegoers. Particularly in contrast to other out-of-home entertainment options, such as sporting events, amusement parks, or live performances, the theatrical experience remains affordable. Indeed, even with the significant capital expense associated with infrastructure upgrades in recent years, the average movie ticket price in the U.S. has risen slightly slower than the cost of inflation over the past four decades. Though final numbers will be announced subsequent to the writing of this column, it appears that the average ticket price in the U.S. during 2018 was approximately $9.15. Though a record high, that number actually comes in slightly lower than the cost of inflation when compared to 1978.
Outside the U.S., some ticket price experimentation in 2018 bears watching going forward. In Germany and other European territories, greater dynamic pricing has begun to take hold. Variable pricing based on demand levels, proximity to show time, seat location within the auditorium, and other factors has shown promise. And in the UK, ticket price reductions helped produce a 50-year record in admissions even though box office receipts were essentially flat.
During 2018 a new development in domestic ticket pricing—subscription services—may have also played a small role in the strong admissions numbers. Though early third-party subscription models proved unsustainable, exhibitors in the U.S. have begun to roll out their own subscription services with some significant traction. It is also worth noting that subscription services have operated successfully for years in some other territories, such as the UK. Though NATO will not take a position on any particular branded model, the trade association has stated that subscription services can be a useful component of the pricing mix when constructed on sustainable models that are based on transparent and real data, and that respect the privacy of consumers’ data as well.
In some territories, local governments can affect ticket prices through unwise taxation schemes. In Spain, ticket sales have been damaged for years by the government’s imposition of a 21 percent tax. In 2018, Spain experienced a box office recovery in part because the ticket tax rate was lowered to 10 percent. In Saudi Arabia, meanwhile, the historic news that the kingdom would legalize motion picture exhibition for the first time in decades was coupled with the unfortunate news of a 25 percent ticket tax.
At the end of the analysis, though, it cannot be disputed that 2018 was a great year for the motion picture exhibition business. Commercially relevant movies, exhibited in luxurious movie houses at affordable prices, drove the industry to record numbers. And those trends look likely to continue in 2019.