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Beating the box office blahs
The Memorial Day weekend gave Hollywood a much-needed lift. But can it last?
June 1, 2005: 3:25 PM EDT
By Krysten Crawford, CNN/Money staff writer
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NEW YORK (CNN/Money) - Don't expect those huge sighs of relief coming from movie industry executives this week to last.

Sure, a trio of flicks -- "Star Wars Episode III: Revenge of the Sith," "Madagascar" and "The Longest Yard" -- helped propel the domestic box office to its second-best Memorial Day weekend ever and gave box office analysts the reassurance to declare that this year's slump in domestic ticket sales is nearing an end.

But the rut isn't over. And for all his brawn, Russell Crowe and his Depression-era boxing drama "Cinderella Man" aren't expected to pull the industry out when they hit theaters this weekend.

Industry analysts and executives are banking instead on potential blockbusters, "Batman Begins" on June 15 and "War of the Worlds" two weeks later to end the box-office slump. The summer season is critical because it typically generates about 40 percent of the year's total box office.

But even if ticket sales recover, the relief is likely to be temporary.

In the short term, "I'm not worried at all. There's a very good, diverse balance of films this summer," said Robert Bucksbaum, a movie theater owner and president of box office tracking firm Reel Source. "Long term, I'm a bit more worried."

With movie attendance declining for the third consecutive year, some analysts think the day is fast approaching when the industry will have to find new ways to lure movie buffs into theaters.

"It's a tug-of-war now," said Paul Dergarabedian, president of Exhibitor Relations, which compiles data on movie ticket sales, prices and audience levels. Studios and theaters are "battling for audiences that are tougher and tougher to get."

Theater owners worried

On Memorial Day weekend, movie ticket sales reached nearly $232 million, a few million shy of last year's record-breaking $247 million summer kickoff, led by "Shrek 2," according to Exhibitor Relations.

Exhibitor Relations reports that ticket sales are down about 5 percent this year compared to a year ago, although audience levels have fallen 7.5 percent. The drop in the number of tickets sold has been offset by higher average prices.

Box office doldrums hit theater owners harder than Hollywood studios. Movie studios barely make money off of theater sales, relying instead on home video demand and merchandising sales for profits.

Theater operators, meanwhile, pocket roughly half of all ticket sales and look to sales of popcorn and other concessions for their livelihood.

Bucksbaum cites a number of concerns he has about the overall health of the box office and the risk that fewer consumers will be going out to the movies in coming years.

He points to the glut of theaters across the country and signs that the traditional model for distributing movies is collapsing.

He singles out shrinking DVD windows. Studios used to wait a year or so to release a movie on DVD, he says. Then it was six months. Now it's even less.

"If you've got the choice between taking the kids out, getting a babysitter, and paying $50 for a movie or paying $3 for a rental or maybe $20 to buy the movie on DVD, why would you rush out to a theater?" wondered Bucksbaum.

He points to movies-on-demand as another long-term threat to the box office.

Simultaneous threat

A company co-founded by Dallas Mavericks owner Mark Cuban is giving the movie theater industry a big jolt. The company, 2929 Entertainment, in April announced a deal to produce and release several Steven Soderbergh-directed films in theaters, on home video and on cable at the same time.

Major theater owners, including AMC Entertainment, Loews Cineplex and Regal Entertainment (Research) have refused to show films that are released simultaneously in other formats.

Bucksbaum doesn't think theaters are ultimately doomed. Fifty years ago, he noted, theater owners were "petrified of television. They thought it was going to be the end of their industry."

Theater owners responded then with giveaways and other gimmicks to lure audiences to the theater.

"They would use any promotion you could think of just to...get people off their couches," said Bucksbaum. He said one theater gave away dinner dishes; another installed seatbelts to convey excitement.

The situation today doesn't look so dire considering that a record $9.4 billion in tickets were sold domestically, according to Exhibitor Relations.

But given ongoing declines in attendance and box office fluctuations, Dergarabedian thinks the industry will eventually have to do something to stop the erosion.

At minimum, releases are "going to have to be even stronger and their marketing more effective," he said.

According to Dergarabedian, top directors already are talking about making more 3-D films as a way to differentiate the movie-going experience from other viewing formats.

He also says that theater owners are talking about expanding price discounts, which are now limited to the elderly, students and special mid-week screenings.

"At some point, there will have to be some kind of ticket-price adjustment just to get people back into theaters," said Dergarabedian.

Dergarabedian and Bucksbaum say the pricing issue can be tricky, however. Profit margins for theater owners are already thin and their revenue-splitting deals with studios are complicated.

Bucksbaum doesn't expect theater owners to offer fire-sale promotions anytime soon. But he, for one, isn't reluctant to use a little bait to keep audiences coming back to his Los Angeles theater, built in 1939.

"I get up in front of audiences and do a drawing," said Bucksbaum. "Some days I give away t-shirts. Usually it's $20 cash."

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