Going from the movies

closing_soonOver the years, we’ve all seen disruption in the tech industry: a new product or service captures the imagination of consumers, and over time a new paradigm takes hold.

Companies supporting the old model hang on for dear life, but disruption to their industry happens anyway.

Some of these legacy companies attempt to embrace the trend, but it’s often too little, too late. Visionaries and entrepreneurs are already light years ahead of them.

Are movie theaters next?

In the U.S., the movie theater industry has been under duress for some time now. According to a report from Redwood Capital, since 2002, the industry has seen steady declines in ticket sales. From the report:

…theater admissions declined from a peak of 1.58 billion tickets sold in 2002 to 1.34 billion in 2013.declining_revenues The rise in penetration of alternate distribution channels such as Netflix, Hulu and VoD (Video on Demand), as well as reduced theatrical release windows have contributed to the decline in annual ticket sales. Developed markets are also fully saturated with theaters and screens…theater attendance is expected to remain under pressure in the years to come. The growth in number of screens will begin to decline as markets become saturated with theaters. Access to alternate distribution channels will continue to grow and will also put more pressure on theater ticket sales. 

The term “alternate distribution channels” is key here. Movies on demand from iTunes and Google Play, and streaming movies from Amazon, YouTube, and Netflix are becoming increasingly popular.

Why? Because they are cheaper, incredibly flexible, and empowering—key ingredients for disruptive technologies.

Thinking outside the multiplex

Speaking of Netflix, we’ve lately seen some other signs that going to the movies as we’ve known it is changing.outside_the_box

Netflix recently did two things: It signed a deal with popular actor Adam Sandler to produce four movies for the streaming pioneer.

Secondly, Netflix is joining with Harvey Weinstein to produce a sequel to the Oscar-winning martial arts movie, “Crouching Tiger, Hidden Dragon,” with plans to release the film simultaneously next year in iMax theaters and on Netflix streaming.

Clearly, Netflix and forward-looking Hollywood veterans are thinking outside the box here. People and their watching habits are changing. As Wayne Gretzky once famously said, you skate to where the puck is going to be, not where it has been.

Hell no, we won’t show

The response from some theater owners was predictable. According to the Washington Post, Regal Entertainment Group and Carmike Cinemas, Inc., owners of thousands of theaters across the U.S., said that they won’t show the film in their iMax theaters.hell_no

A spokesman from Regal said the company “will not participate in an experiment where you can see the same product on screens varying from three stories tall to 3 inches wide on a smartphone.”

To me, this is the definition of a knee-jerk reaction, a metaphorical circling of the wagons. It’s exactly this kind of close-minded thinking that has led to eventual extinction for other disrupted industries.

Regal, Carmike, and their industry compatriots should be heavily scrutinizing—indeed, welcoming—the trends that could make or break their businesses. When you’re making billions of dollars annually, I guess it’s difficult to think like this.

Adapt or die

Adapt or die, the saying goes, and in business, there is no more important philosophy.

adaptSome people, it seems, need to be dragged into the future kicking and screaming. Change is uncomfortable, particularly when it seems that the system works. If it ain’t broke, don’t fix it.

But here’s the problem: the system doesn’t work for an increasing number of consumers.

Content is becoming a commodity, and people are less inclined to pay $20 a head to go to the movies. Add in the popcorn and cola, and you’re talking about an expensive night out for a typical family.

On-demand everything

Oftentimes, when an industry is disrupted, when business models disappear, industry leaders are unable to even see it coming.

I don’t think that’s the case with the theater chains. Change has been happening for awhile, as consumers get new and enhanced products and services on a pretty regular basis. Each enhancement by itself might be considered minor, but in the aggregate they start to look very much like a solution.on-demand

Perhaps, theater owners refuse to see these offerings as a problem, but consolidation in the industry is already happening, revenues continue to shrink year-over-year, new technologies (e.g., iMax, 3D, etc.) get promoted to stem the tide, but the inevitable is merely delayed.

The technology is in place right now to deliver a comprehensive and compelling solution that can satisfy both the consumer and the Hollywood-Industrial Complex.

The compelling solution—on-demand everything anytime—is where the industry needs to go. This is skating to where the puck will be. It may take years to get there, but it is, I think, the holy grail for an increasingly sophisticated consumer base, and there is plenty of money to be made.

As Netflix and others continue to push the envelope with service features and content development, theater owners who stand their ground could be in for a world of hurt. Right now, they are kicking and screaming, but either the industry is part of the solution or part of the problem.

What happens when an industry is disrupted? Revenues go elsewhere. Problems get solved.

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