The Economics Of Summer Blockbuster Movies
Summertime is a great time to see movies. The kids are out of school, the days are longer, and with the heat and humidity, who wouldn't want to soak up a few hours of air conditioning? Many of us look forward to the summer movie releases that tend to be action-packed, fun and simply entertaining - think "Pirates of the Caribbean" or "Transformers". Just like lying on the beach listening to the waves, summertime movies provide an escape, even if only for a few hours.

With the summer blockbuster season quickly approaching, the big studios are anxiously awaiting theater turnout and the subsequent ticket sales. The major motion picture studios invest huge amounts of money on these summer releases, hoping to recover their investments - and achieve a summer blockbuster.

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A Big Gamble
According to the Motion Picture Association of America, major motion picture studios invest an average o $96.2 million to make and market a movie. This includes $3.8 million for film copies (to distribute to theaters) and $32.36 million for advertising in print and on TV and internet spots. However, we are so inundated with the ticket sales statistics in the news that it may come as a surprise that six out of 10 movies never recoup their initial investment. With studios forking out close to $100 million on a movie, you can bet that they are hoping theirs will be among the summer blockbusters that "everyone" goes out to see.

Number Crunching
Movie-goers definitely take in more films during the summer months; particularly May, June and July. By August, sales drop off, perhaps because kids are heading back to school, or we've simply seen our share of summertime movies. Figure 1 shows annual movie ticket sales for 2008 and 2009. The month of May enjoys a dramatic uptick in ticket sales - more than twice the March ticket sales - that carries through to June and July. Indeed, ticket sales for May, June and July accounted for 39% of the $9,066,472,148 in annual sales during 2008, and 35% of the $9,971,755,182 in sales for 2009. These statistics are important because more than one-third of annual sales occur during one quarter of the year.



Figure 1: Comparison of annual ticket sales for 2008 and 2009. (Monthly data compiled from www.the-numbers.com)


Ticket sales for May, June, July and August accounted for 46% of annual sales during 2008, and 43% of sales for 2009. Not bad considering the four-month period represents only one-third of the entire year.

It is interesting to note that, while the summer is absolutely the busiest time at movie theaters, November is a close second. Ticket sales for November rival those of the summer blockbuster months, perhaps because Thanksgiving break provides the first real vacation since summer. If we include November in the tally, ticket sales for May, June, July, August and November of 2008 equated to 57% of annual sales; ticket sales for the same months in 2009 comprised 55% of total sales. (For insight on investing in the entertainment industry, see Analyzing Show Biz Stocks.)

What the Numbers Mean
Motion picture studios hope to earn a significant portion of total annual ticket sales during the summer blockbuster months. In 2009, Warner Brothers (NYSE:TWX) gained the top spot for movie ticket sales market shares, topping 20% of total ticket sales; it was followed by 20th Century Fox (Nasdaq:NWS) (13.73%) and Paramount Pictures (NYSE:VIA) (13.72%). Warner Brothers' summer movie release ticket sales equaled an impressive 42% of annual ticket sales - that's almost half of sales earned in one-third of the year (May, June, July and August).

Another consideration that is on the radar screen of picture makers is the advent and popularity of 3D movies. Movies like Avatar (20th Century Fox) in RealD Cinema 3D and IMAX 3D make movie-going a whole new experience - and one that people would like to repeat. The special effects with this new breed of 3D digitization are so seamless and realistic that one may wonder why all movies aren't in 3D now. In fact, television makers are jumping on board and marketing 3D sets for home use. RealD is working with top consumer electronics manufacturers to make new 3D technologies a reality in public spaces, business environments and the home. (For related reading, see 3D Television Reality Check and Will Avatar Ruin Sports TV?)

The Bottom Line
Summer blockbuster movies are fun for us - the movie goers - and a big gamble for the major motion picture makers. Enormous amounts of cash are invested in the movies, increasing the pressures and expectations associated with bringing home the bacon. Summer seems a likely time to try to recoup those investments and hit pay dirt. Unfortunately, box office bombs are all too common, and striking a winning chord with audiences is easier said than done.




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