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Undervalued Home?

Each year, MPAA (Motion Pictures Association of America, the association of the leading Hollywood studios), releases a comprehensive statistical report on the performance of the global film industry during the preceding calendar year.

To summarise the key takeaways from the recently released report for 2017:

The global box office crossed the $40 billion mark for the first time in 2017, with total theatrical revenues for all films in all countries clocking $40.6 billion. This represents a 5 per cent rise over 2016’s tally of $38.8 billion

2017’s record tally was despite a 2 per cent decline in the world’s most important film market, North America (US + Canada), and made possible by a 7 per cent increase in the rest of the world.

The 7 per cent rise in international markets (i.e. other than North America) was spread across all the geographical groupings that MPAA uses for its report – with Latin America seeing a substantial 22 per cent jump over the previous year, EMEA (Europe, Middle East & Africa) registering a 4 per cent uptick and Asia Pacific growing by 6 per cent.

Significantly, the world’s second-largest market, China, clocked a very healthy 21 per cent growth after having sent alarm bells ringing the previous year when it actually declined by 1 per cent, reversing many years of rapid growth.

The total number of film screens in the world is just over 170,000 with almost 100,000 screens equipped for 3D playout. 98 per cent of screens worldwide are now digital. 

This year’s study is especially interesting as, with this edition, MPAA expanded its mandate to include the home entertainment market in addition to its usual reportage on the theatrical market.

The report confirms what has been obvious for some time now and something our dust-gathering DVD and Blu-ray collections will attest to! – the demise of physical formats that once spawned millions of VHS/DVD libraries and occupied prime real estate in book and music stores.

Just how decisively consumers the world over have abandoned physical formats and switched to broadcast, download and streaming options to watch films comes through vividly in the table below that shows us how, in the space of just 5 years, digital revenues have ballooned from being less than half to more than double the size of physical format sales.

However, while the decline of physical formats and the rise of digital revenues may not be exactly breaking news, what does come as a surprise – especially for those of us in the Indian market – is just how substantial the size of the home entertainment market on the global level is, and how favourably it  compares with the size of theatrical revenues. As below:

First off, it is important to bear in mind that while in Indian trade parlance, the term ‘Home Entertainment’ typically includes physical formats like VCDs/DVDs and embedded memory cards/USBs, and is sometimes extended to include digital streaming, MPAA’s definition of the term is far broader and also includes digital downloads, VOD and satellite/terrestrial/cable TV rights. In short, pretty much everything except the theatrical and music rights – what would typically be classified as ‘Electronic Rights’ in our trade.

Even with that expanded definition, the scale of the Home Entertainment market, as tabulated above, is quite an eye-opener.

As is plainly evident, the global film industry has made more money outside theatres than at the ticket counter in each of the last 5 years. Contrast that with home entertainment rights realisations here in India, where even blockbuster films typically get anything in the range of 20 to 40 per cent of their domestic theatrical collections from sales of satellite and digital rights. Obviously, that figure is even lower (and often non-existent) for the vast majority of our films that fail to gain much traction at the box office.

Clearly, the Indian film industry has not been able to come anywhere close to matching global benchmarks when it comes to exploiting the revenue potential of home entertainment rights. It is in our own best interest to find out where we are falling short – is it that we have not been able to fully tap the depth and breadth of the home entertainment market or is it that we have undervalued the fair price for these rights… or is it a combination of both? 

If we can crack that question and emulate what other major film markets are doing, we may find that redemption for our often horrifying Profit & Loss statements may lie, quite literally, at home!

- Nitin Tej Ahuja

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