At the Movies, During the Recession

Introduction

General wisdom dictates that business slows down during a recession as consumers, because of shrinking incomes and rising unemployment, cut back on their spending. Some industries, such as the food and beverage industry, however, have historically been recession-proof. That is, the items they produce are deemed so necessary to daily living that consumers are unlikely to cut back on them, opting, instead, to forego the purchase of more expensive and dispensable items, such as new cars. This is why companies like Wal-Mart or McDonald’s have thus far weathered the current economic slump reasonably well while the car companies are facing total collapse.

The film industry occupies a curious position in this binary between recession-proof and recession-prone industries. Historically, the film industry has performed quite well during economically depressed times, and has even thrived in otherwise terrible economic conditions. The Great Depression, for example, produced such blockbusters as King Kong and Snow White and the Seven Dwarves. A closer look at the box office in North America during the most recent economic slumps—those of the early 1980s, 1990s, and 2000s—reveals that the film industry (at least in terms of box office receipts) is indeed largely recession-proof.

A History Lesson

The recession of the early 1980s, which began in mid-1981 and lasted until late 1982, was the most serious since the Great Depression, with unemployment peaking at well above 10%. Yet the 1981-1982 period was one of the most buoyant in box office history, producing two of the greatest hits in film history, Raiders of the Lost Ark and E.T.: The Extra-Terrestrial. 1981’s gain over 1980—an impressive eight percent—was particularly remarkable given the huge success of The Empire Strikes Back, the sequel to the then-biggest film of all time, 1977’s A New Hope. 1982’s gain over 1981 was even more remarkable, with the box office surging past the previous year by over 16%, by far the biggest year-to-year increase in the last three decades. The gains can be credited in large part to E.T., which surpassed A New Hope to become the biggest film of all time and which performed consistently well for over a year during the severe slump. Some of the credit, however, must also be given to the comedies, particularly Porky’s, which opened in March 1982, and Tootsie, which opened at around the time that the economy began to rebound.

The 1990-1991 period offers the closest correlation between the performance of the box office and that of the general economy. Box office receipts dropped in both 1990 and 1991. But the drop in 1990 was just 0.2%, so small as to be insignificant, while the drop in 1991, 4.4%, though significant, was not particularly grave. I would suggest that the declines had more to do with the success of the previous years. 1989 was a spectacular year for the box office. The industry registered a series of big hits, lead by Batman’s huge $251m, as well as a number of major sequels, including Indiana Jones and the Last Crusade, Lethal Weapon 2, Back to the Future II, and Ghostbusters II. Honey, I Shrunk the Kid and Look Who’s Talking proved to be surprisingly big successes as well. Several 1989 releases carried over to 1990, including Driving Miss Daisy, and aided the year in (almost) keeping up with 1989. 1990’s biggest hit, Home Alone, registered one of the most shocking performances in box office history, but due to its November release, the film’s receipts were split between two years. The less than $12m decline in the box office from 1989 to 1990 could easily have been compensated for by some of Home Alone’s $285m total. The huge successes of the 1989 and 1990 films were not matched by the 1991 releases, despite the success of Terminator 2, whose $205m gross still fell below that of Ghost’s $217m in 1990. As well, while early 1991 was aided by The Silence of the Lambs ($130m), the film could not compensate for the huge success of the March releases of 1990: Pretty Woman ($178m), Teenage Mutant Ninja Turtles ($135m), and The Hunt for Red October ($122m).

The box office did not reach (and surpass) the 1989 benchmark until 1993, thanks in large part to Jurassic Park’s $357m gross. Ticket prices, which had surged in 1990 thanks to the success of the 1989 films, began to decline in 1991 and dropped for three years running, before increasing again in 1995. I think it is fair to argue that the greater economic slump did have an effect on the box office, but that the primary reason for the box office slump was a weaker line-up of films. The 1990-1992 period had a sufficient number of big hits (particularly Home Alone) to confirm that consumers were willing to spend money on tickets if the films were appealing enough. This assertion was to be proven correct for the remainder of the 1990s, when, beginning with 1993, each year offered a series of increasingly big blockbusters mixed with smaller but nevertheless successful films.

The trend continued well into this decade, entirely bypassing the mild recession which broadly covered the 2001-2003 period. Fortuitously for the film industry, those years corresponded to the release period of the hugely successful Harry Potter and Lord of the Rings franchises, as well as of the increasingly dominant superhero and CGI animated films. The expansion of the box office market which began in 1992 came to a halt only in 2005, at a time when the general economy expanded. The reason, as with 1990, is that the previous year was simply too great for the subsequent year to match. 2004 was assured a success in Spider-Man 2, which duly delivered with $374m, but the huge successes of Shrek 2 ($441m) and especially The Passion of the Christ ($370m) were entirely unexpected. 2005’s decline was the second worst in the last three decades, surpassed only by the 7% slump in 1985, which can also be credited to the success of the previous year’s surprisingly huge Beverly Hills Cop and Ghostbusters.

Assessing the Effects of the Current Recession

On December 1st, 2008, the National Economic Bureau announced that the United States had entered a recession in December, 2007. The box office performance of the 2008 releases, thus, must be assessed with respect to a recessionary background. The figures, thus far, suggest a condition similar to that in the late 1980s and early 1990s, whereby the decline in box office receipts is largely insignificant. 2008 receipts fell by a mere 0.4% in 2008 according to Box Office Mojo; they increased by 2%, according to the Hollywood Reporter. The different figures correspond to different means and periods of measurement, but the point is clear either way: the performance of the 2008 films remained largely unchanged from that of the 2007 films. That in itself is a remarkable feat. 2007 had not less than 11 $200m+ releases, with four of those surpassing $300m and a fifth, Harry Potter and the Order of the Phoenix, coming within $8m of the benchmark. In contrast, as of the present moment, just six films have made it past $200m, with three above $300m. The large difference is with the top film of the year. 2007 was lead by Spider-Man 3, whose $336.5m total was disappointing given its huge opening. In contrast, The Dark Knight followed its record-breaking opening with a phenomenal $531m total, which is set to grow with the film’s re-release in the coming weeks. The Dark Knight proves, as Home Alone did in the early 1990s and E.T. and Raiders of the Lost Ark in the early 1980s, that the appeal of the particular product, rather than general economic conditions, dictate the fortunes of the film industry. Had The Dark Knight been as badly received as Spider-Man 3, it would have set back the 2008 box office by $200m, adding more than two percentage points to the year-to-year decline.

The increasingly dire economic slump in recent months has been counteracted by an increasingly buoyant box office. During the holidays, Marley and Me, Bedtime Stories, The Curious Case of Benjamin Button, and Valkyrie all opened strongly on the same weekend, and have continued to perform well. Thus far this year, Gran Torino has had a magnificent expansion, while Bride Wars and the Unborn have opened well as well. This weekend appears to add to the successes of this year, with large openings for Paul Blart, Notorious, and My Bloody Valentine. The release schedule for this year does not suggest a particularly spectacular year, but all indications thus far point toward a more or less similar performance this year as in 2008, with Transformers 2 leading the year with a smaller tally than The Dark Knight.

Looking for the Causes

It is clear, then, that the box office is largely unaffected by larger economic recessions, and that declines, more often than not, tend to be caused by industry-specific deficiencies such as unappealing films. What, then, might be some of the reasons behind the resilience of the film industry in tough economic times? I would suggest that the resilience of the film market is grounded on the following factors:

1. (Relatively) Low Ticket Prices

Although ticket prices have increased in recent years, the average ticket is by no means so expensive as to render film viewing unaffordable to the majority of consumers. As long as a release is appealing enough to warrant a payment of $7-10, filmgoers, as has been proven repeatedly in recent years, are willing to spend the money to watch it.

2. Escapist/Entertainment Value

The escapist nature of cinema has always been one of its most appealing aspects. When the going gets tough, there is no better means of escaping reality, at least for a short while, than to go to the nearest theatre and watch a film. Comedies in particular stand to benefit from this impulse, but all films stand to gain.

3. Cultural Value

For many people, going to the movies is simply a part of life, much like watching television or listening to music. The value of cinema as a cultural institution guarantees it, at a minimum, a base audience that numbers in the millions. This is true of the car industry as well, of course, but film tickets cost far, far less than cars, allowing film devotees to indulge themselves with little to no consequence.

4. Product Diversity

Despite the frequent complaints about the lack of originality in cinema, the number of annual theatrical releases is so great that something of interest is available to anyone willing to pay. Such diversity is vital in times when people are less willing to spend on anything but that which is of greatest interest to them.

All this is to say that the film industry has the resources to sustain itself in tough economic times. This does not mean, however, that the film industry will be unaffected by the larger economic currents. The pressures on the companies behind the studios, such as Sony, have been so great that the production of films is bound to be affected negatively. From the consumer’s perspective, I suspect that total spending during filmgoing will decrease as consumers cut back on peripheral items, such as food and drinks. Theatre owners will feel this more so than studios. More worrying for the film companies is the inevitable slump in associated merchandise sales. Film companies are thus not in the best of conditions, but they are bound to bear the current slump out much better than their counterparts in other industries.

Sources:

http://boxofficemojo.com/yearly/

http://www.hollywoodreporter.com/hr/content_display/film/news/e3i7fcfe6ddd3b5d6c2eb0c8cc511b3bb7f

The information concerning the recessions is derived from various reports on the BBC, CNN, and other media sources I have consulted over the last few months.