5 Min Read
SUN VALLEY, Idaho (Reuters) - The summer U.S. box office is sizzling due to hits like "Hancock" but Hollywood leaders focused on the chilling effects of industry change brought on by labor strife, fragmentation and new technology at the annual retreat of moguls this week.
"The whole industry is in transition," said Anne Sweeney, co-chairman of Walt Disney Co's Disney Media Networks and President of Disney-ABC Television, as she left the morning session of the annual Allen & Co media confab in Sun Valley.
"I'd say that every day for the next five years, you have to track consumers and be adaptable," she said.
While the U.S. box office is on pace to top last year's record summer revenues of over $4 billion, industry watchers note the overall pie is being divided differently than a year ago as big studios such as Viacom Inc's Paramount have sought to cut risks but also profits by serving only as distributors of big films like "Iron Man" and "Kung Fu Panda."
Big studios are also facing oversupply as new, small players like Overture Films, Summit Entertainment, Weinstein Co and a repositioned Metro-Goldwyn-Mayer Inc have added films to the pipeline at a time of stagnating attendance and slowing DVD sales and an increasingly fragmented audience to the Web.
One speaker during the morning session of the conference predicted that DVDs were going the way of CDs, which have seen sales collapse with a wide-scale generational shift to digital downloading that the music industry has struggled to monetize.
"I think it's a fundamental issue. The question is how rapidly will (DVD revenue) get replaced. Are we replacing analog dollars with digital pennies?" said a media executive at Sun Valley, who declined to be identified.
Still, many industry leaders remained upbeat that much of Hollywood's woes are cyclical in nature.
"I'm an optimist. People are going to movies. If I criticize the studios for making too many films, I'd be criticizing myself," said Ron Meyer, president and chief operating officer of General Electric Co's Universal Studios.
Meyer said he aimed to keep the studio's film release at a total of 16 to 18 films a year, which he said was in the middle of industry levels.
Hollywood is still reeling from the effects of last winter's 100-day walkout by the Writers Guild of America and the lingering threat of another strike by the Screen Actors Guild (SAG).
The writers strike largely idled TV production and thousands of workers and cost the LA-area economy an estimated $3 billion.
However, the Tuesday ratification of a new prime-time TV contract by the smaller of Hollywood's actors unions appeared to undermine a last-ditch bid by SAG to secure a richer deal.
In any event, the threat of a strike has forced some studios for months to refuse to greenlight projects to avoid possible costly labor disruptions.
Some moguls note that another labor disruption would make any discussion of an oversupply of films a moot point, as it would bring production to a standstill.
"If we have a strike, we won't be scaling back," said Sir Howard Stringer, chairman and chief executive officer of Sony Corp.
Much of the labor unrest has centered on how union talent should be paid for work created for the Internet, which remains a serious challenge to the industry's entire foundation, according to various analysts.
Lehman Brothers analyst Anthony DiClemente recently cut his ratings on the entire entertainment sector, citing concerns that a secular decline that has just begun in the $24 billion home video market will outpace growth in digital media revenues in the next two years.
"We believe the feature film and TV content businesses are on the verge of structural changes that appear destined to impact the core revenue and profits of entertainment business models," he said.
Amir Malin of Qualia Capital investment fund said rising costs and audience fragmentation were among the biggest challenges in the industry.
"It's critical that you have a keen understanding of changing market conditions so that you can respond and reposition your investment strategy," said Malin.
Additional reporting by Kenneth Li, editing by Phil Berlowitz