Theatres, Copyright, and Statistics, oh my!

In Mel Hurtig’s new book (for which I have an interview in queue – Once the House rises for the summer, I’ll start working through my backlog of book interviews) he mentions that he begins his day by checking out the latest releases from Statistics Canada in The Daily. I read that, and was pretty happy to find out that there was at least one other person in the country that does so for fun. If I wasn’t such a big fan of free trade, I’d apply for a job with the Council of Canadians just because of that.

But I digress. Usually The Daily is pretty dull, filled with labour market statistics and break downs of what bike couriers cost in various cities across Canada. Good to know if you want to find out if you are getting ripped off sending a package across town, but that’s about it.

But occasionally you’ll find something that takes conventional wisdom and bludgeons it to death. Last tuesday was one of those times.

Some background: The movie studios have long maintained that they are getting destroyed by movie pirates. You’ve probably seen some of the ads run before movies. The logic goes that the rise of downloading full films means that fewer people are going to theatres or buying DVDs, meaning that studios lose money. They are quick to point out that doesn’t it doesn’t just mean that Disney is out money, it means that regular hardworking people are out of a job. Canada has been accused of being a hot bed of movie piracy, prompting the government to pass legislation last year banning “camcording.” This was in keeping with the Harper government’s policy of making illegal things illegaler.

I think for movie piracy to be the scourge that they are making it out to be, a couple of things need to be true:

  1. Movie studios aren’t making money on the films that they produce.
  2. Movie theatres aren’t making money on the films that they show.

I don’t include people that sell DVDs because if a DVD doesn’t sell at Walmart, by and large it can be returned to the distributor. If a movie doesn’t sell at a theatre, they are out revenue.

For the first, Slate had an excellent series a few years ago on the economics of Hollywood. The most important for our purposes looks to where Hollywood makes its money. Essentially, when they send a film to show in a theatre, they lose money, but this is more than recouped by DVD and television revenues, and obviously forgets any of the many tax tricks that they can play to reduce costs. Theatres, Slate says pretty convincingly, are a loss leader for other ways in which they take money from you. Needless to say, after I read this Hollywood’s copyright sob story seemed a bit more of a stretch.

For the second, I always kinda figured that the story was different for theatres themselves. They are at the front lines of changing technologies: no longer is it necessary to go to a theatre to see a film as it was meant to be seen: more and more people have home theatres with surround sound and high definition televisions. At home, popcorn is cheap and the only cellphone that rings is your own. An industry in transition would be bound to susceptible to losses to piracy.

Except, of course, that it hasn’t been. Here’s what Statistics Canada says:

The large theatres reduced their expenses 6.4% over the two-year period compared with the 4.7% drop recorded by the entire industry over the same period. As a result, these top companies saw their profit margins increase from 1.4% in 2005 to 10.2% in 2006. This was higher than the profit margin for the whole industry of 9.3%.

Smaller theatres didn’t do quite as well, but still saw improvements. It should be noted that over this period, revenues were up a little over 2%, and ticket sales up a little under 2%, so while selling more expensive tickets to more people probably helped, the real success was in reducing expenses by almost 6.5%. Funny, how if you cut costs, you can make more money.

Now, some caveats: Obviously, downloading illegal copies of films from the internet is piracy, and there should be punishments for those people that try to make such copies of films for distribution. I don’t think that the problem rests with people surreptitiously using a handicam, nor do I think that a person that downloads a film would have paid to see it otherwise, but what evs. Also, ticket sales to theatres fell in 2004 and 2005, for which I have no idea why. Let’s blame the absence of a Lord of the Rings Movie.

The real lesson to take from this, however, is that the movie industry is doing more than all right, and managing to make lots of money even as some people opt to download their products rather than see them in theatres.  Normally, making a round-a-bout, geeky point would be worth it in and of itself, but with new copyright legislation on the books, we’re going to start hearing a lot about how big businesses are struggling such sorts of protections. A ban on camcording is unnecessary, but not egregious. What we’ve seen tabled would represent a much more direct interference in the personal use of technology and enjoyment of artistic materials. We can’t win if we accept the premise of the problem, and fighting back with numbers is a good first step in rejecting that.