The 5% Solution?

Have you seen a good movie lately?

According to the latest data, fewer of us have. Ticket sales are down 5% year-over-year between 2011 and 2010. This is in spite of a glut of 3D movies, kicked off by the hit Avatar. 3D movies can cost 20% to 40% more to go see. Clearly, attendance has fallen. Is this an early-warning sign of an economic downturn?

Certainly movie-going is a discretionary purchase. When consumers cut back, entertainment is typically one of the first things to go. And there were a host of blockbuster sequels—Pirates of the Caribbean, Harry Potter, Mission: Impossible—that are usually dependable earners. So the downturn is a little surprising.

But there are other factors. First, sharply higher ticket prices for 3D movies may have reached the point of diminishing returns. People only have so much cash in their wallets. If that gets consumed by watching spaceships fly past the audience, there’s less available for another movie. Also, there’s a lot of competition for those dollars. The video-game “Call of Duty” sold $400 million in the first 24 hours.

So my inclination is to say no, this isn’t the first in a long string of negative data. The movie business is notoriously fickle. Even Pixar, which released “Cars 2,” had a relatively poor year compared to 2010, when “Toy Story 3” became the seventh best selling film of all time. And you can’t get blood from a stone: Higher prices sometimes lead to lower sales.

Good movies always rise to the occasion. But the ongoing drama of consumer spending power is definitely worth watching.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-09T17:23:51+00:00 December 27th, 2011|Global Market Update|0 Comments

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