Article:

The demise of traditional box-office - is this bad news for production companies?

21 April 2016

Martin Coyle , Partner, Audit & Assurance |

The number of people making a regular trip to their local cinema is in rapid decline, with admissions down by more than 4 per cent from last year.

And as attendance numbers plummet, average ticket prices continue to rise, increasing more than 12 per cent over the past five years.

The dwindling numbers of patrons sitting down with a box of popcorn to watch the latest flick underlines that change is afoot in the theatre world – and anyone with an internet connection knows that a significant component has been the rapidly changing landscape of movie consumption.

Online video audiences are growing with 50 per cent of internet-connected Australians watching professionally produced film and television content via the internet. On-demand and streaming services are gaining momentum and consumers want to watch content on a range of platforms as long as it is convenient and affordable.

So how will this growing trend impact production houses, their profits, and in turn the Australian economy?

In 2014/15, the production of feature films and TV dramas pulled in $837 million for the Australian economy. And in 2013/14, the total value of Australian documentary production was $144 million.

There’s no doubt the country’s production incentive scheme, which offers up to 30 per cent rebate on productions in Australia, is playing a key role in encouraging international production companies and local businesses to produce in Australia.

While the rebate scheme remains in place in Australia, the film production industry should remain relatively robust as should the contribution the industry makes to the Australian economy.

Although the rise in online sites such as Netflix may alter the method in which some consumers gain access to film and television content, the continued demand for new content to be produced should ensure that local producers continue to receive demand to sustain the supply and production of new ideas. 

However, production houses should keep a close eye on the specific arrangements they hold with external media providers like Netflix, to ensure they are reaping the maximum benefits. Where the production company retains the right to exploit future licensing, the benefits should hopefully not be significantly impacted. 

On the flip side, where production houses are producing specifically for Netflix's future content rights, you could see margins being squeezed or being deferred well into the future to accommodate Netflix's drive to significantly expand its market share. 

So what’s the key to staying ahead? While not always easy, maintaining exposure and investment in film and television content which has a longer shelf life and can be relicensed or repackaged in the future at lower costs will be the key to staying ahead in this competitive market and evolving market.