As far as the business goes, since the spate of bankruptcies, the problems have likely grown worse. Hollywood has moved more firmly into pushing blockbusters. The basic characteristic of a blockbuster is that it opens on a huge number of screens, rakes in a lot of cash early, and quickly fades. Even big hits such as Fox's Mr. & Mrs. Smith with Brad Pitt and Angelina Jolie tend to lose more than 40% of their business in the second week of their run.

This trend hurts the theaters since they typically have to pay more of the gross to the distributors in the first weeks of a release. The longer a movie plays, the greater the share for the theater owners. About the only growing aspect of the theater business is on-screen advertising. But this seems likely to discourage theater-going in the long run. It is often said that people buy more popcorn for the blockbusters, but it's hard to see why that would occur.

At the least, there are still way too many screens chasing too few movie goers. As of 2004 ... there were 36,652 screens in the U.S., just slightly fewer than 1999, when the number reached its all-time high of 37,131. These screens, however, have been crammed into fewer sites, meaning there are more multiplexes. Five years ago, there were 7,477 theater sites. By 2004, the number had shrunk to 6,031.

And I couldn't agree with Ackman more when he concludes:

Why the princes of Wall Street wanted to buy into this business remains something of a mystery. Perhaps it's a real estate deal, like everything else. As the industry consolidates, they might finally start cutting screens in large numbers or cramming more of the screens (and more customers) into fewer multiplexes.

But I also disagree with some of his conventional wisdom. I don’t think that industry consolidation or pruning back the number of screens and seats is going to reverse the downward trend. Substitutes products in the form of video games, TIVO, and an ever expanding selection of cable TV offerings (many of which are developing their own compelling content) will have a lasting and increasingly devastating effect on movie going. Direct competition from DVD sales and rentals, especially via firms like Netflix, are also cutting into the box office take. The poor product that the studious are putting out and their over-reliance on blockbusters isn’t helping matters either. If the merger goes through I expect, first and foremost, to see an increase in the price of tickets and popcorn. Not that this will solve any of the stuctural problems the industry faces, mind you. If some of this summer’s anticipated blockbusters like Batman Begins and War of the Worlds go belly up, I expect to see some AMC and Loews execs start jumping up and down hysterically on boardroom tables, if not their analyst’s sofas, just like Tom Cruise did recently on Oprah. There will, however, be two important differences between their performance and his. Instead of proclaiming undying love for their corporate bride-to-be, the exces' antics will be motiavted by a desire to find a way to call the engagement off. More importantly, however, their performance will be believable.

Tags tom cruise war of the worlds cinema Movies Film