Simon Edelsten is manager of the Artemis Global Select Fund
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A long time ago in a galaxy far, far away . . . stars made films. People flocked to cinemas to see them. The actors made money; the films made money; and often, so did investors. Some companies screwed more out of their biggest hits through merchandising, with parks, games and toys. Investors then made even more money.
That dynamic is no longer as strong. The changing media industry offers an interesting case study, one with useful lessons for investors. When we launched our global funds around a decade ago, 'media content' was one of our 10 themes. More recently the theme has morphed to 'screen time' to reflect the industry’s changing landscape.
It’s not just the amount of media we consume that has changed, but how we absorb it. Research by Uswitch suggests that on average we spend 241 minutes watching TV each day, 109 minutes on social media, 286 minutes on the internet and 75 minutes listening to music. If my family are anything to go by, we may do all four at the same time.
Bang for buck
In 2006 Tom Hanks made The Da Vinci Code. It pulled in $760mn gross at the box office. The sequel, Angels & Demons, made $485mn. The third in the series, Inferno, made a decade after the first, took $220mn. According to Ben Fritz, author of The Big Picture, Hanks was paid $20mn plus a share of 25 per cent of gross on the first two. For the third he received “just” $15.5mn but was offered 50 per cent of the profit. There wasn’t any.
Streaming changed the game…
Perhaps the films got steadily worse, but the key differential was technology. Streaming has changed the economics of the industry. TVs have improved so much that the home cinema experience competes with going out. You don’t have to sit next to someone rattling a tub of popcorn and you can pause halfway through to go to the loo or make a brew.
The cinema still holds some magic, especially for dating teens, but its romance for the rest of us is perhaps exaggerated by the stars whose lawyers like to negotiate them a share of cinemas’ revenues.
…and so did the pandemic
Covid-19 changed the dynamics further still. It showed that people were willing to pay a premium for an early viewing at home of a new release, so why bother with the hassle of printing off reels and distributing them to thousands of cinemas?
Cinema ticket sales may have begun to recover in 2021 – to $21.3bn globally – but were still only half the level they were pre-Covid, according to the Motion Picture Association. Lockdowns skew that number and the delays caused to production and releases has undermined ticket sales this year.