What’s wrong with the movie business?
It’s a question worth asking after a year in which DVD sales continued to decline, domestic attendance fell to its lowest level since 1992, and critics are griping that this has been one of the worst periods for movies in recent memory.
At the dawn of 2012, TheWrap asked six industry experts what the future holds for Hollywood and what, if anything, can prevent the business from being a casualty of the digital revolution taking place around it.
Also read: 5 Remedies for 2012 and What Ails Hollywood
Wall Street expert Harold Vogel, analyst and author Edward Jay Epstein, producers Mike Medavoy and David Hoberman, critic Joe Morgenstern and director Gavin O’Connor all weighed in with a range of observations from a pessimistic “there is no cure” to an optimistic view of burgeoning creativity among young artists.
Here’s a look at the film landscape from people who’ve seen the ups and downs of Hollywood over the years. (Interviews by Brent Lang, with assistance from Fred Schruers and Sharon Waxman.)
Mike Medavoy, chairman and CEO of Phoenix Pictures
“The [declining] numbers are not that surprising. It’s been a long time coming, and the economy worldwide is certainly not helpful.
In the past new technology like television, videotape, DVD, and cable have saved the film industry. Well, what's next? If anything, the American movie industry is the best there is, but it too can wear out its welcome. Special effects alone won't save it.
The cost of marketing and producing, the decline of DVD, pirating and the need for outside partners for high risk and cost films which lowers your upside, makes all the choices of pictures to make more difficult.
Also read: Box Office 2011: Lessons Learned From a Deadly Year
The decision to rely on remakes and sequels at higher costs either makes people feel that they have seen a movie and can either wait and see it on the after-market or miss it all together.
Fresh and different helps in the long and short term.
It finally comes down to picking the right films and at the right cost — not by bankers, but by a combination of people who love movies and know talent, story, and character weighing in with business people and with the marketing people. Finally it's a gut call.
Joe Morgenstern, film critic for “The Wall Street Journal”
Anybody who loves movies has to be honest with themselves and worry whether this is not a cyclical thing, but a downward spiral.
There’s been a dismaying spectacle of studio ineptitude. "Bridesmaids" was the one studio film that emerged from the meat grinder unflawed and that was only because [producer] Judd Apatow had the power to protect it.
It was a raggedy film and not everything worked, but I’ll take raggedy over expected any day. It was complex, funny, raunchy, and all of those elements were done with zest and conviction.
One obvious lesson is that high end technology can have a toxic effect on films. When I look at "Hugo" or "Tintin," I think of what these guys would have done without hundreds of millions of dollars, and I think in both cases they would have made better movies. There was an absence of simple human feeling that is indispensable to a good film, even though the displays of technology are awesome.
The one upside this year is that more independent films are going online, which means that there is a democratization of distribution. But just like with newspapers, it’s not clear that there’s going to be enough online money to pay for these films.
Harold Vogel, head of Vogel Capital Management and author of “Entertainment Industry Economics: A Guide for Financial Analysis”
The business will never be the same again.
It’s not cyclical. This is a technological shift on a generational scale, and the long-term technology is distribution on the web — and that’s not ten years, that’s forever.
The DVD lived for about eight or ten years and was magnificent while it lasted, but it was an interim technology. But the longterm technology is all digital distribution on the web — streaming or downloading or whatever.
The studios feel vulnerable [to piracy], but the film industry lucked out too. Their product requires five gigabytes or more of data to be downloaded and it doesn’t happen that fast on the current Internet, but that will change. Slow speeds gave the business a couple of years to figure things out. It’s been a buffer.
The business kind of imploded about three years ago — films became seen as something you could never get a return on, so the studios went to these bets of $100 million-plus. That seemed to do well for awhile, but if you look at the margins of the industry for basically the last forty or fifty years, we have not broken out of this eight to ten percent pre-tax margin range. Margins have been basically flat and are probably headed down.
There is no great cure for this. There are some problems in life for which there’s no cure. The studios are going to be around, but their ability to generate high margins and sustained margins is being challenged all the time.
Eventually the business will settle into accommodation with the digital universe and studios will make money out of it. But that doesn’t mean the business is going to go back to the old way, because the old way doesn't exist anymore. We’re coming into a time of slow economic growth around the world and this is going to last a minimum of three or four years and more likely for another ten years.
Gavin O’Connor, director of "Warrior"
There’s a consumer market unlike anything we've ever experienced. It can consume content in myriad ways and that needs to be acknowledged. Much as I'd like to be an artist and plough my own field and not worry about accessing consumers, I’ve learned you can't do that anymore.
A lot of people are scratching their heads on the artistic side and the business side. What doesn't change is original voices and great stories and daring visions — these things will never change. But you have to understand the market and how much a move should cost.
I try to be an optimist. What's exciting is that there are so many new ways to find revenue. I believe that there’s an on-demand revolution going on where you have companies like Netflix 
moving in and gobbling up market share, so if you can put your finger of the pulse of this change and engage on alternative platforms, there's lots of new ways to touch the consumer.
Do I wish I was alive and making films in the late '60s and '70s? Yeah. I’m an old soul that way, but you have to evolve with the way the revolution is evolving. Now there’s a chance for artists to band together and create a new model.
I'm doing a little movie that I’m going to shoot for a hundred thousand. At the same time, I'm writing big studio scripts and I’m doing a play.
It’s about being entrepreneurial and creating content that I care about and that I think people will respond to. You can’t wait around for studios to send you scripts anymore. You have to write movies outside the studio system, take them around and maybe you have someone attached to it before you find the right home.
Edward Jay Epstein, author of "The Hollywood Economist"
The main challenge to the film industry is the death of video stores. It’s not a threat to movies like "Spider-Man," but to a movie like "Tinker, Tailor, Soldier, Spy." It’s the kind of small movie where people have to find out about it by going into the store and speaking to a clerk. It might not get into a Redbox or a Walmart. Their disappearance is a major challenge for smaller and more diverse productions.
The decline of the DVD is being masked by the still strong sales of DVDs to children and it's hiding the real slide in sales of smaller movies.
That's limiting the guaranteed income for a lot of productions. It will be harder to guarantee money to make a movie as the way people watch movies changes. The entire nature of a film's availability is changing as people watch things on tablets and smart phones and people aren't buying digital copies the way studios want.
One way the studios are improving their profits is by lowering their above-the-line costs. They can't really cut their below-the-line costs. But through digital production, they're able to lower their printing costs.
There are two things the industry can do. It can make the technology of theaters more appealing and studios can change the mix of the pictures that are in theaters. They know how to do that and it’s been going on since "Jaws." But making a movie like "Avatar" or "Titanic," which becomes an event, is much harder to do.
David Hoberman, producer and partner in Mandeville Films and Television
This year there wasn't the big launch of some new franchise or a big new piece of business that gets people excited about the movies.
It felt like people were not compelled to go to the theaters. From Thanksgiving to Christmas, it just felt like a lackluster holiday season and I'm not sure what that’s about.
I think that there were good movies out there, so I’m not sure that a facet of this was that the movies weren’t good. There were movies like "Hugo" and "Tintin" that were inventive and terrific movies, but they didn’t drive people to the marketplace.
It's like a television network. One hit show drives a programing slate and makes a whole network. What’s that big event movie that people go out to and gets them excited about going to see more movies?
I teach at UCLA and I do a teaching fellowship of Suffolk University in Boston, and over the last few years, the films I’ve seen from my students are amazing. The energy and inventiveness of what some of these kids are doing makes me think there’s going to be a whole new wave in live action and animation.
There's so much fermenting at the university level that I think there’s going to be tons of opportunities, as these kids from this last generation are growing up. They’re going to be the Steve Jobs of the world, figuring out new ways of creating things.