Are we witnessing the death spiral of the Hollywood blockbuster?S

The Hollywood blockbuster was born in the late 1970s with Jaws and Star Wars. Will we see it die in our lifetimes?

It seems silly to talk about the death of the big-budget movie spectacular now, when we're about to have the most ridiculously overstuffed movie summer ever. Jon Favreau described summer 2011 as a "bloodbath," with massive, ambitious films coming out almost every weekend from May to August.

There were just seven movies with budgets over $100 million in 2000. In 2005, there were 13, and in 2010, there were 20, according to this chart. (I'm pretty sure it's not inflation-adjusted though.)

But actually, the coming mega-movie overload is a symptom. Movies are selling fewer tickets than they used to, and it seems like the glut of giant movies is an attempt to goose studios' bottom lines and increase the chances of getting an Avatar-style home run. After talking to a ton of box-office analysts a few days ago for our feature about how you can tell if a film's been profitable, it seems clearer than ever that the movie industry is in trouble.

Hollywood has tried to use 3-D to bump up ticket revenue, but it hasn't really helped. And the idea that movies would make their real money on DVD has turned out not to be a sustainable model either.

U.S. ticket sales have actually been anemic for a while, according to Box Office Mojo's year-to-year comparison chart. In 2010, Hollywood sold only 1.339 billion tickets, down from 1.412 billion the year before. Number of tickets sold appeared to peak in 2004 with just over 1.5 billion tickets sold, and since then the trend has been flat or downwards. (As this article points out, if you adjust U.S. box office revenue for inflation, it's been going down for years.)

And the number of actual people going to movies has been declining for decades. As Hollywood business expert Edward Jay Epstein wrote in Slate back in 2005:

In 1948, 90 million Americans-65 percent of the population-went to a movie house in an average week; in 2004, 30 million Americans-roughly 10 percent of the population-went to see a movie in an average week. What changed in the interval was that virtually every American family bought a TV set, and home entertainment largely replaced theater entertainment.

As Epstein explains, instead of counting on people to go to the movies every week without fail, studios were forced to blitz consumers with advertising, trying to turn every movie into an "event." The hope was that tons of people would show up opening weekend, lured by ubiquitous TV ads, and then these masses of movie-goers would generate word-of-mouth. The huge opening weekend would turn into "legs" in the following weeks, so the film would become a massive hit. But this seldom happens with most movies — they drop like safes in their following weeks.

Are we witnessing the death spiral of the Hollywood blockbuster?S

The huge blockbuster movie is only a few decades old — the phenomenon really started with Star Wars and Jaws. Star Wars was the movie that everybody had to see 100 times, in the theater. People pretty much stood in line to see Star Wars, went in and saw it, and then came out of the theater and got in line again.

Ever since then, Hollywood has been like a coke addict chasing the same rush but the rush is shorter each time. Except that, of course, every now and then you get an Avatar. And the main lesson that the entertainment industry thought it learned from Avatar — you can make money if the film is in 3-D — turned out not to be true for all that many films.

But the rush is literally getting shorter — because the studios have been pushing to get movies out on DVD faster and faster, shortening a movie's theatrical life span. It used to be that a movie would open in theaters, and then months later it would turn up on cable, and sometime after that, there'd be a DVD. Now, the lag between theatrical release and DVD release is getting shorter and shorter, which effectively cuts short a movie's life in theaters.

Are we witnessing the death spiral of the Hollywood blockbuster?S

Case in point: Last year, Disney told theaters it wanted to release Alice in Wonderland on DVD just 13 weeks after the movie hit theaters, so the DVD wouldn't come out in the middle of summer. The usual DVD "release window" was more like 17 weeks.

According to an article in Variety yesterday:

Traditionally, pics were released on DVD four months after their theatrical run; on VOD 45 days later; on pay TV channels 18 months after that; and then shown for free on ad-supported broadcasters two to three years later. Studios have already been experimenting. Last year Disney made "Alice in Wonderland" available 88 days after its theatrical run. Paramount had previously made "G.I. Joe: The Rise of Cobra" and "The Goods: Live Hard, Sell Hard" available after 88 days in theaters.

It's not hard to see why Hollywood wants to push out movies on DVD earlier and earlier — these days, as Epstein explains here, only about 20 percent of studios' revenue comes from theaters. Releasing a movie in theaters is just a way of "launching" it so that it can make money later on DVD, video on demand, pay-per-view and broadcast television. Even if a film finally makes a profit in theaters, the real money is later, in the home viewing market.

Which makes it really really bad news that DVD sales have been plummeting. Disney was hoping that Toy Story 3 would be its huge seller last Christmas, but instead DVD sales of Toy Story 3 fell off a cliff. Today, Viacom blamed falling DVD sales for reducing its revenue by 5 percent and its net income by 14 percent. Sony laid off 450 workers due to declining DVD sales.

According to this New York Times article:

In the peak year of 2004, according to the group, consumers spent about $21.8 billion to rent and buy DVDs, Blu-ray discs, digital downloads and other forms of home entertainment. Under pressure from piracy, competing entertainment and economic weakness, the number has fallen every year since, for a total drop of about 13.8 percent, to $18.8 billion in 2010.

And those numbers look much worse once you adjust them for inflation.

The biggest gainer from the dropping DVD sales is Netflix, whose income has been shooting upwards. In fact, studios are so freaked out by Netflix cannibalizing DVD sales, they're considering making Netflix wait 45 days, instead of the current 28 days, between a DVD hitting stores and its availability for rental. This whole article in Variety is a portrait of raw desperation. The studios are also toying with other profit-spinning ideas like putting movies out on Video On Demand services just 60 days after they hit theaters, and charging people a whopping $30 to watch them.

Are we witnessing the death spiral of the Hollywood blockbuster?S

The idea of spending $300 million to make a two-hour fantasy is kind of weird if you think about it. That kind of spending only makes sense if you can convince millions of people to spend between $10 and $20 each to see the result. This is one case where the format is the content — there's no other format in which you could spend such an obscene amount of money on just two hours' entertainment. It's not going to happen on television, it's not going to happen with direct-to-DVD movies. There's really no other format I can think of that would justify that kind of opulence.

Back in the sixteenth and seventeenth centuries, people put on masques. These were lavish plays, put on at royal courts, or in wealthy aristocrats' houses, and they involved architecturally ambitious sets and fancy costumes. Often the whole point of these entertainments was how cool they looked — if you read their scripts nowadays, they're kind of dull, because you're not seeing the amazing costumes, scenery — and yes, special effects. The masque was a huge spectacular that dominated culture for roughly a century — and then it was extinct.

Nobody expects movie theaters to implode this year. The Hollywood blockbuster, as a format, will probably keep existing for years. But eventually, the unsustainable business model that drives these things will fall apart, and the movie as we know it will transform into something more suited to home viewing, and maybe more integrated with web content. So it's a good thing they're making tons of huge Hollywood movies right now, so we'll have plenty of examples of them to look at once they're gone.