In the first installment of our Executive Insights “Spotlight on Media & Entertainment" series – which features our insights in a new impactful visual format – we focus on box office trends. L.E.K.’s Dan Schechter, Gil Moran and Francesco Di Ianni explore the current trends in admissions, movie production, movie ticket prices and whether the 3D movie growth may be coming to an end.

1. BOX OFFICE TRENDS
Executive Insights | SPOTLIGHT ON MEDIA & ENTERTAINMENT
With new innovations and
choices in home entertainment
over the past 50 years, you
might guess that moviegoing is
waning. However, despite the
introduction of video in the
1970s, DVDs in the 1990s,
growing broadband penetration
and DVRs, Americans go to the
movies about as often today
– 4-5 times per year – as they
did in 1965.
That’s not to imply that the film
industry is a steady business.
While annual box office
admissions have held between
4-5 for 50 years, a shift of even
one movie admission per capita
is significant. Box office
admissions are currently on a
downswing, having declined
~2.6% per year since 2002.
How have box office revenues fared? »
Video Killed The Radio Star:
But It Hasn’t Killed Movie-Going
L.E.K. Consulting / February 2015 LEK.COM
0
5
10
15
20
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Admissions per cap
Home entertainment
advancements
Cinematic experience
advancements
Domestic Box Office Admissions per Capita
(1965-2013)
Admissions per Capita1
Note: 1
Per capita admissions calculated using entire U.S. population; MPAA-reported admissions per cap calculated using age 2+ U.S./Canada population
Source: NATO, Box Office Mojo, MPAA, National Academy of Engineering, L.E.K. analysis
1968:
78 million
TV sets in US
1971:
Dolby sound
introduced
1978:
TV penetration: 98%;
Color TV penetration: 78%
Early 1990s:
Digital
developed
Late 1990s:
Megaplex
rollout
2004:
DVRs 5% HH
Non-anaglyph
3D theatrical films
and digital
cinema penetrates
2000:
Broadband
Penetration 5% HH
1998:
20% of Adults use
Internet at home
1997:
Introduction
of DVD
1972:
Pay cable
introduced
1975:
Jaws begins trend
towards blockbusters
1978:
Introduction
of VHS

2. BOX OFFICE TRENDS
Executive Insights | SPOTLIGHT ON MEDIA ENTERTAINMENT
North American ticket sales
have dropped from 1.57 billion
in 2002 to 1.34 billion in 2013,
a cumulative decline of
approximately 15% in just over
a decade. (There’s even a slight
acceleration in annual decline
in recent years.) But box office
revenue has increased, rising
from 2000-2009 and remaining
stable from 2009-2013.
You probably know why box
office is up – it’s higher ticket
prices. Some have attributed
the admissions decline to
increasing prices, but a 3%
increase a year is in line with
other products. So what is it?
How does the economy affect ticket sales? »
Up The Down Staircase:
Movie Receipts Rise 20% – Movie-Going Falls 15%
L.E.K. Consulting / February 2015 LEK.COM
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
U.S. Box Office Revenues
And Admissions (2000-13)
0
1
2
3
4
5
6
7
8
9
10
11
0.0
0.5
1.0
1.5
2.0
Source: Box Office Mojo, MPAA, the-numbers.com, L.E.K. Analysis
Billions of Dollars
Billions of Tickets
Box Office
Admissions
7.5
10.910.8
10.2
10.610.6
9.69.6
9.2
8.8
9.39.29.1
8.1

3. L.E.K. Consulting / February 2015 LEK.COM
BOX OFFICE TRENDS
Executive Insights | SPOTLIGHT ON MEDIA ENTERTAINMENT
Despite recent declines in box
office admissions, evidence
shows that recessions don’t
really affect the cinema business.
In this chart, the yellow bars call
out the recessionary periods in
the last 45 years. The gray line
is the GDP per capita, showing
a relatively steady increase of
1.8% per year since 1970.
The erratic red bar shows the
number of movies attended
per person in North America,
clearly indicating no correlation
between admissions and
GDP, or even admissions and
recessions.
We all tighten our belts a little
and watch our spending in
tougher economic times. But
if that alone is not the major
factor impacting the recent
decline, what is?
What other factors affect ticket sales? »
Does A Recession Affect Ticket Sales?
If You Film It, They Will Come
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
2
3
4
5
6
7
Note: 1
Per capita admissions calculated using entire U.S. population; MPAA-reported admissions per cap calculated using age 2+ U.S./Canada population
Source: MPAA, Box Office Mojo, NATO, BEA, U.S. Census Bureau, L.E.K. analysis
0
10
20
30
40
50
Admissions Per Capita
(left scale)
Admissions
per Capita
Real GDP per Capita
(right scale)
Real GDP
per capita
$K in 2009
dollars
Avg = 4.7
Admissions per Capita1
And Real GDP per Capita
(1970-2013)
Recessionary Period
2002-’13 Trendline
L.E.K. Consulting / February 2015 LEK.COM

4. L.E.K. Consulting / February 2015 LEK.COM
BOX OFFICE TRENDS
Executive Insights | SPOTLIGHT ON MEDIA ENTERTAINMENT
Movie production is up from
557 in 2009 to 773 in 2013 (8%
growth per year). But major
studio releases are down from 111
to 84, and all the growth came
from independent and mini-major
releases. The vast growth in non-
major studio films did not replace
the lack of major releases.
Note also that the studios spent
far more per movie in this period.
The number of movies with
production budgets over $100
million rose from 72 in 2009 to
108 in 2013.
The bottom line: Lifts in
production budgets and the surge
in independent films has not made
up for the cuts in major studio
releases.
How have exhibitors counteracted the declining volume of their product? »
It’s A Mad, Mad, Mad, Mad, World:
Despite Less Admissions, A Mad Increase In Movies and Movie Budgets
L.E.K. Consulting / February 2015 LEK.COM
Note: 1
Includes independent and mini-major studios
Source: MPAA, the-numbers.com, IMDB, L.E.K. analysis
0
100
200
300
400
500
600
700
800
677
549
94
34
2012
95
U.S. Film Releases by
Studio Type (2009-13)
Number of Films
Other1
Major Subsidiary
Major(MPAA)
# of Films with Production Budgets $100M
557
399
111
47
2009
72
609
468
104
37
2011
97
563
422
104
37
2010
90
773
659
84
30
2013
108

5. L.E.K. Consulting / February 2015 LEK.COM
BOX OFFICE TRENDS
Executive Insights | SPOTLIGHT ON MEDIA ENTERTAINMENT
Rising ticket prices have been a
key factor in higher box office
revenues, and 3D releases are
an important contributor. At
one point, 3D was heralded as
the savior of movies at the box
office. Recently, though,
admissions have been declining
and growth in ticket prices
has tapered off over the last
3-4 years.
While there is no denying 3D
has a significant impact on the
industry, what exactly has this
impact been and what does it
look like going forward?
How has 3D affected the industry? »
A Star Is Born:
Why Movie Ticket Prices Shot Up Between 2001 And 2009
0
1
2
3
4
5
6
7
8
9
Note: 1
Forecast CAGR assumes growth consistent with years 2001 through 2013
Source: National Association of Theater Owners, Morgan Stanley, L.E.K. analysis
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Average Ticket Price
(2001-13)
Dollars
3-D movie ticket sales
decreased in 2011,
resulting in limited growth
in average ticket prices
L.E.K. Consulting / February 2015 LEK.COM

6. BOX OFFICE TRENDS
Executive Insights | SPOTLIGHT ON MEDIA ENTERTAINMENT
L.E.K. Consulting / February 2015 LEK.COM
0
5
10
15
20
25
30
35
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20122011 2013
N/A N/A N/A N/A N/A 0% 9% 21% 26% 44% 53% 41%50% 39%
3D as % of Digital
Source: MPAA, The Hollywood Insider, L.E.K. analysis
Non-digital
Digital,
non-3D
3D
U.S. Theater Screens
(2000-13)
Thousands of Screens
Where does 3D go from here? »
The increased availability of 3D
movie releases helped drive
movie ticket price increases,
but the upside potential may
be limited. In the five years
prior to 2011, exhibitors added
nearly 13,000 3D screens in
anticipation of demand. Since
2011, exhibitors have only
increased capacity by ~1,500
3D screens.
International markets may
exhibit different dynamics,
given some under-penetrated
markets. For a full debrief,
visit our series on international
trends coming shortly.
Houston, We’ve Got A Problem:
The 3D Growth Run May Be At Or Near Its End

7. BOX OFFICE TRENDS
Executive Insights | SPOTLIGHT ON MEDIA ENTERTAINMENT
L.E.K. Consulting / February 2015 LEK.COM
What’s the value and growth potential of 3D? »
Studios and producers ramped
up production of 3D movies
significantly in 2009-2010,
reaching a peak in 2011 with
45 releases (7.4% of all film
releases).
As you can see, 3D releases are
down from 2011. What are
consumers saying about the
value of 3D and whether 3D
will grow going forward?
Ground Control To Major Tom:
3D Movie Production Skyrocketed, Then Faltered
Source: MPAA, the-numbers.com, IMDB, PWC: Entertainment Media, L.E.K. Research and Analysis
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
0
0.4 0.4
1.2
1.3
1.0
1.3
3.6
4.6
7.4
5.9
6.8
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
3D Percent of All Film Releases
(2002-13)
Percent
From 2009 to 2010, the
amount of box
office revenues from
3D films doubled,
rising from $1.1 billion
to $2.2 billion
From 2010 to 2011
box office revenues from
3D films declined 20%
to $1.8 billion even though
the number of 3D
releases increased nearly
75% from 26 to 45

8. BOX OFFICE TRENDS
Executive Insights | SPOTLIGHT ON MEDIA ENTERTAINMENT
L.E.K. Consulting / February 2015 LEK.COM
What’s next for the movie industry? »
Studios’ enthusiasm for 3D in
2009-2011 has since cooled.
As illustrated in this chart,
opening a movie in 3D used to
be an enticing proposition for
audiences as approximately
60% of opening weekend
(when opened in 2D and 3D)
was 3D; that figure has
recently ebbed to a more
temperate ~30%.
Many in the industry believe
3D is here to stay but has likely
achieved or is near achieving
its steady state. 3D was a
much needed infusion to the
industry…what’s next?
Caught In A Celluloid Jam:
3D Is No Longer The Box Office Draw It Once Was
Note: 1
Data includes all films whose 3D share of opening weekend box office was published
Source: Box Office Mojo, L.E.K. Research and Analysis
0
20
40
60
80
100
120
03/2007
07/2008
12/2009
07/2010
01/2011 01/2012 12/2012
11/2013
3D Share of Opening Weekend
Theatrical Revenue1
(2007-13)
Percent
Avatar
The Avengers
The Amazing
Spider-Man
Piranha 3D Saw 3D
Tron
Life of Pi
Iron Man 3
Oz the Great
and Powerful
Glee the 3D
Concert Movie
Immortals
Finding Nemo
Gravity
Frozen
Live Action
3D Avg.
Overall Avg.
Animated in
3D Avg.
Harry Potter
(final film)
Animated in 3D
Live Action 3D

9. L.E.K. Consulting / February 2015 LEK.COM
BOX OFFICE TRENDS
Executive Insights | SPOTLIGHT ON MEDIA ENTERTAINMENT
In summary to our series of
posts on box office trends
where we discussed the decline
in admissions, increasing ticket
prices, and the leveling off of
3D’s impact, we ask: what’s
next for the movie business?
While it is impossible to forecast
outcomes with certainty, it is
likely that exhibitors will
continue to face pressures that
will require a break from the
norm. In addition, studios will
find that recent successes in
franchise management may
cause an uptick in acquisitions
of mass-appeal franchises.
Our takeaway: while studios
can prosper with more special
effects, exhibitors will need
new ideas.
Source: L.E.K. analysis
Our Outlook:
Back To The Future?
• Continued pressure from declining
traffic and flat box office
• Decreasing benefit from 3D
• Increased focus on driving dollars per
visit (e.g. dynamic pricing, premium
features and benefits)
• Subscription pricing a future game
changer?
EXHIBITORS
• Continued focus on tentpole releases
with established fan bases
• Continued acquisition of libraries and
franchises as studios seek next big thing
• Action/adventure, horror/thriller and
animated titles are studio favorites
• Increased gigantism in movie selection,
more special effects and fewer releases
STUDIOS
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