The Animation Options Blog

With respect to my January 2nd blog post “On The Chinese Animation Market”, here is some equal time for the good ol’ U.S. of A.

THE AMERICAN ANIMATION INDUSTRY

The U.S. film industry is primarily based in Hollywood, California but has spread to other North American regions in recent years. In 1894, the world’s first commercial motion picture exhibition was given in New York City, using Thomas Edison’s Kinetoscope. The next year saw the first commercial screening of a projected film, also in New York. In 1938, Walt Disney’s “Snow White and the Seven Dwarfs” was released during a lackluster period of filmmaking from the major studios, and quickly became the highest-grossing film to that time. Interestingly, “Snow White” was an independently-produced animation production that did not feature any major studio talent. The United States has been at the forefront of film and animation development ever since, with a well-documented history familiar to most, and too lengthy to fully recount here.

The Walt Disney Studios grew from “pioneering upstart” to become the defining and dominant force in animation, with an unparalleled record of animated features and short films. This success in animation ultimately grew to encompass live-action films, theme parks, broadcast television, publishing, and a wide spectrum of other revenue streams under the auspices of the publicly traded Walt Disney Company. The renaissance of animated features at the Walt Disney Company in the late-80’s and early-90’s, starting with “The Little Mermaid” and culminating with “The Lion King”, prompted a wave of aspiring studios to get into the game, usually with poor box office results. However, within the last decade the success of Disney’s animated feature films suffered from the inevitable ebb and flow of this cyclical industry, as Pixar and direct competitor DreamWorks made incursions upon audience territory formerly ruled by the Walt Disney Company. Disney’s purchase of Pixar in 2006 is widely regarded as a bold corrective measure, but at a cost of more than $7 billion USD, it is one which has yet to play out profitably. Meanwhile, the many other animation studios in the United States, large and small, make their marks where they can in film, broadcast, internet and wireless media.

The drive to produce a spectacle on the movie screen has shaped the American film and animation industry for better and for worse. Major studios such as Disney, DreamWorks and Sony depend on a handful of enormously expensive releases each year in order to remain profitable, relying upon high production values, star power and massive marketing campaigns to attract the huge audiences required. The average cost per film among the major U.S. studios was more than $106 million USD in 2007, with 1/3 of that amount dedicated to marketing costs. It is reported that at least 60% of the total budget for DreamWorks’ animated hit “Kung Fu Panda” was dedicated to advertising and distribution costs.

While a successful blockbuster can reap substantial profits, there is a considerable risk of failure. Most studios release films that both over-perform and under-perform in a given year. The major U.S. studios supplement their large-scale productions with independent films, created with relatively small budgets outside of the studio corporation. Independent films and animation projects typically emphasize a high level of creativity and innovation, leveraging on niche marketing and critical acclaim to garner an audience. A successful independent film can have a high profit-to-cost ratio, while a failure will incur relatively minimal losses, encouraging major studios to engage in co-production or distribution relationships with these productions in addition to their high-stakes releases. Some independent companies such as Miramax have in fact become well-financed divisions of major studios. The big studios can thus capitalize on the success of the “independent” distribution division, while the “independent” distributors maintain a certain level of autonomy within the larger corporate structure. The independent companies are able to produce animated films of comparatively smaller budgets for distribution in targeted viewer markets.

THE AMERICAN ANIMATION MARKET

In 2007, the North American domestic box office grossed over $9.6 billion USD on almost 39,000 screens, a revenue increase of more than 5% over 2006. Additionally, North American motion picture distributors generated more than $7.6 billion USD in worldwide revenues in 2007, an increase of almost 6% from the year before. Despite the growing popularity of foreign films, American productions still dominate the international film markets. While more than 60% of U.S. box office earnings come from overseas, non-U.S. films currently occupy less than 5% of the American market. In 2007, the domestic box office revenues for U.S. animated feature films totaled more than $2.9 billion USD, with “Shrek the Third” and “Ratatouille” accounting for more than $500 million USD combined. Internationally, U.S. animated feature films generated more than $1.8 billion USD. “Finding Nemo” has earned nearly $900,000,000 USD, over 60% of which is from overseas.

Movies continue to draw more people in the U.S. than theme parks and sporting events combined, with admission prices significantly lower than alternative entertainment options. The core consumer base for animated feature films is the family audience. Although family films in the U.S. (G & PG-rated) have historically outperformed more restricted content, the family market continues to be underserved. While the average profitability of G-rated U.S. films between 1989 to 2003 was $79 million USD, G-rated films accounted for only 5% of the market share during that same period. On a related note, an independent study of the U.S. film market between 1995 to 2006 showed that computer-generated animated films outperformed all other feature film genres by a 10:1 ratio ($153 million USD average domestic B.O. return vs. $15 million USD average domestic B.O. return). Also noteworthy is that while the overall number of movies released in U.S. theaters remained stable from 2006-2007, 18 more independent films were released in 2007 than in 2006.

The United States is home to dedicated children’s and animation networks that account for the majority of animation hours viewed. Formerly, the three broadcast networks of ABC, CBS and NBC dominated the television animation market with programming concentrated on weekday afternoons and Saturday mornings, but this paradigm has dissolved in favor of cable channels such as Nickelodeon and Cartoon Network which run animation at all hours.

The Internet is an important source of movie information. A study conducted by the MPAA and Yahoo! found that 73% of U.S. moviegoers use the Internet to conduct research before going to the theater. Moviegoers who research films online are more likely to see a movie on opening weekend, go to the theater more often, and see some films more than once in the theater. Internet advertising expenditures continue to grow each year, but television advertising remains the largest expense at more than 1/3 of total marketing costs. About 25% of marketing costs for U.S. films is dedicated to cable TV, radio, magazines and billboards, while another 20% is spent on other non-media promotional outlets and on market research.

On the home technology front, one in seven U.S. moviegoers has invested to a great degree in content delivery and/or hardware for their households. Contrary to conventional wisdom, this segment of moviegoers goes to the movie theater more often than their lower tech counterparts.