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Netflix is starting to wound the movie industry where it hurts most

Published Jan 2nd, 2015 4:00PM EST
Netflix Vs. Movie Theaters

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Streaming video services, mainly Netflix, have been undermining broadcast television and cable channels for years — but we are now getting some signs that movie theaters may be coming under the gun as well.

RELATED: Big media companies suddenly seem terrified of Netflix – and they should be

Movie attendance dropped by a surprisingly sharp 5.1% in 2014 according to new data. This is unlikely to be just a normal part of industry ebb and flow since admittances plunged to lowest level since 1995, even though the U.S. population has grown robustly in the past two decades.

One explanation is simply the lack of certain mega-franchises, such as Batman or James Bond. But the emergence of likely strong new franchises like Guardians of the Galaxy and LEGO would seem to undercut that point. The most worrisome data nugget concerns Americans aged 14-24 — people in this age bracket delivered a stunning 15% decline in movie-going. This comes right after a reported 17% decline in the previous year.

Back-to-back double-digit attendance declines among young consumers seem to point to something deeper than which selection of superheroes hit the theaters in 2014. The worst fear of Hollywood is that the youth demographic is simply drifting away from old entertainment consumption patterns, seduced by video streaming on a variety of platforms and particularly the explosion of content on smartphones.

The time that adult American smartphone users spend on their devices has mushroomed in recent years, hitting 2 hours or even more on a daily basis, depending on research sources. That 120 or 150 minutes a day clearly must be hurting a variety of other entertainment options.

Probably the worst threat to traditional movie business is the streaming cornucopia offered by Netflix. It’s bad enough that Netflix is offering a relatively broad range of TV series and movies produced by a variety of studios. But now, the company is ramping up its own content production — and much of it is aimed directly at young people between the ages of 12 and 24.

The new group of interlocking Marvel series revolving around characters familiar from the Daredevil franchise is aiming directly at teens who were sucked into Marvel universe in movie theaters over the past decade. The expensive new Marco Polo series flirts with the Game of Thrones fan base. Sense8 by the Wachowski siblings appeals to fans of extravagant science fiction spectacles.

Of course, nothing can compete with a brand new Avengers movie and its top-dollar special effects viewed on a giant screen. But a Netflix version of a summer blockbuster may well be competitive with a lackluster Spider Man sequel since it costs nothing and ticket prices are creeping inexorably north of $15.

Hollywood has recently been buoyed by a series of young adult and superhero franchises that have bloomed into massive money spinners. But as Hunger Games draws to conclusion and Spider Man as well as Superman franchises show signs of weakness, there is suddenly a sense that the Marvel machine is now underpinning the entire industry performance. The industry better hope that teens won’t get even a bit bored with the current Avengers/Iron Man/Thor template in coming years.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.