> If a consumer watches one of my studio's productions instead of watching Avatar, we didn't just earn $0.99 -- we also stole a $10.50 purchase from 20th Century Fox
Why would the consumer not just watch movies from Fox too? Especially since if he only pays you $0.99, he'll still have plenty of money left to give to Fox.
I would argue it's a matter of time more than money. I treat a theatre trip as a social event, which means I have to get a group of friends together. There's only so many hours in evenings and weekends when people can get together, and I'd rather not spend all of those hours watching films. Therefore my upper limit is driven by time rather than cost.
There are only a few waking, non-working, non-chore-related hours in the day for most people. I can't keep up with all the movies I would be interested in seeing as it is.
Which is why it's difficult to beat Hollywood for those few movie-watching slots. Your time is more important than the $10-15 more Hollywood will charge over an alternative production. So your alternative has to compete in something other than blockbuster special effects and well-known actors. The likely suspects are originality (e.g., Blair Witch Project) and story (Sling Blade).
Why would the consumer not just watch movies from Fox too? Especially since if he only pays you $0.99, he'll still have plenty of money left to give to Fox.