Tuesday, 8 January 2013

Things To Drop In 2013 #2: The Self-Fulfilling Idiocy

If you've been reading this blog for any length of time you've probably heard me use the term "Self-Fulfilling Idiocy" and it's what I'm asking Hollywood to drop today.

If you're a first time reader a self-fulfilling idiocy is like a self-fulfilling prophecy, except with more stupid. It's where someone imagines that there is a problem where there isn't a problem, so they come up with what they think is a solution, and then their "solution" creates an even bigger problem.

In Hollywood the self-fulfilling idiocy has everything to do with money, especially when it comes to sharing profits. 

You see, back in the day, movie studios usually handled their own production financing either from their own profits or via bank loans. Movie stars were under contract and were paid a weekly salary to star in movies. These salaries were quite generous, and also came with bonuses and raises if their movies do really well.

That all changed in 1950 with a little movie called Winchester '73.

Star Jimmy Stewart had survived leading bombing raids on Nazi Germany in World War 2 and wasn't content with being just a salaried player under contract with a major studio anymore. So he went to Universal who wanted him to star in the film, and made them an offer. He'd waive his usual $200,000 up front fee in exchange that his newly formed production company be a part owner of Winchester '73 and the upcoming fantasy comedy Harvey, and would get a piece of the profits, and avoid getting screwed over by the high post-war tax rates.

Both films made a lot of money, and both Stewart and Universal made a pretty penny from the deal.

That should have been the conclusion of the story with the happy ending of movie studio and movie star heading straight into the fiscal sunset as happy partners.

Sadly that was not to be.

After struggling through the doldrums of the 1950s and the 1960s the major studios started to come back into their own. A new generation of filmmakers were making new kinds of films that were raking in really big money. The blockbuster era had begun, and big business were looking at the studios and saying "me too."

The 1970s and 1980s saw all the major studios get bought up in an orgy of mergers, takeovers, and buyouts. Big studios then became parts of big media conglomerates and those conglomerates love complicating things.

One big complication occurred when some executives and accountants saw that stars, producers, and directors were getting rich off the profits these new blockbusters were raking in.

These executives and accountants saw that as a problem because they felt that they deserved that money instead of the people who actually make the movies. Suddenly people owed profit shares were lost in a bizarre MC Escher-esque maze of accounting trickery, and Xenu help you if you agreed to a piece of the net profits, because no studio has paid a net profit share since Splash in the early 1980s.

Now these executives and accountants got nice pats on the back, and fat bonuses for their cleverness, but this is where the idiocy comes in.

It didn't take long for those who were owed a piece of the profits to realize that they were getting seriously hosed. So those with any clout started asking for more money up front, as well as variations of humongous "dollar one" deals that give the person a piece of the box office revenue from the first dollar spent on the very first ticket.

This means that film production is in a bizarre paradox. The means of production are getting cheaper ever day, yet the costs of making studio films have an inflation rate not seen since Weimar era Germany. Far too many big budget Hollywood movies need to break records just to break even.

This in turn inspires the studios to spread the whole idiocy from not only the stars and filmmakers, but to their investment partners as well in the desperate hope to squeeze more profits out of their overpriced productions.

This causes their investment partners to start putting more and more conditions on their deals with the studios. This makes the whole business of making movies increasingly expensive and needlessly complicated.

Will the studios drop this extremely damaging and profit killing process?

Probably not. While it's damaging in the long term, it looks great on the quarterly balance sheets, and that's all that matters to too many people in positions of power in Hollywood.

1 comment:

  1. make things worse is the star system is now broken, a star's name can sell magazine covers but not movies. There are more actors that will make me NOT want to see a film that go see one.