Monday, 25 February 2013

Hollywood Babble On & On #991: Forget The Oscars What's Happening To The Money?

Last night was the Academy Awards, Hollywood's big collective hand job, but I'm not going to talk about the show. Seth Macfarlane tried to host the show, but the format's too big and clumsy, and it's a no-win situation for the host.

Today I'm going to talk about money. Dirty, sexy, money.

Chiefly I'm talking about how the pre-tax profits of the major studios, like Warner Brothers, 20th Century Fox, Universal, Sony/Columbia, Disney, and Paramount have dropped 40% in the years between 2007 and 2011.

I think the phrase "HOLY SHIT" is appropriate for this little tidbit of news.

A drop that precipitous can't be blamed on the usual studio accounting games, because it goes along with the movies being a shrinking part of their parent company's empires. They're currently at about 10%, but are expected to drop to being just 5% of their parent companies in the next few years.

That's not a healthy business at all.

Now the article I linked to quoted film financier Amir Malin of Qualia Capital saying that the whole business model of the movie business is broken, and he's right. It is broken on just about every level.

Let's look at the facts...

1. HOW IT'S RUN: If you were writing fiction about a poorly run business and made your fictional business as poorly run as Hollywood, you'd be condemned for being unbelievable. It all started with their needlessly complicated bookkeeping schemes, designed to screw people out of their profit shares and royalties. That caused the salaries for anyone with the slightest hint of clout to skyrocket, because they knew they couldn't count on getting any piece of the action, so they were going to get everything they could get up front. 

Then came digital technology which made the means of producing movies cheaper than ever before. What do they do with it? They use it as an excuse to spend millions upon millions of dollars more than they did when they were using expensive film stock.


Because the chief thing a film's budget buys you is time. When you're using film stock, it's expensive, it takes time to prepare, time to light for, and time to develop. Digital camera tech is cheap and easy, so it's not so much of a hassle to do way more takes than you would do with film, and then do and redo expensive special effects. So you waste more time and money.

Now they're trying to curb expenses. Slashing star salaries, and hiring first time directors over experienced hands because they're cheaper, and cutting their output.

And that's the trap. The stuff they are putting out is trending upwards budget-wise. They're making fewer movies, but the fewer movies they're making are costing on average between $150-$200 million to make and between $50-$100 million to market. That means that the old model of making many reasonably budgeted movies, with just a couple of big budget "prestige" projects each year has been flipped.

Now the studios are making only a handful of movies every year, and the bulk of that shrinking number have immense budgets, and they are increasingly sequels, prequels, remakes, or adaptations of previously popular material. They think those things are "safe" investments, but there is literally no way to guarantee a hit.

These films have to break records just to break even, and when they bomb, they bomb huge.

2. HOW IT'S SOLD: When the studios started merging with networks and cable channels it was supposed to create "synergy" which would save money in marketing and promoting movies.

It didn't. Instead it became just another black hole where money goes in and very little comes out.

The big pictures get massive saturation ad campaigns, which bury and any all competition who aren't able to drop $50 to $100 million for marketing. So films that might get an audience are lost amid all the hullaballoo over the latest overpriced bomb.

3. HOW IT'S SEEN: The days of walking down to the neighbourhood Bijou to catch the flickers are long over. Getting to see a movie is an incredible and expensive pain in the ass for the bulk of moviegoers.

You have to pay for gas to get your car to multiplex, then pay for parking, then wait in line to pay for tickets, then wait in another line to pay for snacks. Then you have to find a seat where talking and texting teenagers won't ruin the experience for you.

It's better to just stay at home and either wait a little while to watch the movie on DVD or pay-per-view type streaming, or just watch television which is going through a new golden age of both quantity and quality.

Now Hollywood should be trying to reverse these trends and get bums back in theatre seats. But that would require courage and imagination, and those are things that just aren't allowed in Hollywood anymore. 


  1. I'm curious what the movie industry is going to be like in 20 years. The medium is not going anywhere, especially since the technology to film is available to pretty much everyone with a cellphone, but can the same be said about the studios, especially if movie theaters were to go down? For now they are kept afloat by the parent companies, but how long do you keep a lame horse? I wonder how soon we're going to see a really competitive online distribution scene for independent productions (seems unavoidable) and if that changes anything in Hollywood.

  2. sandy petersen26/2/13 12:05 am

    40%?! holy crap. I knew things were bad but that's astounding.