Monday, 12 November 2007

Hollywood Babble On & On... #5: That's Just Gross...

This piece was posted on the IMDB's little newswire:
Studios Operating at a Loss, Says Report
Back-end participation deals with top directors, producers and actors, in which they receive a percentage of a movie's gross -- regardless of whether it is profitable -- have been principally responsible for pushing the movie industry into an annual loss, according to a report produced by research company Global Media Intelligence and Merrill Lynch and reported by today's (Monday) New York Times. In its report about the study, the newspaper commented that it may be particularly relevant during the current writers' strike. "As it turns out, the pot of money that the producers and writers are fighting over may have already been pocketed by the entertainment industry's biggest talent," the Times said. The study examined releases last year that yielded $23.7 billion from sales to domestic theaters, foreign theaters, home video, pay television and every other source of income. Total costs for those films, however, amounted
to $25.6 billion -- or a combined loss of $1.9 billion. The loss, the study determined was due partly to a 15.5-percent decline in foreign DVD sales, but "the real killer," said the Times was the growth in participations, which totaled an estimated $3 billion. By comparison, the newspaper noted, citing WGA figures, total residuals for the year amounted to $121.3 million, while a single actor could easily earn $70 million from a so-called first-dollar gross deal on a hit movie. And such deals amount to super-residuals. As Steven Blume, CEO of Content Partners, a company that buys participations for cash, told the Times. "These participations are paid in perpetuity."
Okay, did you read that?

Did you understand it?

Okay let me explain it.

You see back in the early days of Hollywood, stars, writers, and directors were under contract to the studios. Now these contracts are often compared to slavery, but the situation was actually closer to a pampered form of indentured servitude.

The average contract lasted about seven years, paid a generous weekly salary, and granted the talent the protection of the studio from bad publicity, but gave the studio complete control over what projects the talent could do and where and when they could do them.

Now that system began to change in the 1950s. Big name stars like Jimmy Stewart, and powerful directors like Howard Hawks and John Ford wanted to have more control, not only of their career, but a bigger piece of the pie from their work.

So they became their own producers and demanded what became known as 'back end' money. Back end money, is not the normal salary that was paid up front, but a piece of the profits.

Sadly, when it came time to divide those profits, the newly independent talent realized that there are profits, and then there are profits.

You see first come 'rentals' earned by the ticket sales of any given feature film. A rental is a portion of the ticket price that goes to the distributor, the rest is kept by the exhibitor (aka The Theater) and is called the 'house nut.'

The rentals earned by the studios are the 'gross revenues' or if the ticket sales are really good, the 'gross profits.'

After that things get a little hazy.

Because after the gross revenues come in, they start to get whittled down. Now this whittling is supposed to done to cover the expenses of the studio for marketing, distribution, and administration.

However, that's not the only thing that happens.

You it's at this stage that studios start adding things like the costs of less profitable movies, and, since they're all now part of bl
oated conglomerates, the costs of bad investments that have nothing to do with movies at all.

For instance, a major summer blockbuster can, through the magic of 'colourful accounting' lose a fortune because the studio's corporate parent lost money on cattle futures in Argentina.

What survives this whittling, or to be more exact, hacking, is called the 'net profit.'

Except there is never a net profit.

The net is a myth.

It's a fantasy.

It's the corporate equivalent of bigfoot. Traces have been reported, but no one has ever actually caught one.

So the talent started demanding a piece of the gross profits.

So the book-cooking extended to the counting the gross revenue, and suddenly gross profits turned into the fiscal equivalent of the Loch Ness Monster. Rumoured to be out there, but no one got a piece of it.

So the talent started demanding a piece of the gross revenue from the first dollar earned by the first ticket sold.

These demands extended into television broadcasts, and then to home video with the arrival of the VCR and later the DVD player. This means that certain, perennially popular films, could generate a steady income for the talent well into infinity.

And this has put Hollywood in the mess it is in right now.

Here's why.

The studios are both starstruck and blinded by greed.

They are starstruck because they give the 'A-List' not only large fees up front, but large shares of the 'back-end' whether they actually deserve it or not.

So movies that are only mildly profitable in theaters, or don't have that much appeal on home video because of the star's lack of charisma and talent, are now losing lots of money because the lead actor is getting too much of the revenue.

At least, that's the studio's excuse.

You see, they're still cooking the books, in fact, they're literally deep frying them, and blaming their own perfidy on the bad deals with the actors.

But they're the ones to blame for actors taking so much. They take the word of Entertainment Tonight, and Hollywood's network of publicists over the word of the audience.

Take for example George Clooney.

Clooney is a big star. At least that's what the studios think. The only problem with his career is that unless he's playing alongside Brad Pitt in an Ocean's 11 sequel, his ticket sales are downright abysmal. And the last Ocean's movie couldn't make a profit, because the star's salaries were too high.

The man has dropped more bombs than World War 2, but he's still a big 'star', commanding big salaries, despite his inability to attract an audience because the entertainment media machine, dominated by the studios love him.

And pity poor Nicole Kidman, the woman is literally box-office poison, despite being good looking and talented. She couldn't sell a movie if it was the last film on Earth.

But the press thinks she's good copy, so her salary goes up while her box-office intake goes down.

Now if these analysts are to be believed, Hollywood is sinking in a sea of red ink. How do they stop it?

Well here's how:

Stop playing games with the money. Make a plan so that if the film really does make a profit on its own merits, that those profits are divided equitably among all involved. Trust me, playing with the books costs more money than it saves, ask Enron.

Pay actors what they're worth. I'm not saying that you pay them scraps, but pay them a salary based on their real box-office appeal, not just the number of times Mary Hart drops their name or how many magazine covers they get. It has to be based on bums on seats, and if they are box-office gold, they're profit more from a intelligently run profit sharing system and won't demand the immense up front money.

Simplify the business plan. You see when studios offer a mission statement, they always talk about 'paradigms' and 'maximizations' and other pointless buzzwords that have nothing to do with making movies. The real business plan of a studio is to tell stories and sell stories. Remember that and you can't go wrong.

Garson Kanin said that the trouble with the movies as an art was that it was a business, and that the trouble with it as a business was that it was an art.

It doesn't have to be if everyone gets their heads out of their backsides and do their jobs.

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