The film business: Even now, nobody knows anything

The Economist

The film business

Even now, nobody knows anything

Business in Tinseltown is as unpredictable as it was 30 years ago

Dec 21st 2013 | LOS ANGELES | From the print edition

 

Is that a turkey on your head?

IN 1983, when William Goldman, a star screenwriter, revealed the inner workings of the film-making business in “Adventures in the Screen Trade”, Hollywood was in turmoil. The studios were reeling from a string of flops, most notably “Heaven’s Gate”, a Western released the previous year that had cost $44m (a huge sum in those days), ruining United Artists, the studio that made it. Mr Goldman’s book is best remembered for coining the rule that in his industry, “nobody knows anything”: it is anyone’s guess whether a film will be a hit or a miss.

Three decades on, following such big-budget turkeys as “The Lone Ranger” (pictured), the situation in Hollywood is much the same. Only more so. These days the studios assume that to get people into the cinemas, films must be splashier, so production budgets can run in excess of $300m and cost an additional $100m-150m to market. When Disney’s “Johnny Carter”, an adventure flick, bombed last year, the entertainment giant suffered a $160m write-off. Its studio boss, Rich Ross, was told: so long, and let’s do lunch some time.

As the studios spend ever more on lavish prequels, sequels and “franchise” films, supposedly as a way to reduce risk by backing proven formulas, there is a growing danger that these movies will be nixed by jaded punters. Steven Spielberg, no introduction necessary, reckons that the studios could face “meltdown” if several big films flop at once. Studios are increasingly putting out just two types of film: mega-budget ones that can move the needle for the conglomerates that own them, and tiddlers for under $25m that can do nicely when they work. “Hollywood is like America,” says Kevin Misher, a producer. “The middle class has been squeezed.”

Mr Goldman described how, by 1983, the studios had all but given up developing their own ideas. Instead freelance writers, producers and other outsiders toured Hollywood touting ready-cooked packages, often with the stars already signed on and the script written. Now the studios, having cut their remaining development spending to boost their marketing budgets, are even more reliant on outsiders to design their product; imagine if Apple or Toyota did this. The studios are also looking outside for the money to finance films. A new species of intermediaries, such as Village Roadshow Entertainment Group and Skydance, have sprung up to bankroll projects.

As Mr Goldman described it, studio executives were like baseball managers: “They wake up every morning…with the knowledge that sooner or later they’re going to get fired.” Again, this is now truer than ever. As films’ budgets have expanded, so too has the risk that a flop will end an executive’s career. The past 18 months have seen more executive turnover than usual: four out of the six main studios have seen change at the top. In 1983 studio executives were often failed agents. Now they seem to be businesspeople. For example, Jeff Shell, who took over Comcast’s Universal Pictures in September, is a television boss with no background in film.

Since everybody still knows that nobody knows, studios continue to show early cuts of films to focus groups, to determine how to tweak and market them. But even after a film’s release it remains unclear why it boomed or bombed. Why was “Gravity”, starring George Clooney and Sandra Bullock in a tale about stranded astronauts, one of this year’s hits despite the misgivings of its studio, Warner Bros, whereas “The Lone Ranger” was such a flop, despite Disney’s high hopes for a film starring Johnny Depp?

“Hollywood is always in crisis,” jokes an unusually publicity-shy talent agent. Indeed, his office is in Century City, a district full of high-rises in Los Angeles that was once the backlot of 20th Century-Fox until it had to sell up because of the crippling cost of its 1963 epic, “Cleopatra”. Faced with bankruptcy 50 years ago, Fox might have been better off keeping the property and junking the film-making. The industry’s return on capital has been chronically anaemic. The media conglomerates that own the major studios grouse about the lousy economics of the business, particularly since DVD sales peaked in 2004 and then waned, with consumers shifting to lower-cost rentals and subscription services like Netflix. Technology should have helped Hollywood, by lowering the cost of distributing films, but it has also cost the industry dearly, as film-makers doll up their movies with expensive special effects, and negative social-media buzz kills films before they even open.

How will it play in China?

Thirty years ago Hollywood tried to make films that appealed to “popcorn buyers”: 16- to 24-year-olds who used to go to cinemas in droves before they became so preoccupied by their smartphones. Then they focused on films that would sell well on DVDs for home viewing. At the peak in 2004 the sale of physical media accounted for 48% of the big studios’ revenues in America, according to IHS, a research firm. Since then, the value of their sales has dropped by almost half.

Today Hollywood tries to tailor its products to the tastes of film buffs in big emerging economies, especially China, which is now the world’s second-largest movie market (see article). The farther a film can travel, the better, which means the studios are exporting films with fewer American elements. “Big Hollywood films have no national ideology attached to them today,” says Michael Lynton, the boss of Sony Pictures. Consider Fox’s four “Ice Age” cartoons, which together grossed around $800m. They are set in no identifiable time or place, and the characters can easily be dubbed into local languages.

Hollywood has always been a “caste-system town”, in Mr Goldman’s words. That remains true, but the tiers are shifting. Working in television used to be considered less desirable than unemployment; today it is where most of the money is, so writers, producers and the studios themselves are focusing more on television. As for Mr Goldman, who is 82, he has moved to New York, and is writing a musical. As luck would have it, the big film studios are putting money into Broadway musicals. But as “Springtime for Hitler” showed (Mel Brooks’s story of a musical designed to flop that becomes a smash hit), even here nobody really knows anything.

From the print edition: Business