EFTA01090050.pdf

Gross misunderstanding What journalists miss about the movie business BY EDWARD JAY EPSTEIN he vast preponderance of news reporting about Hol- theatrical run ended up in the red. This is not uncommon. T lywood concerns the weekly box-office race. It is offered free to the media every Sunday afternoon by Nielsen EDI at a low point in its news cycle, packaged with Most Hollywood movies nowadays actually lose money at the American box office and make it from ancillary markets. Meanwhile, the outcome of the box-office race has little punningheadlines and quotes by industry sources, so it can importance to theater owners these days, because each of be reported as ifit were a high-stakes horse race.In fact, it is, the major multiplex chains books all of the studios' wide- to borrow Daniel Boorstin's concept, a weekly pseudo-event release movies. Their only concern is the total number of whose sole purpose is to garner media attention. people who show up and how much popcorn, candy, and Once upon a time, six decades ago, such box-office soda they buy, since that's where their real profit comes numbers were critical to the fortunes of Hollywood. The from. In numerical terms, the movie-going audience has major studios then owned most of the large theater chains been shrinkingsince 1948. and made virtually all of their profits from ticket sales at The studios focus on the cumulative revenue their movies their own theaters. But as of the late 1940s, antitrust rul- take in over many platforms, including both domestic and ings forced the Hollywood studios to divest their theaters, foreign movie houses, DVD stores, pay-TV output deals, and and the theater business evolved into multiplex chains that TV licensing. Even though its ancillary benchmarks can be the studios did not control. As television, home video, pay higher when a movie is No. 1at the box office, the film can cable, DVD5, and now streaminghave become ubiquitous in fare very badly in its cumulative results. Consider, for exam- American homes, the studios have radically changed their ple, Paramount's 2005 film Sahara (and here I should dis- business model, moving their profit centers from the large close that I served as an expert witness ina lawsuit involving to the small screen, making the box-office race less relevant. its finances). Although it was No. 1at the opening-weekend Even the numbers themselves are misleading. The box office, it is one of the biggest money-losers in history. reported "grosses" are not those of the studios but the pro- Based on a Clive Cussler best seller, the adventure film cost jected sales of tickets at the movie houses in the US and $160 million to produce and $81million to distribute, and Canada (which is counted by Hollywood as part of the US). wound up losing $78.3 million. On the other hand, some Whatever the amount actually is, movie houses remit about movies that finish at the bottom of the weekly pile, such as 50 percent to the movie distributor, which then deducts, off Woody Allen's Midnight in Paris, Wes Anderson's Moonrise the top, its out-of-pocket ofcosts, which includes advertising, Kingdom, and DarrenAronofslcy'sBlack Swan, canultimately prints, insurance, local taxes, and other logistical expenses. take in more money than movies that finish ahead of them. For an average big-studio movie, these costs now amount to It certainly helps to be first on a weekend, but not all about $40 million—so, just to stay in the black, a movie needs weekends are equally valuable. There are holiday week- $74 million in ticket sales. Many films don't make that much, ends that can produce as much as ten times the revenue as and even those that do, may not be profitable. For example, those in the slack season (when teenagers return to school). Disney, which hailed as a great success the nearly a quar- A Fourth of July second- or third- place movie can take in ter-billion-dollar "gross" of its movie Gone In 60 Seconds far more than a first-place finisher in October, since the total (released in 2000), wound up with only $11.6 million from pie is so much larger. And films that open in the summer, no theaters, and since the movie cost $103.3 million to make, its matter where they finish, will also earn more than fall films COLUMBIA JOURNALISM REVIEW 35 EFTA01090050  !&•••.7••• Amea AraPao taroal r-- (-• A.... Ass L... AL A.-y. gs•.•• • • A. A... Vera ra, David vs. Goliath Wes Anderson's quirky moonrise Kingdom had more box-office staying power than rnegabudget Men in Black 3. from Christmas DVD sales—due to the usual four-to-five- of the opening and the efficacy of the studio's marketing arm: month embargo on the release of movies on DVD, summer In other words, based on a barrage of 30-second TV com- films become fresh product on the market at holiday time. mercials containing snippets of the film, which most movie- Even in the era of global marketing campaigns, US box goers will have seen an average seven times that week, how office does not necessarily affect foreign revenues, which many people will show up on Friday night? This is a job the now are more important than the domestic take. For major studios do amazingly well, but it has little to say about the movies, such as Avatar, more than 70 percent of the theatri- intrinsic appeal of the movie. cal revenue is now earned overseas. 'lb be sure, the race produces bragging rights every week Nor does the box-office race provide an accurate measure for the winning studio's marketing department, which then of popular taste, since it lumps together movies that open exploit the "No.1" title in newspaper ads (for which studios on thousands of screens with those that choose to open on spend, on average, about $4 million per tide). And of course a few dozen screens, hoping to build gradually, benefitting the publicity derived from this game further enhances the from good reviews and strong word-of-mouth. Consider, for studios' revenue. example, Moonrise Kingdom, which on May 25, 2012, opened But why does the media play along in the promotion? in only four theaters in two cities, and finished in 15th place, Generally, it is the only "news" available in the entertain- while Men in Black 3, which was first, was booked on 4,248 ment news cycle surrounding the opening. Any real digging screens. Indeed, when studio marketing departments want into the economics of a movie takes considerable time, since to know the actual audience appeal of a movie they track the studios tightly seal all relevant information, such as the :3 the per-screen average, the drop-off between Friday night terms of distribution deals, financing, subsidies, and stars' 17- (when there is no word-of-mouth) and Sunday, and the per- compensation, through Non-Disclosure Agreements. Even g centage drop after the first and second week. MIB3 was all extras at times must sign NDAS (as I found out when I was rsi but dead after three weeks, while Moonrise Kingdom moved an extra in Wall Street:Money Never Sleeps). By the time the to 924 theaters, and was still drawing audiences in late Sep- economic picture becomes clear, if indeed it ever does, the tember, the nineteenth week of its run. news value of the project has faded. What a box-office victory actually measures is the breadth At the same time, the media's fixation on the box-office 2 36 NOVEMBER/DECEMBER 2012 EFTA01090051 race diverts its attention from the ongoing transformation of Hollywood's business. It neglects the reality that today, Avoiding pilot error the six major studios get less than 20 percent of their total By tracking its users' intent to watch fall shows, revenue from showing their films in American movie houses. Most of their money comes from another, nearly invisible TVGuide.com handicaps the new TV season source: licensing their intellectual properties. Each studio has a vast library of thousands of movies, animated shorts, elevision viewers are all over the place these days, and TV series it licenses out to worldwide cable networks, T tuning in via computers, tablets, and phones, at odd times, and in unlikely places, many far from ye olde couch. "Appointment viewing"—watching a show during its regular prime-time broadcast—has dipped from 93 per- Studios get less than 20 cent to 79 percent of viewing in just the past year, according to TVGuide.com research. At the same time, TV providers percent of their revenue want to know where to invest their marketing budgets, and from US movie theaters. journalists covering the industry and audiences alike want to know what is likely to survive before they invest a lot of time and attention in something new. The TVGuide.com Watchlist is starting to provide clues, according to Christy Tanner, exec VP and general manager pay-per-view TV, and broadcast television. A top executive of TV Guide Digital (not to be confused with TV Guide maga- at Time Warner recently did the math for me, demonstrating zine, which is now a separate company). Two years ago, she that between 85 and 90 percent of its entertainment earn- says, the site added an "I'll Watch" button to its TV listings— ings comes from licensing its movie and TV titles to televi- analogous to a Facebook "Like"—and the response to that sion; it is more or less the same story at the four other largest encouraged the TV Guide team to build a tool that could track studios. (Paramount because it ceded it television produc- user interest more definitively. (There is plenty of tech tal- tion arm to CBS when they split, is the only major study with- ent in-house, since the core of the business is its proprietary out a television production arm.) The reason that licensing listings; in fact, Tanner says the staff is split evenly among is so immensely profitable is that studios do not have to pay editorial, business, and engineering.) advertising, print, or logistical costs, as they do when dis- The Watchlist aims to give viewers all their options for tributing a movie to theaters. Almost all money received— finding what they want to watch: via broadcast, on-demand, except for residuals paid to actors' and others' guild pension streaming, and DVD. Users create a profile, and then choose plans—goes to the bottom line. The same is true with the TV shows, movies, actors, and sports teams they want to new business of licensing products to Internet companies, follow. "It's all the ways to watch in one place," says Tanner. such as Hulu, Netflix, Apple's imnes Store, and Amazon, for "It's the TV Guide of the future." It's also the user behavior of the future. "When we streaming. The continued cranking of this money machine launched [on TVGuide.com] in August 2011, we thought depends on the studios' retaining absolute control over these everyone would just wait till fall to add the new shows," intellectual properties—a requisite that, given the threat of says Tanner, but surprisingly, "people were adding new fall digital piracy, is reshaping strategies for how they release shows before they were ever on. We found that New Girl was movies. The studios' entire system of "windows," in which the most 'added to Watchlist' show by mid-August, and that a film's pay-off is optimized by delaying for many months became the breakout show of the season." Audience taste its release on video, pay television, and other platforms, for predicted eight of the top 10 new shows, and this year, users example, may have to be compressed, if not entirely aban- started to add shows as soon as they were announced at the doned, to counter this threat. There is also new urgency to industry upfronts in May. studios' international diplomacy, since minimizing the avail- In August, TV Guide released an iOS app incorporating the ability of pirated copies requires the assistance of govern- Watchlist, and usage surged. As of October, Tanner reports, ments. No matter what political opinions their movie stars "over 750,000 [users'] Watchlists have been created-275,000 espouse, the corporate executives behind the scenes now of those in the last six weeks. By mid-September, we ended must play nicely with those in power. up with a top-M list which right now seems pretty credible." The screenwriter William Goldman famously explained Because of the commitment users demonstrate by creating a profile, plus the built-in tune-in reminders, TV advertisers the economics of Hollywood this way: Nobody knows any- have sponsored the project "since Day One," she says. (An thing. By focusing on the box-office race that is spoon-fed to integrated ad unit prompts users to "Add this show to your them each week, journalists may entertain their audiences, Watchlist.") but they are missing the real story. By neglecting the chang- Doesn't Twitter offer similar hints? Yes, but any mention ing economics of Hollywood—and the politics that flow from of a show, positive or negative, is counted. "Fm not dismissing it—they leave their audience, much like a movie audience, in Twitter data;' says Tanner. "But for tracking TV as a horse the dark about what is really shaping Hollywood. Cm race in which ratings are the currency, last year we found Watchlist was a good indicator, and this year it looks like it will EDWARD JAY EPSTEIN is the author ofThe Hollywood Economist and be a solid indicator of ultimate ratings success." Stay tuned... The Big Picture: The Logic of Money and Power in Hollywood. —Cyndi Slivers COLUMBIA JOURNALISM REVIEW 37 EFTA01090052