The Movie Business Book

Jason E Squire, Jason E Squire

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317221586
• Edition: 4
• Topic: Media & Performing Arts
• Subtopic: Film & Video

Tapping experts in an industry experiencing major disruptions, The Movie Business Book is the authoritative, comprehensive sourcebook, covering online micro-budget movies to theatrical tentpoles. This book pulls back the veil of secrecy on producing, marketing, and distributing films, including business models, dealmaking, release windows, revenue streams, studio accounting, DIY online self-distribution and more. First-hand insider accounts serve as primary references involving negotiations, management decisions, workflow, intuition and instinct. The Movie Business Book is an essential guide for those launching or advancing careers in the global media marketplace.

Chapter 1 Introduction

DOI: 10.4324/9781315621968-1

by Jason E. Squire

More historic change has occurred in the movie business recently than in any decade since the coming of sound. In the traditional model, customers would go out to the movies; in today’s model, movies go to the customers who have unlimited choices for other entertainment on personal screens.

Competition for the recreational dollar is intense. Beyond movies, there’s a wide range of entertainment products, services and experiences: television, theme parks, animation, music, interactive, live theatre, sports, comics, resorts, radio, fashion, consumer products and more. In the investment world, they are all analyzed under “leisure time” because management issues, customer impatience and risk factors are similar.

Even in the face of increased competition, this is arguably a great time to make a movie because the barriers to entry have disappeared. Anyone can shoot and edit at home, then distribute to the world online. Traditional business models are changing, removing the intermediary by placing buyer and seller in direct contact. Customers have more options than ever, and more control over them. Today’s product is highly transportable in a world hungry for visual expression.

Change keeps roiling beneath the surface, stirring up vigilance and anticipation from both industry players and civilians. The boundary between them is fading, as YouTube civilians gain traction, shift to wider audiences and then to movies or television, with the expectation that their online fans will follow.

Disrupters as Levelers

All of this mercurial change forced the studio business to confront certain disrupters. These have included the internet; smartphones and tablets; collapsing release windows; unreliable, impatient customers; the changing face of television; increased costs; and piracy. For the consumer, however, most of these disrupters have acted as levelers.

The internet. We take internet access to movies for granted, but after it was introduced in the 1990s, Hollywood did little to use its power, preferring to sit back and track progress. Savvy executives recognized it as a new distribution platform, a major game-changer. While indies were experimenting with online distribution before 2000, the majors simply waited.

Throughout media history, studios have initially rejected new technology as a threat, only to embrace it later. The business has always been more reactive than proactive. Then, when some hungry outsider establishes an audience and proves a new technology or delivery system to be viable, the majors tiptoe in. Radio, television and home entertainment followed this pattern; the internet is the latest. It took a while for studios to stake a claim on the web and when they did, none wanted to risk it alone. Today, in a rare example of cooperation, NBCUniversal, Disney ABC and Fox Broadcasting are partners in Hulu.

The web brought historic change to movie transactions: It is interactive, direct to the customer; in the past, access to movies had always been distanced, through an intermediary. The web thrives on niche content; traditional distribution had always been driven by the tyranny of the popular. It is global; indie movie licensing had always been territory-by-territory. It is untethered, allowing unlimited access to movies, including pocket-sized. Connecting online directly with the customer offers new distribution and marketing opportunities being shaped in do-it-yourself (DIY) models.

The internet is a great leveler for consumer access with the advent of day-and-date, multi-platform release patterns, which refers to releasing on video on demand (VOD) at the same time as in certain theatres. This gives customers more alternatives sooner than the traditional model. The web is in its formative years. With younger viewers preferring online delivery, the sky’s the limit.

Smartphones and tablets. The 2007 release of the iPhone introduced the pocket, personal screen. Its horizontal, wide-screen aspect ratio is that of a movie. While some executives doubted the value of such a small screen, others recognized a device for watching movies on the go, and this was a very big deal.

At the same time that consumers were being thrilled by accelerating technology and personal screens, independent filmmakers were feeling squeezed out of distribution in theatres due to increased costs, especially marketing. They turned to the web and experimented with bypassing theatrical by relying on festivals, social media buzz and VOD, with perhaps a select number of indie theatres in the mix. Audacious business models began to emerge, re-inventing movie distribution and easily migrating movies and other visual media to smartphones and tablets where content was being consumed at increasing rates. These devices have acted as leveling forces for customers, offering easy access to content anytime, anywhere. Central to these new distribution models is collapsing “windows.”

Collapsing windows. This refers to re-designing the traditional, timed release patterns of movies that usually premiere in theatres, then on VOD, then DVD, then television. (A window refers to a contractual time frame stipulating when a specific distribution platform becomes available.) With all the online competition, most of which is free, it’s not surprising that indie movie execs have been eager to accelerate and “collapse windows” to release on every platform, as soon as possible, ubiquitously. Studios have been reluctant, not wanting to alienate theatre chain owners, but some have been experimenting as well. In one example of shrinking the traditional home entertainment window, one studio offered part of their digital revenue to participating theatres that would allow for digital release only weeks after theatrical if the movie’s screen count declines to a certain number.

Collapsing windows is another leveler for impatient customers who no longer tolerate forced delays in accessing movies. Their mantra is new, more, now, and the industry must continue to be flexible in shifting release windows to suit specific movies, or risk losing those who otherwise will impulsively move on to the next big thing.

Impatient, unreliable customers. In every decade, there used to be a reliable, substantial movie audience in North America. No longer. Today, it is fragmented.

Parents and grandparents tend to follow viewing habits created in their formative years, with selective theatrical viewing plus cable subscriptions. For young professionals building careers, family and a social life, there is hardly any leisure time to consume appointment-based entertainment (such as a theatre’s starting times), so they rely instead on streaming, downloading and DVR recordings. College students, with their busy schedules, often visit YouTube and Netflix, but also show up in movie theatres for a title with heavy social media buzz. It’s the younger, wired generation that has the most choice. Those aged 8–12 are in the process of establishing their entertainment habits and spend the most time online. This is the generation to track, the one that has never known life before the web, because their habits will likely follow them into adulthood. They are the future of the business.

An unreliable audience serves as a disrupter for distributors, with no leveling counterbalance. But even with an impatient audience, box offices continue to generate billion-dollar annual grosses for studios. In North America, the audience is no longer reliable and must be seduced, at huge marketing costs, to go out to the movies on opening weekend. In China, becoming the highest-grossing movie market, the business is increasing at historic rates with a reliable audience from a growing middle class.

The changing face of television. Television is loosely defined as the home screen, with traditional, linear television liberated from the home to portable screens of any size. These screens have expanded the definition of television to include online content, wrangled from any platform or provider possible.

As far as content, a wide range of original programming is coming from online providers including Netflix, Hulu, Amazon, YouTube and Crackle. These used to be hungry outsiders, but now each takes a seat at the media table.

When television was young, in the late 1940s and early 1950s, it was a large, wooden furniture box, the hearth of many living rooms. By the 1960s, families bought second televisions, smaller and portable, but the experience was passive. Today, it’s active, matching the on-the-go lifestyles of customers. At home, owners program their large-screen smart televisions, choosing from a myriad of options for online access. Outside, the personal screen is ubiquitous.

For children, their first screens are tablets. The Telegraph reported a survey by Miner & Co. Studios that found parents disciplining their kids by taking away their tablet so they have to watch the conventional television monitor. The linear television screen and online screen are blending to expand the definition of television. While this has a leveling effect as far as easily reaching viewers, the trend has been a major disrupter for entrenched, traditional networks.

Increased costs. Since the 1980s, a dual cost spiral has been disruptive: the upward trajectory of production budgets and marketing costs. Increased production costs were rationalized to produce the elaborate visual effects audiences were responding to. Another reason was to pay the higher salaries negotiated by agents and lawyers for certain key artists. Increased marketing costs were being rationalized as benefiting release windows that followed theatrical, especially home entertainment.

At the time, increasing home video revenue offset a significant percentage of negative cost, especially for independent movies. This gave a false sense of security to executives who were approving higher budgets in light of this seemingly ever-expanding cushion. But decades later, by the end of 2005, home video values were trending downward.

Today, costs for mainstream studio product continue to rise to satisfy the proven, global audience appetite for “tentpole” movies during the summer and holidays. While higher costs are not a new disrupter, larger budgets put continual pressure on any financier’s bottom line and there is no leveling counterbalance. Studio shooting days are more costly; advertising is more costly; mistakes are more costly. It’s more of a crapshoot than ever, at a table restricted to high rollers.

At the same time, the press continues to report annual market-share statistics, accompanied by studio bragging rights, with little regard to the true measure of financial success, which is profitability. Tension between market share and profitability continues.

But there is good news. Reduced costs are the hallmark of the DIY, micro-budget industry. (While DIY stands for do-it-yourself, it actually means do it with a core group of trusted comrades.) DIY production costs are so low that there is no excuse not to make a movie (a refrain repeated throughout this book). The only differentiator is perceived quality, which can lead to online hits and sometimes attract traditional buyers. For example, the 2015 Sundance selection Tangerine, shot on an iPhone 5s reportedly for $100,000 went on to a distribution deal with Magnolia Pictures. Lowering costs, especially in the DIY arena, levels the playing field, as filmmakers become their own distributors of micro-budget product online. It’s an exciting brave, new world.

Piracy. This concept is remote to most moviegoers, unless someone designs code and therefore cares deeply about protecting intellectual property (IP). The global cost of piracy, in the billions of dollars, cannot be underestimated and has not abated. Not all the blame can be put at the feet of music executives who years ago ignored the trend of increased pirated music downloads by consumers objecting to the high retail cost of CDs. An entire generation grew up believing music should be free, and this has taken its toll on movies as well.

Movie piracy thrives in countries that have the largest gaps between rich and poor, with governments that ignore IP rights. The online world facilitates piracy but also unlimited consumer access. Although it might be said that this has a leveling effect, it’s certainly bad for business, period. Entertainment industry efforts continue around the world to protect IP and fight piracy but it is an uphill battle.

In summary, it must be noted that most of these disrupters have introduced new players and levelers, further expanding content and choice. These changes also point to a healthy business, proving how open and adaptable it is. While the traditional movie industry continues to manage the choppy waters of upheaval, online players such as Amazon, Google and Netflix continue to barrel forward, providing more content and by extension, more opportunities for creators and audience.

Movies as Product

Developed well over a century ago, movies matured in one generation into a complex mixture of art and commerce, capturing the imaginations of worldwide audiences and having a profound impact on behavior, culture, politics and economics.

At its simplest, the feature film is the arranging of light images to win hearts on screens of all sizes. At its most complex, it is a massive venture of global commerce, a vast creative enterprise requiring the logistical discipline of the military, the financial forecasting of the Federal Reserve, and the gambling instinct of Las Vegas, all harnessed in private hands to tell a story. The profit motive is at work here, but the formula to attract audiences is as speculative, uncertain and elusive as can be.

A movie is extremely perishable. It lives and has value as long as it is on people’s minds. The public’s perception of an average movie’s value decreases as access to it increases and as it ages. A successful studio movie can remain in theatres for a month, while a failure can be gone in two weekends. Online, movies have a much longer shelf life, as long as a platform or website sustains it.

A related issue is time. Time is finite, but the alternatives to fill it are infinite. A movie usually takes two hours to watch, but online and via DVR most tend to visit and sample product rather than watch to the end. With competing recreational options inside or outside the home often delivering similar value in less time (or in smaller, more controllable portions), movies are under more pressure than ever.

Three types of movies. In general, three types of movies are being made anywhere in the world:

1. big, expensive blockbusters intended for as wide an audience as possible;
2. local-language movies that travel (by appealing to customers in other countries) and thus have unexpected, greater potential to be profitable; and
3. local-language movies that do not travel, with costs carefully balanced against projected local revenue.

The expensive blockbuster or tentpole movie (propping up the tent of a distributor’s other releases) is a very speculative investment. Each Hollywood studio takes this risk because the potential high reward can include revenue for years over its many divisions such as television, home entertainment and especially consumer products. Inventing branded franchise movies has become a studio mainstay. Success can generate three-times-higher grosses overseas than in North America, so it’s worth the gamble. But every few years, no studio is immune to writing off losses on a tentpole movie that does not perform to expectations.

The second type, a local-language movie that travels, happens to possess intangible elements of universal appeal. At this point, business kicks in. Ideally, this product is identified via word-of-mouth by scouts for international distributors whose job is to seek out a product that is exportable, and that can easily travel. Here, a fascinating, timeless judgment is being applied: the simple, vulnerable, subjective human instinct as to whether a given movie can generate revenue and profitability.

Most movies made today are in the third category, the local-language movie that does not travel. Almost every center of culture produces movies made at a cost geared to average returns for the local market. Depending on shifting winds of local politics, social habits and economic security to develop a middle class with discretionary income, local-language movies (and other entertainment) rise and fall in popularity. Challenges are similar for a YouTube star, Bollywood producer, French actor or Guangzhou documentary filmmaker, in their effort to attract audiences and generate new product. These are the same goals of any studio executive mounting movies for the global audience.

Movies, with its brands, references, storytelling tropes and glamour, weave in and out of popular culture all over the world. But costs keep growing, and alternative experiences listed at the beginning of this chapter are closing in.

Movie Business Basics

If there is one word that defines the business, it’s “uncertainty.” The movie business attracts the best and brightest worldwide due to its glamour, high risk and high rewards. When they get closer, it becomes clear that the glamour veneer is merely a marketing tool and any job requires focus, tenacity, long hours an...