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February 25 at 8:30am

The Major Media Companies Will Drop Their Studios & Specialized Divisions Soon

By Ted Hope

The recent article on Hollywood in The Economist is a MUST read.  Stop what you were planning to do for the next ten minutes, read this post and then read the article.  You must. MCN pointed to it with the blurb: “Between 2007 and 2011, pre-tax profits of the five studios controlled by large media conglomerates fell by around 40%”.  That hooked me.  I read, and then I wept.

I don’t see how anyone can read that and NOT come to the conclusion that all the publicly-traded companies will divest their movie studio assets within the year.  Maybe they will; maybe they won’t, but you know the business ain’t through changin’ yet. Sure the prudent specialized divisions may run at a profit, but if there is not the big movie complement justifying the whole ancillary chain, will there be the logic that allows them to feed at the same trough?

Some of the takeaways of this clear, precise, and well argued article that I tweeted out include:

  • The share of Americans who attend a cinema at least once a month declined from 30% in 2000 to 10% in 2011.
  • By 2015 Americans will have 861 million internet-connected devices, up from 560m in 2012, averaging 2.7 devices each .
  • Box-office revenues outside America are growing two and a half times as fast as they are domestically.
  • People watch the same amount of movies that they did a few years ago, they’re just spending $6B less a year to do it.

So where does this leave us?  

  1. Young filmmakers interesting in quality character-driven tales should go into TV.  
  2. If the studios & their heaps of cash get out of the tentpole business, who is going to take their place?
  3. The business model is broken.  Who is doing something to fix it?  Why is this not an industry level discussion?
  4. Now would be a good time to launch a micro-budget global transmedia development/production/distro company.

What else?  Save us from ten years of crap content hell with your good ideas.

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  1. Erick Opeka / Feb 25 at 8:30am

    One element this Economist story doesn’t even touch on is how fast these changes can accelerate and fuel on themselves once they begin. I’ll use DVD retail as an example. If you’ve visited a Best Buy recently, you will find the packaged media section is now about 1/3 of where it was five years ago. This is due to simple retail economics: one of the biggest retail metrics is revenue per square foot. At the beginning of the go-go packaged media boom, retailers benefitted from high $ per square foot and lots of foot traffic from DVDs. However, as prices have plummeted and interest in owning discs has waned, most retailers have found is that discs provide a far lower return per square foot of space than electric bikes, music equipment, appliances, and even snacks. So they cut packed media sections dramatically. In turn, people stop going to retail stores to purchase discs, resulting in even less revenue per square foot, accelerating the decline. On top of this most retail outlets are investing in their own digital goods play, hoping to gain a 1-1 marketing relationship with the consumer. Given that packaged Home entertainment revenues account for just over 51% of all Studio revenue(vs. 26% for Theatrical, and 16% for TV pay deals), this one factor alone will dramatically alter the film landscape. The same principal can also destroy the theatrical business: WIthout a robust packaged goods business to make up for massive tentpole spending, studios will be forced to release less of the big tentpoles propping up that business. This combined with the already present trend of declining per capita theatrical spending will lead to a significant reduction in moviegoing, which in turn will accelerate theater closures. THere’s also the wild card scenario: what if somebody started a studio focused on bypassing hteaters altogether that actually succeeds? We’re seeing the germination of this recently, but what if a film grosses $100MM on Pay-Per View? That’s not outside of the range of possibility – the top grossing UFC fight event of all time grossed more than $88M ($55 bucks a pop at over 1.66M buys. Big money.) – Somebody is going to figure out how to do this and will promptly blow the model up.

  2. cj / Feb 25 at 8:30am

    The TV and the computer will be the same. An internet distribution platform (or three) that makes sense for filmmakers will come about with Google fiber, Apple TV and the Samsung equivalent. These distribution platforms will likely be categorized by length allowing filmmakers more freedom and a viable market for new forms no longer bound by the outdated constraints of the network broadcast and the theatrical feature. The studios will likely break apart at the craft levels. Private companies specializing in wardrobe, makeup etc will spring up, then probably be consolidated again along studio lines. We may have transparent distribution numbers as all copyright holders will need to know and show the mark-to-market value of new and existing titles (the upside of the MBA in the motion picture business). It is at its nadir at the moment. This is as bad as it gets. Hang on. It will be better then it has ever been.

  3. Roberta Munroe / Feb 25 at 8:30am

    I think if we can move our thoughts from “scary” to “innovative” we’ll stand a chance. I talked about this in my book 5 years ago and people made disparaging remarks on amazon – feels better to know I was on the right path, “Meanwhile, costs are rising. Everyone had expected technology to make it cheaper to produce films, but the opposite has happened, says Michael Lynton, the boss of Sony Pictures. A move from analogue to digital film enabled perfectionist directors to shoot more takes and touch them up afterward, using up expensive production and editing time.” As media creators we must take heed. One’s hopes & dreams don’t often supersede facts & numbers.

  4. disqus_29tdCLe05J / Feb 25 at 8:30am

    This is the pickle we’ve got ourselves in as independent filmmakers. Technology has changed traditional business models and we’ve adopted the idea that cheaper is better, since there are more opportunities to view films non-traditionally. Yesterday, for example, I downloaded a rental of “Argo” three hours before the Oscars. I can watch the film anytime and as many times I want for the next 30 days for $4.99. It’s easy and I don’t have to fight traffic going to the theater. I don’t need to own the film, so this works well for me, as I imagine it does for millions of Americans.

    Getting your film into this pipeline is your best chance at finding an audience. For micro-budgeted features, it may be your only chance. “The business model is broken. Who is doing something to fix it? Why is this not an industry level discussion?” Well, let’s talk about WHY it’s broken. It’s a simple matter of supply and demand. The more movies available, the fewer that will find an audience, in any economy. “Now would be a good time to launch a micro-budget global transmedia development/production/distro company.” Possibly, but this is a short term solution to the problem. There will ALWAYS be too many movies. Making them cheaper is smart, but not at the expense of creating more product no one wants to see. I see a day when movie theaters are nothing more than showcase facilities for special screenings and the like. VOD will indeed become the standard, if it hasn’t already happened. Studios are only now waking up to this fact and when they get it figured out, they’ll dominate it. The result, in any case, will be fewer films, not more.

    The solution, as I see it, is less movies. Let’s stop encouraging everyone from trying to be filmmakers. Let’s set a standard that distinguishes micro-budgeted films that are flooding festivals, from commercial independent films that are paying living wages, rather than oohing and ahing every time an indie film makes it through the Sundance gauntlet.

  5. Wendy Day / Feb 25 at 8:30am

    Adding to what you’ve already said, I’m not sure cheaper is better is the reasoning as much as value and accessibility play a role. We’ve become an “I want it now” society that has to stop what we are doing and get in the car and drive 20 minutes to the theater at a pre-determined time. Once there, we have to put up with people sitting nearby lacking theater etiquette. The last time I went to the theater with my date, it cost us $24 to enter and another $40 in popcorn, soda, and candy. The movie was mediocre, at best. Just the $64 isn’t the problem (I’ll spend $264 for one Cirque Du Soleil ticket)…but when you add in the other inconveniences and weigh the negatives against the positives, it’s a hard argument as to why to go to the movie theater when it will end up on the $125 a month cable TV eventually anyway. Can you seriously recall a film so worthy of withstanding all the negatives in the past few years? I can’t…(I agree with your post that there is limited big screen demand anymore and we must raise the barrier to entry).

  6. Wendy Day / Feb 25 at 8:30am

    Let’s learn from the music business where their economic asses got kicked…

  7. cj / Feb 25 at 8:30am

    There aren’t enough screens and those extant are controlled by the majors. DVD sales are flat. They’d be dropping but for redundant title upgrades to Blu Ray. We have to ride the horse in the direction it is going and that is the online distribution platform. The whales (Google, Apple, Samsung) will it. They have resources greater then the studios, distributors and theater chains (and their parent companies) and a method for making money buy data mining the consumer’s likes, posts, links, followers, pics, profiles, junks, Tweets etc. Hell, they can give the copyright holder 98 cents of every dollar for downloads (or site cloud storage). Content is not the product. The consumer is. It can be the start of a new era with new form lengths being marketable for the first time if we insure that the new platform serves the filmmaker and the audience’s changing viewing habits.

  8. Mark Harris / Feb 25 at 8:30am

    “Now would be a good time to launch a micro-budget global transmedia development/production/distro company” – doing it!

  9. Jono Hill / Feb 25 at 8:30am

    Clearly there will be a lot of people deeply affected by the changes ahead. It does seem strange that there is not more of a discussion around this in the mainstream, yet not particularly surprising as it’s not hurting enough yet. If The Economist is talking like this and the facts are clear then we can expect the discussions to increase. Especially as jobs get lost.

    To me the micro budget model, (though not for all films,) can still make sense. The technology is available to make films for less money that are still capable of telling incredible stories that look amazing and can capture the hearts and minds of audiences all around the world. Just look at Beasts of the Southern Wild and the collective behind it Court 13 if you want to see what the future can look like. Yes there are still many obstacles ahead and no doubt it’s a tough road but if it means we build communities and collectives of people around us, people that we love and respect, then let’s get to work and embrace the opportunities as they inevitably arise.

  10. Mike C / Feb 25 at 8:30am

    Why do we keep talking about re-inventing the Hollywood business model but online? Hollywood has become a oligopoly, locking out independent newcomers unless they conform to their established ways of doing things (big stars, cookie cutter scripts, 3D, 4k etc… etc…). We need to smash this failing business model and open it up for all filmmakers.

    Too many films? Can we ever have too many films? That’s like saying there’s too many books, too many songs, too many paintings, too many poems…

    Instead of creating another film company, what about creating an independent film studio cooperative? Is there a way to create an organization based on the international Mondragon Cooperative in Spain? Where filmmakers could not only be trained to be better craftsmen, but they could also work on the films the cooperative is producing for pay. The cooperative makes the films, owns the rights and all the member filmmakers benefit.

    Maybe this cooperative could even establish it’s own distribution network by creating it’s own “Roku box” or “Apple TV” device. I’m sure there are plenty of frustrated cinephiles out there who would rather spend the money to see a variety of independent film programming from around the world than another shoot ‘em up super hero reboot. Why pay netflix and hulu to just keep force feeding us the same stuff we get on TV and in theaters?

    I realize this is idealistic, and of course there are challenges with the cooperative model, but if we don’t entertain these ideas aren’t we just folding to the established failing paradigm? Isn’t this the real conversation we should be having? If money was the only purpose in making films we would’ve never had a Bresson, or an Antonioni, or a Tarkovsky, or a Marker, or a Bela Tarr or countless others… How horrific that would be!

  11. Frank McLaughlin / Feb 25 at 8:30am

    There seems to be a road with a fork. The road began ages ago with the need of the cinema owner to fill seats. The medium developed into story telling and then the story telling into a distinctive art form. The need of the cinema to fill seats and the product suppliers to generate even greater revenues let to these outrageous displays of sound and image. The serious lover of the art form seems to be taking the road less traveled leaving wiz bang stoners to the other road.
    Folks: you can only charge so much for popcorn!

  12. Michael Walker / Feb 25 at 8:30am

    The studios have screwed themselves by putting out crap, ignoring entire sections of the audience – ie. most adults, over marketing their crap to cover their ass, dominating theater screens and thereby limiting choice. It’s basically the same thing that brought the music industry down, minus the rampant piracy. It’s a problem they have slowly created only the last twenty-plus years as they dumped medium budget films and focused on branded movies as content, with the cynical twist that the dumber it is, the easier it will play abroad. It made them a ton of money in the short term, but it was bound to come to an end with budgets, and marketing budgets, going up so high.

    On the bright side, if they collapse, theaters will need to find movies from somewhere, and there are lots of new indie distributors out there.

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