Poor Hollywood: trapped between the devil of marketing and a deep blue sea of capital

Hollywood_2 Poor Hollywood.  It is being hollowed out.  Some companies flee to the high ground of the block buster.  Other descend to the indie market.  The tradition stamping grounds of the market place, the $50 million picture, is being abandoned. 

We learned yesterday that Disney has taken to the high ground.  Anne Thompson surveyed the industry and finds those who believe this is an indication of things to come.

Where Disney is going is the future of the business.  The future will bring fewer movies, more niche and art movies at lower budgets, a concentration on tentpoles.  People won’t be making any films over $20 million or under $100 million.  [Tom Pollock, Partner, Montecito Pictures]

The culprit?  The capital markets.

It’s been proven over and over again that the returns on invested capitol over the life of films in that budget range [$50-$80 million] just isn’t good enough to justify the costs. 

All seven studies are cogs in the wheels of public companies.  The way the town is going is a mix between tentpole movies with super-duper blockbuster appeal to everybody and quadrant movies aimed at a niche audience.  The studio indie subsidiaries will stay around.  It’s a capital allocation decision.  [David Miller, Sanders, Morris, Harris Group]

The middle of the Hollywood market is being hollowed out.  That $30-80 million range.  This is why, as we noted yesterday, Disney is deemphasizing Touchstone.  There are a few studios still working the middle, 20th Century Fox and Universal among them, but, as Anne Thompson wonders in her intelligent way, how much longer?

Hollywood has found its devil and its deep blue sea.  On the one side stand the marketers who have always insisted on mass appeal and the tent pole picture.  (The appointment, announced yesterday, of Aviv as president of production at Disney is a harbinger here.  Aviv used to be the head of marketing there.)  On the other, the capitalists who insist they know makes make a good investment in this industry. 

Now, I believe that Hollywood should make movies that make money.  Hollywood might still be an orange grove (and America an unrecognizably different country and culture) if it had ever been otherwise.  But I am not so sure that Hollywood should be deferring to the marketers or the finance people. 

As a marketing guy, I happen to know that the marketers are almost always talking through their hats, and that it is guite wrong for Hollywood meekly to accept their bullying.   Marketers never really came to grips of marketing to mass markets.  This means they are unprepared to reckon with the realities of more minor ones.  (I mean, in some cases, they are spectacularly off the mark.)

I am not a finance guy, but I know enough about the profession to reach for my wallet when someone says that something has been "proven over and over again."  I believe it is time to ask David Miller to stand and deliver.  What are these proofs of which you speak, sir?  Let’s see em.    Some of your creative types may be intimidated by this sort of thing but those of us who loiter at the intersection of anthropology and economics are made of sterner stuff.  (I mean of course Steve Postrel and Peter McBurney.  The rest of us are total creampuffs.) 

There is an alternative.  It’s called chunky marketing.  Somewhere between the long tail of the indie market and the tent-pole blockbusters, there is a lot of money to be made. 

This is, after all, when culture and commerce flourish.  This is where creativity and capital are happiest with one another.  This is where the antinomies of our culture learn to accomodate one another.  I mean, creativity by itself?  Good lord, it is art school naive and avant garde pretentious.  Capital by itself?  Why, I believe, it looks a lot like Connecticut, and no one, not even the capitalist, thinks that’s a good thing. 

So before Hollywood decides to hollow out the middle, perhaps we could interrogate our "experts" a little more closely.  Thank you, Anne Thompson, for getting the process started.

References

Thompson, Anne.  2006.  Risky business: Changes at Disney signal ‘strange tides.’ The Hollywood Reporter.  July 21, 2006, pp. 5-6. 

3 thoughts on “Poor Hollywood: trapped between the devil of marketing and a deep blue sea of capital”

  1. I am aware of no evidence that movies in particular budget ranges predictably do better or worse in terms of box office, much less ROI. This is not my area of expertise, but the work of Art de Vany, which I have cited here frequently, shows that 1) the box office performance of films follows statistics where the mean is much less than the variance, so outliers tend to drive things, and that 2) no one can predict very well which films will do well by looking at budgets, actors, directors, etc. William Goldman was right–“No one knows anything.”

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