[Marxism] [Pen-l] McMahon: Is Hollywood becoming a risk-free business?

Louis Proyect lnp3 at panix.com
Sat May 18 09:30:20 MDT 2013

On 5/15/13 4:30 PM, Jonathan Nitzan wrote:
> McMahon, James. 2013. "The Rise of a Confident Hollywood: Risk and the
> Capitalization of Cinema". Review of Capital as Power 1 (1): 23-40.
> ABSTRACT: This paper investigates the historical development of risk in
> the Hollywood film business. Using opening theatres as a proxy for
> future expectations, the paper demonstrates how, from 1981 to 2011,
> Hollywood has improved its ability to predict the financial rankings of
> its films. More specifically, the Hollywood film business has become
> better at predicting which films will earn a greater-than average share
> of all US box-office gross revenues through a wide release strategy.
> This greater predictability suggests that confidence in film earnings
> projections has increased.
> FULL TEXT: http://bnarchives.yorku.ca/362/

NY Times May 17, 2013
The Flop Looms as Studios Lean on Blockbusters

For the big Hollywood film studios, this summer could turn out to be 
“Apocalypse the Day after Tomorrow: Clash of the Blockbusters.” Or maybe 
“Armageddon 2 — Revenge of the Critics.”

With a record number of big-budget action- and special-effect-laden 
blockbusters opening between the beginning of this month and the end of 
August, competition for the spectacle-craving young male and surging 
international audience has never been more intense.

Steven Soderbergh, the much-admired filmmaker, delivered a blistering 
critique of the phenomenon at the San Francisco International Film 
Festival a few weeks ago, bemoaning studio executives’ lack of 
imagination and their fixation on big-budget franchise films. “Cinema as 
I define it, and as something that inspired me, is under assault by the 
studios,” he said. He likened the big studios to “Detroit before the 
bailout” and worried that the hegemony of the blockbuster is “a 
trajectory that I think is pretty difficult to reverse.”

But his warning may have come too late for this summer, when the studios 
seem to be headed over a blockbuster cliff. The numbers are pretty 
stark. According to Doug Creutz, the senior media and entertainment 
analyst for Cowen & Company: “Of the expensive action and animated 
movies, we’ve never had a summer where more than nine did well, and 
often it’s fewer. This summer you’ve got 17 blockbusters coming out 
between May and July, 19 if you add August,” which he said is the most 
crowded release slate in recent memory. “Is this going to be by far the 
biggest summer box office in history? Maybe, if they’re all great 
movies, but it’s not likely.”

Studios have been shifting their resources toward what are variously 
called blockbuster, event, or tent pole movies for years — the 
big-budget movies intended to help studios make up for their less 
profitable films. By and large, the strategy seems to have paid off. “We 
haven’t seen many tent poles blow up,” Michael Nathanson, a media 
analyst and managing director at Nomura. “But this summer could be the 
breaking point. There may be some big write-offs on some of these films.”

The dominance of the blockbuster may have many directors, writers and 
producers wringing their hands, but it has been warmly welcomed by 
moviegoing audiences and Wall Street. Of the 15 movies that have grossed 
more than $1 billion, all were big-budget and all but three (“Avatar,” 
“Titanic” and “Alice in Wonderland”) were franchise films. And only 
“Avatar” could be considered original material. Disney’s “Iron Man 3,” 
the quintessential franchise blockbuster, opened two weeks ago and on 
Thursday joined the billion-dollar ranks.

(Curiously, once the figures are adjusted for inflation, none of the Top 
10 grossing films of all time were part of a franchise, though all were 
big-budget event films at the time. The top grossing movie, adjusted for 
inflation, is “Gone with the Wind.”)

Mr. Soderbergh readily conceded that blockbuster films, despite often 
scathing reviews from critics, seem to have “the full support of the 
audience.” While waiting at Kennedy Airport, he said, he saw “a guy on 
the other side of the aisle in front of me and he pulls out his iPad to 
start watching stuff.” Mr. Soderbergh went on: “I’m curious to see what 
he’s going to watch — he’s a white guy in his mid-30s. And I begin to 
realize what he’s done is he’s loaded in half a dozen action sort of 
extravaganzas and he’s watching each of the action sequences. He’s 
skipping over all the dialogue and the narrative. This guy’s flight is 
going to be five and a half hours of just mayhem porn.”

The blockbuster phenomenon is also pleasing Wall Street and investors 
because it means that the big studios are making fewer movies, yet 
commanding a larger share of total box-office revenue. “It’s been a 
smart strategy,” Mr. Nathanson said. “They’re making fewer films and 
controlling costs and they’ve stabilized the industry. This is appealing 
to Wall Street. It’s a coherent strategy that can be articulated to 
investors. The studios may not be growing much, but they’re not the 
declining problem children they were after the DVD bubble popped.”

Time Warner’s Warner Brothers studio is widely credited with inventing 
the approach (and its “Harry Potter” films are some of the most 
successful in the genre), but Disney under the current chief executive, 
Robert Iger, is seen today as its most zealous and successful 
practitioner. With its acquisitions of Pixar, Marvel and, last year, 
Lucasfilm, Disney has spent billions to acquire others’ intellectual 
property, and what Disney hopes will be the foundation of generations of 
future blockbusters. Whether this bold bet ultimately pays off remains 
to be seen, but Marvel under Disney has gotten off to a strong start. 
“Disney is basically 100 percent blockbusters,” Mr. Creutz said, not 
counting films it distributes for others, like DreamWorks Studios. 
“There are a few exceptions, but when they’ve invested in the big event 
movies, they’ve come out pretty well.”

Last year, Disney’s operating income from studio entertainment (which 
also includes its Broadway productions) rose 17 percent, to $722 million 
from $618 million, largely on the strength of “The Avengers.” Disney 
shares have doubled in the last year and a half (although studio 
earnings make up a relatively small percentage of total income).

For Disney, 2015 will be a crucial test of the strategy. That year the 
studio is planning another “Star Wars” film, a sequel to “Avengers,” a 
“Pirates of the Caribbean 5” and a sequel to Pixar’s “Finding Nemo.”

By the prevailing logic in the movie industry, making fewer films, but 
more expensive blockbusters, is less risky than making more films with 
modest budgets. Resources can be concentrated on fewer projects, and a 
$100-plus million marketing budget is big enough to generate the 
all-important opening weekend traffic, while five $20 million marketing 
campaigns would get lost. Especially with the rise of 3-D technology, 
studios want movies with the kind of special effects that will draw 
people into theaters. However popular, “Silver Linings Playbook” can 
easily be enjoyed at home. And the ever-growing importance of 
international audiences means studios want familiar characters, stories 
and effects that don’t depend on American cultural references and can 
easily be translated.

But to some like Mr. Soderbergh, this reasoning is flawed. “A certain 
kind of rodent might be smarter than a studio when it comes to picking 
projects,” he said in his recent talk. The problem is common to any 
investment strategy that lacks diversification. It’s great while it 
works — until it doesn’t. Disney had to write down $200 million, 
considered the largest loss ever by one movie — after the box-office 
failure of “John Carter,” a much-anticipated blockbuster last year that 
is now widely faulted for being too original, among other problems. “I 
think the idea that if you throw enough money at it, people will show 
up, even if it’s a bad movie, is just asking to lose money,” Mr. Creutz 

And the economics for a blockbuster can be daunting. If a film costs 
$200 million to make and another $200 million to market, it needs to 
generate $800 million at the box office just to break even, because 
distributors and theater owners keep roughly half the revenue. Not that 
many films generate such big numbers. Last year, only seven films had 
worldwide grosses of more than $750 million, according to Box Office Mojo.

Not everyone in Hollywood is despairing. “A blockbuster is just another 
name for a movie a lot of people want to see,” Nina Jacobson, who helped 
start the “Pirates of the Caribbean” franchise while head of Disney’s 
studio, and has since produced the wildly successful “The Hunger Games,” 
told me this week. “A movie like ‘Life of Pi’ is big, visual and 
international but not remotely cynical or safe. ‘Silver Linings 
Playbook,’ ‘Django Unchained,’ ‘Argo’ and ‘Ted’ are not typical 
blockbusters but were still very profitable. No one ignores those kinds 
of successes because we all aspire to them.” She suggested that 
targeted, lower-cost marketing campaigns might be a way to persuade 
studios to make more smaller domestic movies.

Even though it’s only May, “Iron Man 3,” “The Great Gatsby” and “Star 
Trek Into Darkness” have already opened, and “The Hangover Part III” and 
“Fast & Furious 6” will go head-to-head Memorial Day weekend. Among the 
many action- and special effect-filled blockbusters still to come, Mr. 
Creutz predicted that “World War Z” (Paramount Pictures), “After Earth” 
(Sony Pictures) and “R.I.P.D.” (Universal Pictures) could end up as 
box-office casualties, and Disney’s “The Lone Ranger” depends on whether 
Johnny Depp as Tonto can pull off another creative and box-office coup.

“All the studios have decided that big-event movies are a better 
business,” Mr. Creutz said. “When everyone decides that, it’s a problem. 
Look at the history of motion pictures. There have been time periods 
when certain strategies worked, and, temporarily, the economics got 
better. Then the profits got competed away. So here we are again. 
There’s a glut.”

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