If the theater going public and DVD buying, pay per view watching, cable subscribing, plane flying public were part of the same demographic or cultural group, that would make sense. However, theater going group is mainly under-25 males nowadays, while the other groups are a lot more evenly distributed in non-theatrical market. Actually, over-25 customers are probably more numerous. Now Hollywood is confused about why DVD sales are going down dramatically, by about 30% since 2008? Guess what, they are selling products designed for under-25 males, while their customers are anything, but. If these guys were in charge of clothing companies, they would blame Caribbean pirates for the low volume of winter coat sales in Florida. 

That said demand is amazing — we were in a country without Apple distribution last month, and the upwardly mobile people there want to get their hands on iPhones and iPads — by any means necessary, which is essentially the black market right now.  Apple still has a long way to go before they meet current worldwide demand.

Of course Apple may yet introduce a brand new successful product…

Hmm, growth because Steve Jobs was dead, and growth because Steve Jobs wasn’t dead. Maybe (just maybe) the growth had nothing to do with Steve Jobs’ life status, and more with Apple producing products and services that outshine those of competitors.

Something to think about.

http://www.latimes.com/news/opinion/commentary/la-oe-stein19-2008dec19,0,4676183.column

http://www.amazon.com/Empire-Their-Own-Invented-Hollywood/dp/0385265573/ref=sr_1_5?ie=UTF8&qid=1328646014&sr=8-5

Rogers, BCE vying for a bite of Apple’s iTV

“While the iTV product remains cloaked in secrecy, sources say Cupertino, Calif.-based Apple has approached Rogers and Bell as it actively pursues partnerships with Canadian carriers.”

Apple isn’t going to partner with producers, it’s going to partner with ISPs and derive revenue from a split of cable subscriptions, in exchange giving selected ISP partners exclusive access to iTV and its capacity to increase dumb-pipe broadband consumption and monetization.

I have no doubt that Apple’s negotiations with the content providers will involve splits of this revenue as well.

The huge spike in indies in 1976 is almost completely attributable to “Rocky” which I find fascinating, and really says more about the shallowness of the market back then than anything else.  You can definitely see a trace of “Star Wars”‘s activity in Fox’s bar.  The collapse of BV/Disney in this visualization in 1997 (due to the previous year’s “Toy Story” and “101 Dalmations”) also sorta obscures the fact that “Titanic” came out that year, to two studios that split the revenue.  If “Titanic” had been distributed by an entity called “Titantic Distribution Inc.” that company’s one bar would be the second or third biggest one that year.

While this may be the case in absolute dollars, it is typically not the case on a % scale.  For example, a movie like the Wedding Crashers, with big salaries for its stars, still only cost $40M to make (http://simple.wikipedia.org/wiki/Wedding_Crashers), but grossed $285M.  Now, that movie is an outlier from a revenue point of view, but studios know that if they throw Vince Vaughn, Will Farrell, Jennifer Aniston or the Jud Apatow mainstays on the screen, that the chance of a positive ROI increases.  

So, I think another point of view that should be considered is on the breakdown of film budgets over time.  Anecdotally, it seems budgets are going from something a bit smoother distribution, to either $200M for action movies.  And that both can be very profitable.

Also the basis for assignment of a title or revenue to a “genre” is extremely messy, ask anyone that tried to find “Sideways” at Blockbuster.

See my earlier point about variety.  Recently I suspect we saw an example of this in action when Netlfix refused to pass-through a premium for Starz content.  I suspect that they (correctly) saw that if they did what Starz specifically wanted, and were to offer movies on Instant Queue and then gun people to pay the Starz premium before having access to them, it would antagonize their customers and scare them away from the service altogether. 

A studio-run box is going to be in a situation a lot like Netflix, in that people will be aware of movies by way of marketing, and their only option will to be buy a second box to see it.  Boxes such as these will suffer from a bad rep, because people have normative expectations, after decades of a basically open technology market where any DVD or VHS plays on any player, will be “crippled.”  What you’re describing is basically the Nintendo Seal of Approval model, where killer franchises drive box sales which drive self-published titles. 

I do think things are basically going to shake out the way you describe, but I suspect that devices manufacturers are simply going to partner with distribution channels, in the manner of Apple or Roku with Hulu and Crackle and Netflix — not so much to protect their incumbency as to prevent copyright infringement, which is why none of these internet STBs run Bittorrent, or full browsers, or have the internal storage required to make illicit copies.

Also I just can’t emphasize how messy and risky production is, how much specialized knowledge is required and how arcane the process can get, just on the legal and political side, before you even start shooting.  I just don’t see an Apple buying into those sorts of risks, they don’t even deal directly with filmmakers on the iTunes store, filmmakers usually have to cut in an aggregation partner unless they’re already very well established — if they aren’t willing to risk a marginally profitable headache for someone that is giving them their movie for zero sunk cost on Apple’s part, why would they start making these things. Jobs himself was by all accounts aloof from Pixar and didn’t exercise any leadership or decisionmaking. It’d be interesting development if Apple hired a producer or studio exec into the management team, however.

I’m sure you are saving this for a follow up article, but I believe the reason for the large proportion of Drama & romances produced is due to the relatively cheap cost & short production schedules needed to make them.

Sweet jesus, you’ve just built a backlot circa 1936  The dark secret behind these is they cost stupendous amounts of money to keep maintained, and as styles changed and the audience became more demanding and cosmopolitan, the studio owners became so desperate to use the lots to justify the expense, you’d have episodes of “Star Trek” where the whole cast would “go to the old western town” for an episode, or “go to 1930s Chicago.”  (I mean they were good episodes and all, but…)  What you’re describing is huge capital investments with 30-year horizons, and nobody wants to make a bet on what people will buy tickets for 30 years from now.
Let’s call that the Sigaba Criteria: “Insofar as an entrepreneur can make a 30 year bet, said entrepreneur’s business model does not involve entertainment.”

You make a good point about subscription for genre, but I think there are serious issues with people willing to pay sustaining funds to to such concerns on an a la carte basis.  I would argue most of the premium in distribution comes from variety and not having to commit to enjoy something.  I generally support the idea of a la carte cable channels, for instance, but there’s no doubt in my mind that an “All Mystery!” cable channel probably wouldn’t be able to pay its bills while a TBS or HBO, with a diverse portfolio appealing to many genres and demographics, would fare much better.

I wondered, are the revenues inflation corrected? I guess so, but it is not written down explicitly. Can the summer block busters be related to how people are reached? On television the summer season usually consists of repeats of old material while talk shows (where the movies can be promoted) are on hiatus. The only way to attract people is to have lots of famous stars in the movie and a high-budget advertisement campaign. This idea is reinforced when looking at the chart with the low budget movies (shouldn’t that be low-grossing movies?), which shows a significant dent in the summer months (about 300 movies less released). So there are less movies released, but the ones that are released are making more money. Regarding the number of theaters at opening, it seems as if more movies open small nowadays. In 1979 only 18 out of 89 (less than a quarter) opened in <100 theaters while in 2011 430 out of 610 movies (about three-quarters) opened in <100 theaters. The movies that opened big opened much bigger, but most movies opened smaller. 
Again, really cool, keep up the good work!

The “incumbency” isn’t an incumbency of people, corporations or even necessarily business models.  They’re incumbency of brands.  Successful startups like New Line or Live Entertainment release a few good films, burn through their capital and are bought out by more recognizable names, who can then integrate the specialist product into a larger overall market startegy; sounds familiar doesn’t it?

When New Line made “The Lord of the Rings” movies, that was the filmmaking equivalent of Palm finishing WebOS before getting acquired by HP — one last losing expenditure to make them as valuable a purchase as possible to a larger company.

And even by the standards you’re using to assign distribution, non-majors now hold about 20% of the market, seems like raging success to me.  If I ran a DreamworksWebSearch.com web site and I managed to get 5% of the market from Google-Yahoo I’d count that as a raging success.  It’s not “disruption,” but I remember you originally talking about budgets and creative compensation, and how that could be disrupted, and you made a good case. This is all theatrical distribution, however, and this is a severable concern from production.

(edited for politeness)

A disruptive, vertically integrated model might not be affected so much by this point if they produced genre movies. Or the studio could operate a multiple lots, each dedicated to a branded genre. Your example of 007 movies could be re-imagined as a studio lot dedicated to a long series of spy/action movies with an ensemble cast and crew subject to long term contracts – consumed by subscribers for whom this genre is compelling.

Wow: the technological advances in viewership have been completely captured by the incumbents, not disruptors. A crowdsourced or YouTube or Amazon-type startup needs to create not only the content but make an end run around the buzz/distribution networks’ money.

I guess that part of what we “hire” movies to do is to provide a community experience, something to talk over with friends or even see together. That places a premium on the buzz — maybe, that’s a big part of the product.

There are these stories from the old-timers, many of them are dead now but you can read it in books*, where some studio would hire them and they’d sit at a bench reading a paper for three weeks before there was a project that needed them.  For some trades, like early sound people, there was a legit talent gold rush in the late 1920s and studios were writing huge checks and shipping radio techs from all over the English-speaking world to just get a core of knowledge.  The collective wisdom is that most of the hiring practices from before Paramount were deeply inefficient, egged on by nasty hiring wars (no no-poaching contracts back then!) and featherbedding on the part of the early unions.

The main issue with tying the distribution company to the lot is it really restricts what they can offer.  For example, Sony releases all of the 007 movies in many film markets, and you simply can’t shoot those movies on a Culver City, California sound stage; the same would apply to all of Fincher’s films, or an independent production like District 9,  again distributed by Sony.  In terms of personnel, someone like a David Fincher or a Peter Jackson doesn’t want to work with someone just because the studio head ordered it– they have their team, their team makes their movies the way they want them, and if Fincher had to use a studio DP instead of Jeff Cronenwith, that’d be a dealbreaker, because without Jeff, the movie probably wouldn’t look like a Fincher movie.  Fincher probably doesn’t make enough movies to keep his team employed, so they’re all freelancers, and that’s the norm all the way down, for better or worse.

Keeping people off the payroll = artistic control and freedom.

* I’m thinking particularly of Edward Berndt’s memoirs as a sound man at UA and later a Three Stooges director

In a hypothetical race to achieve the vertically integrated model described, I speculate that its easier for Apple (or Amazon) to build or buy a studio production capability than it is for current studios to manufacture content consuming devices.

Thanks for shedding light on the own vs rent trade-offs performed by production studios. Thanks also for understanding and critiquing the analogy to the Golden Age of Hollywood.  The 1948 antitrust decision than ended it was agreeably best for everyone else but the studios and possibly audiences, but I am setting aside socialistic concerns for (say) Apple’s potential behavior, and rather modelling what might be done commercially near the edges of antitrust/monopoly limits.

Your last point about “the cultural change required” is stereotypical disruption.

I’m not arguing that iPhone/iPad sales WILL increase at 100% per year (although it might). I’m arguing that the pool of potential buyers who can afford one is not (yet) a limitation on its growth.

I’m pretty sure this is called Hulu Plus.  There’s leaks in the exclusivity but the subscription revenues fly straight up the chain.  The incumbents are already aware of this strategy and are pressing it, and keeping all the hardware guys from getting too much of the chain under their own umbrella.

“The disruptive studio could operate using state-of-the-art digital technologies, and reduce talent costs by reimposing the old Studio System where talent is subject to long-term contracts and studio facilities are optimally reused.”
The challenge with “locking up talent” is that you have to identify it before it’s become a market commodity — once someone is a “star” they stick to free agency like paint.  Identifying talent is extremely difficult and intensive, but a lot of people have already recognized this and the old-school talent agencies have rooms full of interns trolling Youtube.

Also I don’t think “inefficient use of studio facilities” is a significant problem — physical studio space is shared be theatrical, television and new media product (I can walk down my hall and see theatrical films, network TV, syndicated TV, and sometimes even people doing net exclusive content in the same building.)  Much of the equipment of filmmaking isn’t owned by the companies on Horace’s chart, they’re owned by specialists and rental houses, because it only stays state-of-the-art for about a year and studios find it more efficient to sub out “upgrade risk.”  And the equipment that the studios do own can again be allocated to a title reaching any medium

The danger of repeating the business model of the first golden age is that the new operators will cause all the problems the old operators did — they locked out independent producers, people specifically like Walt Disney, who had to partner with Columbia and sign away a lot of revenue just to get access to the big dark rooms.

Which is not to say we shouldn’t do it, but the tradeoffs are touchy — vertically-integrated entertainment had the well-earned reputation for being deeply conservative and stuffy.  To someone of, say, Hal Ashby’s generation, vertically integrated entertainment was the institution THEY were trying to disrupt.  I mean like, in film school we were taught that the “old” method made great films but was rank with abusive labor practices, self-censorship and arbitrary creative restrictions —  the cultural change required to make people go against all that “common sense” will be extraordinary, and most people, the people who are still on the make, wouldn’t go quietly.

Did you find a data source which would allow us to look at trends in studio revenues by distribution channel, and how these have changed over the last decade ?? I believe that’s the next area for data mining and discussion.

Again, you’ve taken the lead in creating the next great conversation.

Martin

Interesting that the market capitalization of Walt Disney (owner of Buena Vista & Pixar) is about 73 billion $US. Apple could conceivably buy enough to control it.

The fact of the matter is that for US studios they make most of their money and profits outside of the US in non-domestic as well as in post-theatrical revenues.

The domestic North American market is almost a loss leader for them.  The numbers for International and post-theatrical revenues are extremely interesting in their own right.