by Lynda Obst
This is how it works: Studios finance and own the shows that they sell to cable and the networks. Cablers like HBO and AMC finance their own shows, but they like to share the risk, so they buy from studios too.
Studios sell to networks and cable stations6 and make their money through the successful run of the shows and through selling the syndication rights domestically and internationally. WME and the other television agencies get packaging fees on each episode. We producers have our deals—a fee for each episode and a portion of the profits, depending on our track record—negotiated up front as we sell the pitch to the studio or the network directly through our agent.
As I came to understand all this, it became clear why the networks all eventually started their own studios. They needed rating points for advertising, which is where they make their money.7 By owning their own studios, the networks can develop the shows that they think will work on air and get them the rating points they need. Plus, if they own the studios that make the shows, they can earn money even when the shows are syndicated to other networks. The studio-network conglomerates are positioned to make money at every level. I asked Rick to describe how television’s Billion-Dollar Babies amass so much wealth for their studio owners (and showrunners).
RICK: In the television pyramid, the most valuable commodity is a multicamera sitcom that can be played off the network [on local affiliates] at six o’clock and eleven o’clock: Friends, Malcolm in the Middle, Two and a Half Men, etc.
LYNDA: What makes them so valuable? That they can be syndicated domestically?
RICK: Yes, and internationally. And they can play on the stations at two different times, early and late night.
LYNDA: Give me examples.
RICK: It’s Big Bang, it’s Two and a Half Men—these are each billion-dollar babies. And it goes on for ten to fifteen years. The money just keeps coming in. Listen; when we merged with William Morris, I saw that there was still money coming in from I Love Lucy from all around the world. Now, it’s not millions of dollars, but it’s still hundreds of thousands of dollars coming from a show made over fifty years ago. These shows are still playing all over the world in large and small territories, in tiny territories in Africa and Asia.
LYNDA: Interesting. [Dawn comes to Mohammed.] Those kinds of domestic hits that play in syndication are your billion-dollar babies.
RICK: Not mine, but the studio’s. We get our commission.
LYNDA: And the studio gets all that money?
RICK: Except what they pay to participants, after they recoup their cost.
LYNDA: Why doesn’t ABC buy only from ABC Studios, and CBS from their studios, etc.?
RICK: Because most new shows fail. The networks don’t want to take all the risk, so they spread it around by buying from other studio providers.
LYNDA: So how do networks make money?
RICK: Networks derive their revenue from advertising. That’s it. And the big disparity, the big fight between broadcast and cable, is that there is a dual revenue stream in cable. In other words, the cable networks—even basic cable, like Lifetime—have dual revenue streams: subscription [per-person subscription fees] and advertising. HBO doesn’t make advertising money, but Lifetime, for example, makes money from advertising and from subscriptions.
LYNDA: I never felt bad for networks before.
RICK: Don’t. The top-rated network—CBS—is taking in a lot of money in advertising now. The advertising market is healthier now than it was after the financial collapse of 2008. And what I find interesting is that despite the proliferation of all the new platforms, from Netflix to YouTube to whatever new digital platforms, traditional television is still a very healthy business.
LYNDA: That’s a relief. So I won’t throw them a benefit or anything.
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1. Which also broke Ashton Kutcher and ran for eight years, from 1998 to 2006.
2. Redford has not done television, though I tried to get him.
3. The agency he and his WME partners first founded via ICM.
4. The studios pitch their shows to the networks. The studios also finance the shows for the networks, and therefore reap the profits from syndication. The broadcast networks—CBS, ABC, NBC, Fox, and the CW—only receive advertising revenues.
5. Showtime is part of the CBS empire, and with the current phenomenal success of Homeland and the cable financial model, he is said to be much more interested in it now.
6. These relationships are forged by ownership. Conglomerates own the networks and the studios—i.e., Universal Media Studios (NBC) is owned by General Electric, ABC Studios (ABC) by the Walt Disney Company, 20th Century Fox Television (Fox) by News Corp., CBS Television Studios (CBS/CW/Showtime) by Viacom, Sony Pictures Television (unaffiliated with a network) by Sony Corp. and Warner Bros. Television (unaffiliated with a network) by Time Warner.
7. This is why it is so crucial for advertisers to update how they use the Nielsen rating system, which measures how many households are watching a given show at a given time. Measurements are presented either in relation to total televisions in actual use—the share—or how many households are watching the given program—the rating. The problem is that fewer and fewer people are actually watching their favorite TV shows when the shows are actually programmed on the networks’ nightly schedules. Since the advent of TiVo and other digital recording devices, people “binge watch,” or just record their favorite shows and watch them when they damn well please. And although Nielsen has developed a measurement for digital video recording—which promises to have a huge impact on television ratings—advertisers have resisted using it as a component in their ad pricing. This has made hot new shows that are widely recorded less valuable than they should be to the networks. This is archaic, unfair and costing the networks tons of cash.
SCENE EIGHT
DOES THE FUTURE HAVE A FUTURE?
At the height of the Old Abnormal, when the pace was frantic and the toll in the trenches was punishing (but often fun), I wrote about the Hollywood grind in my book Hello, He Lied.
A wild free-for-all has gripped the business like a gang war. The agents who try to impress and sign the stars that open the movies, the studios that need to open their movies, and we producers who need them to make the movies, are all climbing over one another for a start date … We are all competing in a frantic frenzy of bidding worse than the hottest auction because a bloated and expensive movie is better than no movie at all. So we fight over the stars and they win until the movie is a disaster and brings down the studio … The cycle is swelling to a crescendo no one fully understands. We simply know that the race is on and that we’re panting for a pause that will never come …
Ten years later, the pause came. It arrived in the form of a brutal recession and market crash colliding with a horribly timed writers’ strike. This was the very moment the DVD revenues that allowed this escalating industry-wide fever to peak disappeared.
We knew it was insane, but since we were all abnormal in the first place, caught up in a struggle to succeed in a town built on overnight success and daily doom, we didn’t realize we were essentially living in Miami in the middle of the housing boom, buying strips of beachfront property adjacent to unfinished condos sight unseen. We were all in this disaster together, and when the bell rang, there was, unbelievably, no more credit available to our formerly sacrosanct studios for about two years. It was much, much worse than changing into Blue and Red and Yellow teams. It was worse than anything we could have dreamed up in our horror-filled imaginations. It was, in a way, a total realignment of all teams. And everyone was now forced to take the studios’ side. Big agents who had been setting $20 million–plus fees for actors saw those actors replaced by less expensive unknowns. The studios set the fees, the mandates and the pace.
Could we have dreamed that the music would stop? That spec sales would disappear for years? That pitches would virtually die out for just as long? That big stars would lose so much cachet? That the way we put pictur
es together would change from an age-old “outside-in” model (from the talent to the agents to the studios) to an “inside-out” model (from the studios to the agents to the talent)?
When the music stopped, there were new classes of haves and have-nots, just like in the rest of America after the crash, membership of which depended on your immediate situation. Did you have a reliable, ongoing franchise like Spider-Man? Were you at a stable studio like Warner Bros., where they were not suspending deals? Was your BFF the head of the studio, like mine was for a time? Did you have a partner who was a movie star who could open movies or an A-list or at least bankable director? Did you have a personal bank account or a hedge fund or a rich and Romney-like Sugar Daddy who could sustain you through the freeze? Or were you a one-off, having to make it on wits alone? If so, you were likely to be standing, not sitting, when the music stopped.
Wherever you were standing or sitting, it was still harder to make pictures because there was less money in the system. I was standing, but my legs were wobbly and in order to survive, I would have to get even stronger than I had believed possible in the old days, when all that was required was to push an increasingly unwieldy boulder up Mt. Studio.
• • •
The box office itself, despite the heavy breathing every weekend, has stayed remarkably stable over time. Despite some hugely expensive flops, the 2012 summer box office was up 14 percent at the season’s midpoint over 2011, partially due to the phenomenal success of The Avengers and Ted. But the numbers fell in late summer in the wake of the Aurora, Colorado, shooting in a theater showing The Dark Knight Rises. Not only were TDKR’s numbers depressed over the course of a few weeks, but analysts saw the numbers go down in general for evening attendance at theaters all over the country.1 By the end of the summer of 2012, the box office tally was $4.2 billion, down 2.7 percent from the previous summer, very likely because of the anomalous underperformance of The Dark Knight Rises and other evening showings of all movies after the tragedy in Colorado.
However, the industry had a very strong January-to-April period in 2012, so that on aggregate, 2012 surpassed the previous year. The Hunger Games is largely responsible for the surge. In general, the year made some studios look very good because of their fresh choices: a new female-based franchise in The Hunger Games from Lionsgate and a raunchy original comedy, Ted, created by Seth MacFarlane—who is becoming a franchise himself—from Universal.
But what you see over time is that despite some ups and downs, the aggregate summer domestic box office number has risen slowly but steadily over the last ten years. Some years it is down a hundred million, and other years it is up a hundred million, which means the domestic audience is not abandoning the malls, at least not over the summer.
So why the moaning, agonizing dread every weekend? There are a number of things to be unpacked from these positive trends. The domestic audience is volatile and unpredictable; they seek fresh ideas while the international market seeks familiar. Besides costs due to inflation, the production costs of movies have swelled as they seek to please an international audience that sees bigger as better—and bigger is now $150 to $200 million. Where do the studios go from there? Perhaps more worrisome, the cost of marketing these movies has increased to the point that it keeps the heads of studios up at night; the old formula—half of production costs—is still touted, though it is not thought to be credible. Those numbers are likely to be much higher now, but we don’t know for sure because they are never released by the studios. While the business has survived its DVD crisis by opening all these new markets abroad, the cost of doing so is astronomical and rising. Even many successful movies that rack up big numbers will basically only break even, given their production and marketing costs. The question is, can the business survive and sustain itself with its level of profitability, as opposed to box office gross?
We have been through an ice age in the entertainment business, and while television has been the beneficiary of the movies’ distress, there are recent box office signs that the ice may be receding, leaving the ground rugged and, one hopes, fertile. A remarkable cockroach-like ability to survive has shown itself over the course of the disaster. Will we have gotten smarter? Will we find new ways to get original movies out there without spending hundreds of millions of dollars? Will Hollywood remain a land of massive tentpoles that leave tadpoles gasping for breath and struggling for room to play each week? What will be next?
There are clues that some filmmakers, producers and studios are starting to sort out. Audiences are telling them loudly and clearly what they like and what they don’t. Some big IPs are working: Hunger Games fever swept the nation for a month in 2012, delivering its young adult audience exactly what it wanted. The Avengers (featuring six iconic Marvel superheroes) was an international phenomenon, now the third-biggest movie of all time, after Titanic and Avatar.
But some big tentpoles crashed to the ground with a loud thud, even some based on big titles with preawareness: Green Lantern, Cowboys and Aliens, John Carter2 and Battleship (based loosely on the Hasbro game) all basically bombed during the writing of this book. It became clear that not all comic-book heroes will do. A certain exhaustion is setting in. The cost of each tentpole picture, even the moderately successful ones, is being minutely analyzed online and in the boardrooms. Perhaps as a result, the 2013 releases had among them the most varied set of films Hollywood had made for years. It was an unusually exciting year, a rebound perhaps—a tentative reaction to the drought of original offerings even the studios had been suffering through.
THE DEMISE OF THE CHICK IN HOLLYWOOD HAS BEEN FOILED AGAIN
Fascinating things have occurred, however, almost by mistake. When 2012 began, it was the worst time for female-oriented projects in the business, perhaps in history. The industry’s focus on franchises had driven female-starring projects into virtual dormancy. But with the phenomenal success of two franchises written by female authors and featuring female central characters, embraced by both the books’ female fan base and two other quadrants, lower male and upper female, both Twilight and The Hunger Games made international stars out of their leads, Kristen Stewart3 and Jennifer Lawrence, respectively.
Moreover, that success made the idea of a female-based franchise a reality: “We believe there is enormous opportunity for female leads,” Lionsgate vice chairman Michael Burns said at a producers’ conference in June 2012. His studio had released both films and had recently announced itself to be in “the Jennifer Lawrence business.” At the same conference, Hunger Games producer and former Disney president Nina Jacobson argued, “The future of Hollywood franchises is female; I think Hollywood was just too stupid to figure that out for a while.”
There was disagreement on this from some of the fanboy producers, but that there was a conversation on the subject at all was stunning in and of itself. Jacobson further pointed out that women had become the breadwinners in the family. It was like a political debate. Go, Nina! I thought as I read this. A year ago, if anyone had said that the future of Hollywood franchises is female, they might have been sent to the funny farm. It’s all a big, open conversation, but at least girls are in it now when they weren’t a year ago. That’s a sea change, accomplished within a year.
THE STATE OF SEQUELITIS
There are interesting and optimistic clues to be found even in sequelitis: In the near and immediate future, our highly paid studio assembly-line sequel creators can anticipate ferocious creative competition. Now that franchises are built more and more on adaptations of big books that have already been serialized far into the future by talented novelists (as the Harry Potter series was in the past), the studio factory will be challenged. These sagas, with characters the audience already knows and with complicated story lines, are building audiences’ hunger for serialized drama. The more these movies and our excellent television serializations are syndicated around the world, the higher the bar will be raised internationally—as it has been here—for the story quality of our seque
ls. Special effects and 3D will not dazzle on their own merits forever; novelty wears out in the face of exposure to excellence. Sequels will just have to get better and cost less if they are to survive far into the future.
I got some excellent perspective from Keith Simanton of the terrific Web search engine BoxOfficeMojo.com, who pointed out to me that in the sometimes idealized days of the studio system—1947, for example—the classic It’s a Wonderful Life was only the seventeenth most successful movie. What was the most successful? Al Jolson Sings Again, the sequel to Al Jolson Sings. We have always made sequels. If America or the world loves something, we give them more; that has always been the rule. (And it has given us brilliant sequels like The Godfather II.) The issue is how many, for how much, and what else?
FAUX IPS
What I find most interesting is what is being bought as I write this in the summer of 2012. The movies coming out now were bought at the height of the New Abnormal IP frenzy, before this intense wave of very expensive tentpoles began to stop making financial sense. By the way, I hate that in Hollywood we call them IPs. Is calling them books somehow diminishing? The IP imprimatur inflates their intrinsic value to the status of games and toys. I think this is pathetic. We have relied on books to fuel our best movies since the beginning of film. We have no more reliable a source for quality material.
In certain places during the frenzy of the New Abnormal, taste and discrimination were abandoned altogether. Titles and game libraries were being bought willy-nilly merely because someone somewhere in the building had heard of them. Warner Bros. already owned the DC catalog and Disney bought Marvel, and everyone else had comic-book envy. In the absence of a catalog (and, of course, any pitches), producers set up brand-new comic books and graphic novels at studios as though they were IPs. They’d find young artists to turn some made-up superhero story into a comic book or graphic novel. CrushMan! RobotGuy! (These are my inane versions, obviously.) Then they would sell this new character to a studio as though it had already been sold in your neighborhood comic-book store as an established brand, though the exec was fully in on the gimmick. Buying the story without the fake comic book would have required confidence in the story itself on the part of the buyer.