Last weekend was, by any account, not a great one for Hollywood. Box office receipts were down across the board, though not unexpectedly. This is traditionally a slow time of the year for cinema attendance in America.
“Nobody picks the first weekend of September because they think it’s going to be a huge gross,” CBS Films’ Steven Friedlander told the Los Angeles Times, defending lacklustre results for the opening of the mini-studio’s new romantic drama The Words, starring Bradley “Sexiest Man Alive” Cooper.
But still, it was worse than usual. For the first time since 2008 no title hit the $US10 million mark. Total ticket sales reached $US67 million, the lowest — as countless outlets pointed out — since the second weekend after the 9/11 attacks in 2001. In fact, the most successful feature per screen was Steven Spielberg’s re-released Raiders of the Lost Ark — 31 years after it opened.
Yesterday actor-cum-economic commentator Brad Pitt spoke about the need for new-found austerity, generating international headlines by discussing how superstar actors can no longer command the dosh (let’s say, $US10 million-a-movie) they used to. ”That arithmetic doesn’t really work right now … a lot of the studios have been challenged because of the economic downturn,” he said, citing harsh fiscal backdrops as yet more additions to Hollywood’s litany of woes.
The sobering truth: Hollywood’s business model is in big trouble, the once all-powerful studios are slowing sliding into bankruptcy and punters have every reason to expect the end of the industry as we know it. Except they don’t.
If Hollywood is going so badly, why, then, did Disney — the studio responsible for reportedly cutting gaping wounds into their margins with John Carter — report healthy profits, across all divisions, in the past financial quarter? The Big Mouse chalked up $US1.8 billion in net income, up 31% from the year before. CEO Bob Iger declared: “We had a phenomenal third quarter, delivering the largest quarterly earnings in the history of our company.” In history.
It wasn’t an anomaly. In the same quarter, Time Warner shares went up 15% and Viacom’s rose 8%. During the fiscal year, every one of the six major studios recorded record profits.
Siren-ringing media reports are right about one thing: the game of how to make money at the top end of town has changed. What’s lacking is the detail on what kind of game the studios are now playing. Far from flopping in a financial deathbed, they’ve found other lucrative revenue pools to dip their toes in, and the message is clear: come on in; the water’s fine.
While domestic returns are falling, business overseas is good. Disney’s biggest success this year, The Avengers, collected $US621 million domestically and $US886 million internationally, taking total earnings to over $US1.5 billion. In the first 12 days of its offshore release, the film grossed a staggering $US440 million before it even opened on American shores.
In recent years we’ve seen global release dates for blockbuster movies become par for the course. If The Avengers experiment is anything to go by, expect more American productions to open overseas first.
More than $US84 million of The Avengers’ global intake was earned in China, a new frontier for Hollywood where the thirst for large-scale spectacles drives the brokerage of historically generous deals. In February, China upped the number of foreign films allowed within its borders from 20 to 34 and increased the share of revenue given to American studios from about 13% to 25%. That’s big bucks for Hollywood.
The relationship between US studios and state-run China is becoming increasingly intertwined. Not only is China starting to co-produce Hollywood movies (such as Iron Man 3) to share costs and minimise risk, but it’s also purchasing product placement in studio productions — a sign of how valuable they view the content.
In last year’s blockbuster Transformers: Dark of the Moon, a Chinese scientist in a lift with star Shia LaBeouf sips from a carton of “Shuhua Milk”. One dairy related line of dialogue later (“let me finish my Shuhua Milk”) and it became a catchphrase in China. Shuhua Milk sales, according to the LA Times, rose 12% last year.
While it’s true The Avengers is a convenient example of global success (currently listed by Box Office Mojo as the third most successful worldwide earner of all time, behind Avatar and Titanic), it’s important to remember: a) the list of top earners fluctuates regularly; and b) Hollywood survives not by average results spread across its output but by a small number of titles that do exceptionally well.
Cash cows are also found closer to home. While industry top brass may harp on about the effect online piracy is having on the bottom line, emerging platforms are invariably linked with new licensing fees and archives of old products being dusted off, re-bundled and resold.
Ancillary markets such as pay-per-view and video-on-demand are becoming major new money pits. And, with the relatively new ability for consumers to stream movies online via high-speed connections, growth is expected to generate massive returns. Platforms like video-on-demand also allow studios to maximise profits on smaller titles: last year Black Death, a medieval horror movie starring Sean Bean, and 13 Assassins, a Japanese action epic, grossed around $US4 million a piece in VOD rentals alone.
Hollywood’s experiment with VOD went further with the release of Margin Call, a GFC thriller starring Kevin Spacey and Jeremy Irons, by simultaneously opening the film in cinemas and online. ”This will be a very profitable movie for us due to the low marketing expenses and multiple day-and-date revenue sources,” said Jon Feltheimer, chief executive of Lionsgate, shortly after its US release last November.
And it was. Margin Call made around US$5 million in cinemas and, available to watch on iTunes for $US7, made that again online. The film is now considered a game-changer.
VOD releases also increase profits by reducing the percentage of earnings studios share with theatrical exhibitors. By how much is uncertain, and will inevitably fluctuate, but The Hollywood Reporter suggests it may be as high as a 70% split. This is significantly more than theatrical splits, which start at around that point then reduce as theatrical seasons taper out.
Theatrical exhibitors are understandably irked about shortened release windows and simultaneous multiplatform distribution. But, said Liongate’s Steve Beeks, “we’ve got to find new ways to get to consumers. The world has moved on.”
And Hollywood is moving with it. The rise of mobile devices and introduction of higher internet speeds produce a greater demand for legal streaming and downloading. Social media platforms are yet to emerge as powerful exhibition outlets, but that time can’t be far away.