Make Something! The Studio Edition

Hoist the sails kids. The pulp winds be a blowin'.

This has been reported elsewhere, but LA Times' blogger Joe Flint has an excellent blurb in the Times' blog "Company Town" that finally brings some hard research to an old idea here at Pulp 2.0. I am reprinting it below with my commentary after:

The studios' path to profitability? Make more movies.

by Joe Flint

Money's tight. Financing is nowhere to be found. DVD sales are slumping. What's a big studio to do?

Make more movies.

That contrarian thinking is the word from industry research firm SNL Kagan, which just released a report suggesting that cutting back on production is exactly the wrong thing to do right now.

Kagan looked at the 611 major studio releases between 2004 and 2008 and then broke them down by genre (comedy, drama, action, etc.) and year to create imaginary slates of five,10, and 15 films. Then the firm ran three versions of each slate with a mix of movies with high probabilities of success (action) and low probabilities of a big box office take (adult drama).

Without getting caught up in the nitty-gritty of the analysis (which is available for a fee here), the end result of their study was that the bigger the slate, the better the odds for profit. The five-film slate had a net loss of $94 million. The 10-film slate had almost $140 million in profit, while the 15-film slate had $466.4 million in profit. The study, which used a time frame of 12 years to determine the results, assumed 8% in distribution costs and 10% profit-participation and also included video and television revenues.

Kagan analyst Wade Holden says if the studios cut back too much, they are "putting themselves in harm's way."

-- Joe Flint

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Here’s the situation in plain English:

Money’s “tight” because the studios put all their eggs in one basket. Tentpole supported baskets to be sure, but the eggs are just as fragile. If a movie bombs, it bombs big. This is the same situation you can find in today’s book publishing -- fewer books published by the mainstream publishing houses who are only backing a few big names (I.e. Stephen King).

You can read about that situation here and how e-publishing is changing the dynamic by taking the “midlist” and “niche“ and search & preference technology (“If you liked this book/DVD/Game, we recommend you try this one.”) and meshing together a new digital paradigm. [Link sent to me via Carlucci]

So why haven’t the studios switched? Frankly, they make too much money by doing it the old way and manipulating how movies are financed and pre-sold, sold back and so on. They keep their lawyers and the bankers very busy moving things around while fewer and fewer actual movies get made.

And don’t get me wrong either. I like big movies. I’m going to see one today after I write this note. However as a self-sustaining business model it’s very risky, and very prone to mainstreaming (“dumb-ing it down for the masses”), which isn’t good for the form nor the business as a whole. You need things to break the standards, defy them, in order to have real progress and innovation.

But again, the studios say, “Why innovate when overall the model, though risky is serving our short term cash flow needs?”

Well for one, international banking and financing policies are changing. Banks are going to take a long look at how multinational corporations are financing their movie product, just as banks are now wading through the short-sighted home lending fiasco.

Credit isn’t available the way it used to be. I can’t really put it any simpler than that. Movie studios are looking around for financing and banks are shying away at lending $200M for a movie - even if the paper (the international contracts) and the cast are already there. It’s tough.

German (and other) tax shelters are drying up, restructuring, tightening, you name it. A major, bankable setup is gone.

And as Joe Flint says above - DVD is flattening (but Blu-Ray is growing) as a revenue source. It’s going to take awhile to transition over to more downloads and BR sales. Make no mistake kids, DVD is where it has been at in terms of actually making a profit on a studio movie so the situation is very transitory.

But now we have research that indicates that studios have to make more movies.

Let’s face it , if they have only x amount of funding and they should make 3Y movies (Y = the number of movies they have previously made) then the result will be that X/3Y = less money per movie. More movies less money to make them.

This is a good thing.

1. More movies = more profit (potential)

A) International buyers generally (like to) buy packages of films

B) Libraries of content continually generate revenue (See: Artisan/Lionsgate)

In both of these scenarios the more movies you have the better your chances of a sale if you have the product to satisfy a demand. Even if you have to split off a package of movies, if you have the library of pictures out there working for you then can constantly be relicensed, repackaged and sold. Movies are what is known as an evergreen product - they tend to not go out of style, or go away and come back (See 1970's Italian action pictures).

As new media is created (VHS to DVD and then Itunes) you have big packages of content to sell.

2. More movies = more people being employed, with more economic dollar turnaround/impact.

Consistent employment is more desirable on a variety of levels then the up and down of freelancing. Steady growth, steady income leads to more people spending and that has a huge economic impact.

3. More movies = more opportunity for people to make movies, learn the craft, get better.

A) On a cast and crew level

B) On a company level

Okay, so one picture doesn't do well. It's not going to kill the company. Stock isn't going to plunge. People won't lose their jobs as the studio cuts back.

4. More movies = meets the needs of the growing diverse distribution methods (Xbox, Set top boxes, Iphones, Ipods, laptops, etc…)

If you have a movie that appeals to a certain demographic, then it makes sense to go to where they hang out and deliver them entertainment. This is extremely important in our rapidly evolving user culture.

5. More movies = Movies that can serve 1 or 2 quadrants of the audience spectrum and not necessarily have to “compromise/mainstream” their content.

See also #4 above.

6. More movies = lowered marketing costs as campaigns can be targeted (no expensive newspaper ads) and easily integrated with other media (i.e. 2929’s day-and-date DVD releases)

7. More movies = more innovation as to how they are marketed and distributed.

A certain audience only uses PSPs? Market and distribute directly to the PSP to reach that audience, then branch out. Marketing via Iphone ads instead of costly newspaper ads. Reimagine key art and sales tools for the digital user generation.

8. More movies = new and innovative ways to finance those movies.

Advertising, product placement, merchandising, subscription. Websites like these.

9. More movies = shifting the production methodologies away from the studios (slow, ossified) and into the hands of producers (nimble, innovative, cost-effective) and locations that rethink the obstacles to the task.

See Leverage video below.

10. More movies = opportunity to innovate, and field test new technologies to produce said movies.

When the budget is down the creativity is (must be) high.

11. More movies = more ways to stretch the storytelling form.

Unconventional plots. Unconventional characters. New editing techniques to maximize story in a much smaller “space.” See Primer.

12. More movies = more development overall. Less per movie development.

If your slate is full you can't spend a lot of time on each movie. It doesn't get pissed on by every executive up the food chain.

13. More movies = reusing assets created for previous movies in new ways.

This is an old studio trick they seem to have forgotten. Remember how the rayguns in one movie showed up in another? Or on the LOST IN SPACE TV show?

One of the great Fred Olen Ray stories is how he trucked the Egyptian tomb set from a jeans commercial over to Van Nuys (for next to nothing) and shot THE TOMB.

Point is - if we are reusing repurposing resources we lower the cost of those assets by being able toamortize the development costs. This idea applies not only to the film-making but to the films themselves. Repurposing relates to #'s 10, 9, 8, 7, 6, 5 above.

14. More movies = Opportunity for more regionalism.

Let's face the fact that even in America, we have different cultures at different parts of the country. Having lived in three of those cultures (The Midwest, the Southeast and now California's cultural mosaic) I can tell you that there is a different attitude in each. Certain things considered important in the big city don't mean a hill of beans in the South. There are different heroes, methodologies and color.

And each has a distinct point-of-view which makes for better stories. I am a big fan of the #1 Ladies Detective Agency. It's entertaining, fun and different than what I'm used to...but I can relate to the fact it's smart in a way that I am not. It's insightful in a way that I am not. It comes from a different place that inspires me to want more.

Because - as a writer, as a filmmaker - if you can see things (people, ideas, locations, etc..) in a different way. You get better.

And if these recent months have taught us anything - it's that we are going to have to get used to things being different. It's a different world. It's time for us to get better.

Gee, who'd a thunk all that could happen just by making more movies?