Hollywood Hubris & Self Inflicted Wounds
June 18, 2023 Issue: 69
A dirty little secret of most movie and T.V. stories is they are largely derivative. We are not, in this context, referring to remakes, sequels, prequels, or reboots. We are referring to the fact that almost all stories are at least somewhat derivative of three main sources. They are the Bible, the classical Greeks and Shakespeare. A great example is Disney’s The Little Mermaid 2023. The movie is a woke live action remake of a beloved children’s cartoon, which is a highly saccharine version of a tragic tale by Hans Christian Anderson, which in turn had elements of Greek mythology and tragedy. Not only does Hollywood ruin all it touches but keeps resurrecting the proverbial dead horse.
A recurring theme of classical Greek tragedy is that hubris has consequences for mortals and even a hero cannot escape fate. If he dares sees himself as a full Olympian god, he is ensuring disaster for himself and those around him. (I’m assuming gender pronouns but I don’t think Hercules or Achilles would object.) To be crude, many tragic figures got lucky and then proceeded to fuck around. They found out in unimaginably horrible ways that they were not deities. Sadly, Hollywood power players must have stopped reading the very classics they draw inspiration from, because like classical characters, they equated themselves with gods. They were and still are mere mortals; and banal and ordinary ones at that.
Hollywood productions have shut down due to the Writer’s Guild of America going on strike. There is no end in site and even optimists believe that the work stoppage will not end until fall. The actors are now talking about going on strike too although they are not working either. Productions in Toronto, Vancouver, Atlanta and other film centers have shut down putting make-up artists, craft service personnel, truck drivers, electricians, and many other crew members, who are just working stiff,s on the unemployment line through no fault of their own.
The behavior of the writers is a textbook case of workers in an industry stuck in the recent past with an exaggerated sense of their own power. A rising tide lifts all boats. The film and T.V. benefited from strong growth brought on by a rising population base with more leisure time and an explosion in technology. Customers had time restraints and were limited to a couple of hours watching network T.V. each evening and going to the local cinema two to three times a month. They now could watch on their computers, tablets and smart phones anywhere and almost anytime. A lower labor participation rate now meant millions who previously would have spent time at a real job could now binge watch Seinfeld.
There's an old saying in the investment business: “never confuse a bull market and brains". Hollywood executives missed the memo. The illustration below is familiar to anyone who has taken an industrial organization economics course. It is a simplified schematic of the life cycle of an industry from birth to maturity and commoditization, if it survives, and destruction if it does not. The model does not fit all industries exactly. Some, including the film industry, have the habit of getting second and third winds through luck or innovation or both. Hollywood saved itself from the Great Depression with the advent of the talkie and the fact people needed cheap escapism. When T.V. came along, big budget extravaganzas and enhanced color photography saved the day. When T.V.s got physically larger, cheaper relative to income and clearer, Hollywood was already in the scripted drama and comedy business selling products to the networks. However, only until the era of the blockbuster ushered in by Stars Wars and a golden economic era between 1982 and 2008, did Hollywood achieve the massive cash flows that would make the old studios bosses blush.
The film industry is in the process of shifting from the maturity phase to decline. This might not be obvious tp most because of how we romanticize film and television. I don’t remember people being this angry when the steel industry reached maturation. To a small extent people did blame the growth to maturation shift in the automobile industry on Detroit executives screwing up, but the decline was a result of somewhat predictable economic forces. Success breeds competition.
Pre-Covid, the industry benefited by advances in technology. The internet got to the point people could watch movies and shows on their computers, tablets, and even phones. This increased the amount of hours in a week consumers could view content. In the 1950’s to the 1990’s, consumers basically came home from work and watched a couple of hours of T.V. Most would probably grab two or three movies a month at the local theatre. Housewives, might watch a couple of hours of soap operas and game shows during the day and kids might grab some after-school cartoons. Technology allowed consumers to dramatically increase the hours per week one could watch. This trend is largely over. The average person will not radically increase hours viewed per week.
The film industry would have followed the industry life cycle despite executives never coming to terms with it. Let’s look at theatrical movies and leave T.V. and streaming out of the equation for now. It came as a shock, even to me, that ticket sales in North America peaked in 2003. That’s right. The all-time high in movie attendance was twenty years ago. The industry did a superb job of offsetting declining attendance by raising prices above inflation and compensating for less bodies in the seats. From 1995 to 2002, as the industry peaked, film revenue rose an average of 8.4%, annualized. From, 2002 to 2018, revenue only grew 1.2%, annualized. Fortunately for the industry, 2002 was about the time when the Golden Age of T.V. began with shows like the Sopranos, Breaking Bad and the Walking Dead. Streaming services eventually came along although only Netflix has been hugely successful if one believes the press. This masked the obvious issue the industry was facing in the movie theatres.
Since the lockdowns, Hollywood has yet to see revenue return to previous highs. The industry, in desperation, has cut back on the amount of movies released. The costs of an average movie has soared. The studios rely on endless sequels, prequels, re-boots and re-makes of fan favorites. Take a successful film or franchise, hire a diverse cast, increase it’s budget to $250 million and spend $250 marketing it and see the cash roll in. My criticism of modern cinema is that productions all look like they spent $100 million on C.G.I., $10 million on the main actors and ten cents a word on the script.
Unlike in the pre-lockdown era, nothing is a sure thing if you spend too much on it. A rule of thumb in the movie business is that a film needs to make two and a half times its cost to break even. This is because of marketing costs and the fact the production needs to split ticket revenues with the theatre. A film like the recently released The Flash which is purported to cost at least $250 million to make needs to make at least $600 million to break even. Of the 449 movies released in North America in 2022, only nine, or 2%, made over $600 million. Yes, The Flash has a built in fan base and marketing works, but this is an unsustainable business model.
Hollywood is a maturing industry. The industry has lowered the amount of productions from 600 to 700 a year in the post Great Financial Crisis- pre-lockdown era to 400 to 500 currently. It has simultaneously increased the average production price of a movie from approximately $40 million from 2000 to 2017 to almost $100 million currently. The break-even of an average studio film has gone from $100 million to $250 million. Like a desperate, inept investment manager that is chronically underperforming, the industry has dangerously increased its risk. It should come as no surprise that Warner Brothers and Paramount are not looking very financially healthy right now. Owning a studio is no longer a license to print money.
The way out of this fiasco is clear if the studio bosses adopt some humility, or better yet, are fired and replaced by leaders who, seemingly paradoxically, are good businessmen and actually love great film. People still long for good stories that are well told. Simply make less expensive movies and more of them to lower risk. Perhaps more importantly, hire great writers and pay them well and get rid of the cookie-cutter hacks that sit on committees and produce garbage that would embarrass a junior ChatGPT programmer. Invest in great directors of photography instead of ego-maniacal directors. Pay and train great film editors and get rid of the ex-lawyers and useless suits in the office.