The Bubble Has Burst and the Pendulum is Swinging

Slashdot reports that several of massive box office flops this Summer, including R.I.P.D., After Earth, White House Down, Pacific Rim, and The Lone Ranger,  was predicted by Steven Spielberg during a speech at USC. Yet, you did not need the world’s most powerful filmmaker to have seen it coming. Many other outlets, including The Huffington Post and even hedge funds, are concerned with these studio conglomerates’ stocks due to recent poor box office returns. Hollywood tends to squeeze the flower of trends tighter and tighter as profitable fashions and styles arise. History has seen situations like this in Hollywood; in economics, they call it a bubble, and the American film’s industry’s large-budget bubble either has exploded or is close to exploding. Hollywood has been here before, and every time this happens, there is a new wave of films just around the corner.

We’ve Been Here Before

American film production has always had a cycle of boom and bust. In the post-Paramount Decision days, the major studios also began making fewer films with higher budgets, often times relying on one or more stars as the selling point. This worked until films like Cleopatra bombed, forcing Fox to sell a large portion of their assets to remain solvent.

Off the coattails of the French New Wave and the auteur theory, newly minted film school graduates, including Spielberg and Lucas, directed films that spoke to the disillusioned youth. Bonnie and Clyde and Easy Rider are the most obvious titles, and Spielberg and Lucas also have their own efforts: Sugarland Express and American Graffiti, respectively. For the first time, Hollywood was releasing films that matched the current zeitgeist rather than fighting to stay relevant. Of course, Spielberg and Lucas would eventually ruin that stride with the unfathomable success of Jaws and Star Wars.

These auteur films were raking in cash, and studios kowtowed towards totalitarian directors and their escalating costs. That is, until they began to falter. Michael Cimino’s Heaven’s Gate and Francis Ford Coppola’s One from the Heart bombed heavily, putting both companies under heavy financial burdens. The auteurs lost favor in the studios and the scriptwriter became the new thing in the 1980s and into the 1990s with a huge boom in script purchases and a sub-industry of script gurus.

By the mid-1980s, there was a small backlash, and independent filmmaking began to take a strong foothold with small budgets and big hearts. The creation of the Sundance Film Festival (then the US Film Festival) and several fledgling independent distributors like Miramax, helped bring independent darlings into broader audiences, even becoming Oscar contenders. Thanks to the burgeoning home video market, independent films not only had a theatrical life, they had ancillary lives on VHS. Over time, independent film became more of a mainstay in theaters, to the point where films like Being John Malkovich would blend the independent mindset with mainstream performers in what is called Indiewood. Now, independent film is a massive niche on its own terms.

With the Lord of the Rings trilogy, the Star Wars I-III trilogy, and the Harry Potter series, studios have began to realize that massive franchises with merchandise can bring about decades worth of profits with unfettered loyalty and fandom. But shouldn’t the studios already know that? The original Star Wars instigated the vertical alignment of merchandise and licensing, but the 2000s had conglomerates recognize that they had shareholders to please, and having a franchise and multi-year plan was imperative. Lionsgate and Disney’s many acquisitions in the past several years have focused around this idea, which is why they might be immune to this bubble.

Big Data and Formula

Slate has recently published an article about a contemporary scriptwriting book called Save the Cat! The Last Book on Screenwriting You’ll Ever Need, and how the book has made the majority of American mainstream films ultra-formulaic. The book waters down the conventional three-act structure formulated by Syd Field and Robert McKee, based off the anthropological concept of monomyth and the Hero’s Journey from Joseph Campbell. There is no shortage of story structure formulas, especially with Dan Harmon’s Story Circle.

This Save the Cat! structure is perfect for the high concept film. High concept, although with its early inclinations in Star Wars and Jaws, was perfected by Don Simpson and Jerry Bruckheimer, who found continued success by merely mashing up two or three separate ideas and creating a blanket marketing campaign across all available media, including music videos on MTV. This high concept game was perfect for the 1980s and the cocaine epidemic. What better way to pass time at 3AM in the morning than shooting ideas back and forth by taking the story from one film and adding the setting of another. Top Gun with race cars begets Days of Thunder.

The internet not only connects people with information, it generates vast amounts of quantifiable information that can be mined and analyzed. Netflix used the data collected from the viewing habits of its users to help recommend new movies, and soon enough, to craft original television series. Big Data is giving companies new ways to increase profits and tweak websites and products to squeeze out an extra tenth of a percentage in profits. It is the combination of Big Data, Save the Cat!, and high concept filmmaking that has left us with films titled Rest In Peace Department.  Why? Because everyone loves Jeff Bridges, Men in Black, and Ghostbusters. So why not put it all together?

“This Close”

In Spielberg’s speech, he talked about how Lincoln was “this close” to being exhibited on HBO rather than theaters. With television channels offering more phenomenon-driven dramatic content, filmmakers are fleeing to television. Director Phillip Kaufman brought Hemingway & Gellhorn to HBO, David Fincher produced and directed episodes of House of Cards, and Lena Dunham runs Girls even though her Tiny Furniture was an independent darling and has been enshrined in the coveted Criterion Collection. Perhaps Lincoln premiering on HBO would have not been the worst thing in the world, but Spielberg is still a part of the traditionalist ideal of the cinema as a place and a concept.

Why would filmmakers flee to television outlets? Television, especially channels and networks like HBO, Showtime, and Netflix, allow filmmakers and show runners more freedom, as box office figures are not the goal. The goals, in these cases, are to maintain and increase subscribers. Yet, these three channels are not hindered by censorship from the MPAA, which not only enforces a rating that determines the film’s audience, they also monitor marketing materials such as posters and trailers. Television, especially non-features, allows storytellers to craft a story over several years, allowing the public to grow with a character or set of characters as time passes. There is a bigger emotional investment and a larger return. Furthermore, producing a television show in most cases costs less than a single film, and those episodes can be broadcast for several years afterward at little cost.

Red Tails, Red Ledger

Alongside Spielberg’s speech, George Lucas had also explained the difficulties in getting Red Tails into theaters because studios were nervous about an all-Black male cast. Lucas eventually dumped his own $58 million into the production. Why did Red Tails fail? Its January 2012 release came at a time when studios and distributors dump projects they believe will perform poorly, and heavy were considered insincere because, according to reviewer Ina Diane Archer, it “focuses on the truly spectacular air battle sequences at the expense of characterization and backstory. The composited characters are flat, especially the white soldiers who recite wooden expository dialogue.” In other words, Red Tails did not focus on the story about a group of men who fought adversity to become war heroes. Instead, Lucas showed fake planes doing extravagant flips in the vein of the X-Wing fighters in Star Wars. Let’s not forget that there was already one film about The Tuskegee Airmen from HBO, making Lucas’s comments in his USC speech are hypocritical.

The films that were listed on Slashdot as this summer’s flops are R.I.P.D., After Earth, White House Down, Pacific Rim[1], and The Lone Ranger. What exactly made them toxic? R.I.P.D is insincere. After Earth is directed by a notoriously poorly-received director. White House Down is too similar to Olympus Has Fallen, which was released in March. Pacific Rim’s premise is contained solely in its trailers. Last, The Lone Ranger has been attacked as being racist. Essentially, the broad audience recognized that these were clumsily conceived and executed films. While the majority of spectators would watch Here Comes Honey Boo Boo over divisive political party conventions, they are apparently not that stupid.

As with many of the homes and McMansions that flooded the housing market leading up to the Great Recession, these films were produced with the understanding that there would be an audience or demand for them. With so much backing them, failure would be turmoil. While homes no longer became a place to live but a thing that could be tapped for liquidity, similarly, movies, as exemplified by these five, are no longer well-built and inviting places to get lost in, but instead are merely hot air and toxic.

Franchise Wars

Spielberg is not entirely correct about the large budget film bubble; serialized franchises are still both expensive and profitable. Iron Man 3 and Man of Steel met expectations with several hundred million in box office sales. Despicable Me 2, Monster’s University, and even The Hangover III have found financial success and have extended the franchise reign in theaters. Even the Fast and Furious franchise recognized that there had to be a solid central story in order to move the franchise forward, and Fast and Furious 6 was financially successful. As long as films like these continue to make money, their budgets will balloon and so will the box office take. Disney also purchased Lucas Film just a handful of months after Red Tails left theaters in order to capitalize on the fanaticism of the Star Wars franchise.

Franchises are still the mainstay for conglomerate studios to reign supreme. So what will we have in between each tentpole and franchise film during the year? It is tough to say. Independent films sprinkle into theaters throughout the year, but January tends to have all the festival winners, critic circle winners, and award season nominations enter exhibition. Summer sees a few sleeper hit hopefuls, and November-December has the vast majority of prestige films. Yet, independent and prestige films will still falter and find niche audiences primarily in VOD and home video markets.

Of course there are the superhero films, usually based off a classic comic book title, and the risk for producing high-cost productions is spread between the built-in fanbase, familiar iconography, and actors and filmmakers. Even this production method will face a certain amount of pressure in the future. Individually, the films that would make up The Avengers received poor critical praise, even though they made money. The real question is, will fans continuously consume these superhero franchises?

Soderbergh’s State of Cinema

It is not just Spielberg and Lucas raging against the system of which they are supposed to be a member. At the 2013 San Francisco Film Festival, Steven Soderbergh presented a State of Cinema speech. First, Soderbergh’s career has seen several ups and downs, he has directed low-budget independents, expensive high concept features, a remake that became a franchise, prestige art films, dabbled in early VOD, and has made features for HBO. He is a chameleon in the film industry, and if anyone knows the ins and outs of the entire contemporary motion picture industry, it is him.

Among the topics were the costs of marketing, inaccuracy of segment testing, role of foreign markets, and the blamed placed on directors. One particular topic is the overabundance of content available on all platforms, movies in particular, and he correlates it with a lack of silence that exists in our modern world. He admits that he can no longer keep up or “control the beats.” I have discussed the gross amount of content available in this day and age previously. Soderbergh discussed the idea of “Present Shock” coined by Douglas Rushkoff in his book of the same title[2]. Soderbergh paraphrases one of the central concepts of the book: “when there is no linear time, how is someone supposed to figure out what’s going on.“ He believes this has an effect on movies. This is not a new idea, and has some resemblance to Gilles Deluze’s “Time-Image,” which are cinematic images where time is immeasurable if not disjoint from reality[3].

One of the most interesting topics was the reduction of studio-backed productions—180 films in 2003 and 128 in 2013—that is a 28% drop in studio backed productions.[4] Reducing risk by investing in fewer large-budget films is not a new strategy mentioned earlier regarding post-Paramount Decision American film production. While this might seem like a Bambi v.s. Godzilla situation, independents found an in during this 1948-1966 period. With individual income tax rates so high, stars and high-earners incorporated and invested in independent films in order to circumvent this financial burden. Since there were fewer bona fide studio films, distributors needed new films each week, as the constant flow of films had dried up due to the Paramount Decision forcing studios to dismount their factory production methods. Stars such as Humphrey Bogart and Charles Laughton started to produce and direct their own films in an independent sphere, and rising talents such as Stanley Kubrick had a chance to unleash their own unique styles to unsuspecting crowds. Independents actually enjoyed freedom and prosperity during this period.

Soderbergh’s sex, lies, and videotape was one of the many films that changed the independent landscape of the 1980s and 1990s, and his talent, and many others like his, was lapped up by conglomerate studios who owned a web of subsidiaries that would distribute independent and Indiewood films.

Video on Demand and Original Internet Content

Today, there are more films than ever before, and the multiplex is not the only place where films can be seen. Netflix, Amazon Instant, Hulu, and more traditional Video on Demand distributors feature a large pool of films that never made it to theaters near you, simply because the cost to run them would be higher than the income they generated. Filmmakers and distributors turned to these VOD outlets to control their product more closely and reduce the middle men. It might be snobbish to exclaim that VOD is a viable distribution practice. Then again, nothing beats seeing films in front of a larger-than-life screen to experience the frights, laughs, and suspense with dozens to hundreds of other people at a theater chain like Cineworld.

Studios are once again under threat from television, but also from the internet, and even television that exists on the internet. Video games, short YouTube clips, Facebook, Twitter, etc are all reasons for studios to cower, even though they are embracing these venues to retain eyes and ears. It’s the “Present Shock” and overabundance of content that Soderbergh was talking about in his speech. Even the quality of dramatic television shows have grown in popularity. Shows like Mad Men, Breaking Bad, Game of Thrones, Louie, among many, many others, have brought high-brow entertainment to televisions. Filmmakers have also retreated to television to deliver their next feature length film, where premium channels such as HBO and Showtime are subjected to softer censorship without the typical major studio involvement.

Trends are just that, trends. They wax and wane with the times. All studios need is one of two major box office bombs for them to reconsider their new slate of films. As an example, John Carter was made on a budget of $250 million, but grossed roughly $78 million domestically and over $200 million in foreign markets for a total of $282 million worldwide. When you consider the marketing costs, which are never included in the budget, the film did not exactly make its money back, and Disney’s Studio division recorded a $84 million dollar loss during that quarter.

History has shown that technology and free-market economics create a pendulum effect. Placing all the eggs in just a few baskets will ultimately fail, with studios rushing to place blame and look for a way out. The pendulum effect will then favor the smaller films, and that is where filmmakers turning to VOD will shine. They have lower over-head and minimal risk outside of production costs. Yet, two critically acclaimed filmmakers have diverted from state of cinema that Soderbergh has described.

Filmmakers such as Shane Carruth (Upstream Color) and Joe Swanberg (All the Light in the Sky) have not only retained autonomy, they have retained distribution. They do not have to fight with money and power hungry studio moguls, but instead can film what is in their hearts and minds and deliver it to the niche markets that enjoy their films regardless. Essentially, they make smaller art films for smaller, loyal audiences. These filmmakers have built-in audiences from their early careers to whom they deliver their content.

This is niche filmmaking that Soderbergh has failed to recognize in his speech as a relatively new market, but it is only a form of retail distribution that has rocked the internet in the past fifteen years. Perhaps  Soderbergh’s oversight is due to this platform underperforming for his 2006 film Bubble, which was produced under a minimal budget with almost Dogme 95 like rules, and delivered to theaters and cable/satellite at the same time, with the DVD available just a few days later. IMDB has the film budgeted at an estimated $1.6 million, but the film only achieved a $260,000 world-wide gross. Although the experiment was fiscally a failure[5], it was an attempt on what was going to be a natural progression, and Soderbergh was too far ahead of everyone else.

VOD is an unsexy platform that lacks the grandeur of expansive movie-palaces. Carruth and Swanberg produce intimate films made for intimate audiences. Another issue that keeps VOD in the shadows is that the gross figures are not readily available, meaning that distribution firms are not boasting their weekend sales, but quietly enjoying a steady flow of income. It means they may not appear on weekend top ten grossing lists, which have unfortunately favored which film made the most money, rather than films that were the most artful. Finally, self-distributors such as Carruth and Swanberg can re-invest their profits into their next film or project and not worry about financing.

Fundamentals, Diversity, and Hope

There is a reason why they are called trends; they rise and fall, and there is a pattern or form of predictability that arises. Studios and theaters have browsed though the results of their data collection and created a slate of films they believe the populous demands. In order to meet this demand, studios have conformed these films to fit within a formulaic story structure and stuffed it with bombastic CGI.

There was a time when we used to wonder how filmmakers made those magical moments in film. Mary Poppins and Who Framed Roger Rabbit? pushed the boundaries of animation and live-action. Today, we know the answer immediately: computers. Although it is wrong to marginalize the work animators do, there is an excessive need for films to rely on CGI, and audiences are begging for something new.

There is no doubt that the films in question were designed to create franchises, and their failure will put an end, or at least provoke studios, to reconsider those prospects. However, current franchises or properties that are already cultural phenomena in other media are still successful regardless. Even then, how long can franchises retain supremacy over the long-term? Are audiences really screaming for another Amazing Spider-Man sequel?  How many Toy Story sequels will audiences take? If the list of current highest grossing films of 2013 is any indication, or the list of films to be released later this year, we will be subjected to much of the same, with the typical prestige film to fill any repetitious void.

Get Off My Lawn

It is strange to see the three men who have redefined the industry on multiple occasions complaining about their difficulty in getting films made with the major studios. For the past several decades these three fought valiantly to even get their foot in the door; fighting technical unions while they called the shots. Lucas even gave up making “art” when his baby, THX1138, bombed, choosing to focus more on family films. Soderbergh also fought the system multiple times and currently appears to be. These three filmmakers’ comments, while insightful, are hypocritical when placed in context to their careers.

Capitalist markets are by nature supposed to be self-correcting. This means that the state of cinema that these three are raging against is bound to adjust, and it is already on that path. Furthermore, filmmakers are retaining autonomous production practices, reducing cost, and enjoying more sustainable profits. Bachelorette and Arbitrage had better VOD sales than box-office gross, and they are also very good films.  Films like Upstream Color and To the Wonder rarely reach local theaters, forcing audiences to use VOD.

In Soderbergh’s speech, he never made a truly conclusive statement, other than a quip on how to guarantee a green light at your pitch meeting: “It’s a story of hope.” The truth is that the future of cinema is bright. Large films will get larger. Small films will endure at film festivals and exist comfortably on VOD. There is more content than ever, and there is a divergent narrative of popular cinema.

These are not the Bombs You’re Looking For

The bombs discussed in this article are not the bombs that Spielberg and company are referring to. Even though these films have large budgets, they are not large enough to be catastrophic enough to create the epic shift that these filmmakers are predicting. Studios know not to put all their eggs in one basket, otherwise atrocities like Cleopatra will continuously ruin studios.

The best financial advisors during the Great Recession would have already had the answer: fundamentals and diversity. For film, the fundamental is the story, and how to convey that story to mass audiences. Cinema is one of few industries that do not have an active research and development department in terms of approaching new ways to tell stories. Thus, innovation in telling stories through cinema will lie with smaller films, perhaps the truly independent films at film festivals.

In terms of diversity, these bombs indicate that these studios are not as diversified as they should be. Although, the financial difficulties placed by these bombs will not be as significant as Cleopatra or Heaven’s Gate, they will force studios to reconsider their futures. Of course foreign markets will lessen the final financial blow, as most films that do poorly in America tend to find success outside of the country. In other words, Hollywood may no longer rely on American audiences, they might soon be making films specifically for multi-national audiences.

If smaller films have more innovative storytelling techniques that captivate audiences, higher returns on investment will occur, sparking interest in studios to seek out those talented individuals. Thus, Hollywood economics, like all economics, is cyclical with its own form of boom and bust, with prosperity and panic at certain points. Today, we are at a point where expensive franchise films will get larger, and smaller films will get smaller, and eventually that trend will contract until the market finds its own sense of balance yet again. Lucas, Spielberg, and Soderbergh have taken an ahistorical look at the state of American film production in terms of their own experience, forgetting that there was an industry before them, and there will be an industry after them.



[1]Pacific Rim is on the edge of surpassing its budget with domestic box office sales. However, the budget does not include the studio and distributor’s marketing costs, which are rarely made public. Finally, marketing costs can be floated between productions to reduce profits and prevent revenue sharing.

[2]Check out a great interview with Rushkoff with Marc Maron on WTF Podcast

[3]I wrote about how Time-Image is used in The Tree of Life in the past.

[4]One must consider that production finance is tricky. Studios might not financially back a film from its major company, but might back several dozen from a web of subsidiaries. Furthermore, the seven major studios account for distributing almost 90% of all theatrical films.

[5]These figures may not consider cable/satellite sales figures or DVD sales.

About the Author

Aaron Weiss founded CinemaFunk in September 2009. He recieved his Master's in Cinema Studies from the Savannah College of Art and Design. He currently works as a web developer in the Tampa Bay Area. 
 

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Comments

Anonymous's picture

I don't think Blockbusters are going away, but the formula might shift. With auteur directors being given more money we might see a nice blending of style and flash. We'll see what 2015 brings.

Aaron Weiss's picture

#1 I too don't think that blockbusters are going away either, I just think the reliance on crafting them through formula will diminish over time. Like usual, they will evolve and devolve.

Anonymous's picture

"As an example, John Carter was made on a budget of $250 million, but grossed roughly $78 million domestically and over $200 million in foreign markets for a total of $282 million worldwide. When you consider the marketing costs, which are never included in the budget, the film did not exactly make its money back, and Disney’s Studio division recorded a $84 million dollar loss during that quarter."

This is a bit confusing. Box office revenue is not equivalent of production costs as this revenue is shared with theaters (around 50% in the US and at various percentages internationally). And you have mentioned marketing costs et al. Then again, with Hollywood's creative accounting practices (paying itself a fee to make a movie and including that as a budget expense, charging interest on "loans" for the money used in the production, etc) its not like these announced budgets can be taken too seriously either. Didn't the studios attempt to add the costs of all the failed Superman movies before "Superman Returns" into the SR budget (as if that was somehow a true costs of making SR).

Aaron Weiss's picture

That 50% figure isn't accurate at all. Distributors typically have a either a 90/10 or 100/nut agreement for the first week or two.

And depending on how the holding companies that owned the Superman screen rights were set up, there is a financial legitimacy to adding developmental expenses to the final bill. It's all about reducing taxation and preventing net profit sharing from triggering.

Anonymous's picture

Studios have a much higher share early in the release of a film (and the exact ratio will very per film/studio) but then it quickly shifts and after several weeks the ratio will have the theater keeping most of the revenue. Movies generally make 30-40% of their totals on opening weekend. Most industry analysts will state that while it varies per picture/studio and the ratio changes during the release . . . in the END it generally ends up a 50/50 split with the theaters. Movies with longer legs benefit the theater, films that are front loaded benefit the studios but it all averages out. Additionally, foreign films do not have anywhere near that level of profit sharing. Recently China has made the headlines when they fought against paying US Studios their full 25% of revenue yet you seem to mix domestic and foreign totals without any qualifier.

And to the more important point, studios DO NOT recoup their budget in their box office proceeds. Only a handful of films make enough for that. Studios try to maximize their profits with films and it can take a full 3 and a half years before this process is finished. For the first 6 months the only movie revenue is theater ticket sales. Most films will be lucky to make up their P&A (Prints and Advertising) costs with this revenue. Ticket sales are only somewhere in the range of 20-30% of a movie's total revenue.

30-50% of a movie's revenue will be DVD rental, DVD sales and Pay-per-view. The last big portion will be the television licensing fees which is almost pure profit producing revenue due to the major studios incestuous relationships with networks these days.

In addition some franchises like Star Trek, Kung Fu Panda, The Avengers, etc, can make additional revenue from merchandising and other licensing agreements than your typical Hollywood movie.

And to be clear, I am NOT talking about the creative accounting done by the movie studios to create their official budgets where movies like Forrest Gump, The Lord of the Rings Trilogy, Return of the Jedi, Harry Potter, etc, have never made a profit. That's just an example of the big Hollywood Studios avoiding the need to share revenue with actors, writers, directors, etc, while avoiding taxes. Obviously the key players are making money hand over fist. That kind of BS accounting, however, is a discussion in itself.

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