Hollywood’s Summer of Discontent

Hollywood has a long history of chasing too much of a good thing. Once a studio has a major hit with a certain kind of movie, every other studio copies the blueprint and starts churning out their own versions. Think disaster movies in the 1970s, or slasher films in the ’80s. Eventually, creativity gives way to formula, viewers grow numb from the repetition and audiences move on, leaving the studios facing a couple of down years as they clear their pipelines of genre pictures nobody wants to see anymore. The cycle then usually starts up all over again.

This summer, domestic audiences seem to have lost their taste for big-budget franchise films and sequels. Ticket sales were down 9 percent from last summer through the July 4th weekend as latest installments of aging franchises fell flat, from Pirates of the Caribbean: Dead Men Tell No Tales and Transformers: The Last Knight to Alien: Covenant and Universal’s The Mummy reboot. New would-be franchises, meanwhile, such as Warner’s King Arthur: The Legend of the Sword and Paramount’s Baywatch, never found open water.

While Warner’s Wonder Woman has been both a critical and box-office wonder, and hopes remain high for Spider-Man: Homecoming and the latest Planet of the Apes installment, disappointment has been Hollywood’s shared franchise this summer, to say nothing of exhibitors, whose sales and share prices have suffered.

Ordinarily, the playbook for the studios at the current point in the cycle would be clear and straightforward: trim costs, accelerate write downs, stretch out new production starts, and hunker down until something new captures audiences’ fancy and you can start producing hits again. But the old plays will be harder to run in today’s Hollywood.

That’s because movie franchises are simply a genre that can be mothballed they’re a business model. In fact, creating (or acquiring) IP franchises and then milking them for all they’re worth has become the predominant business model among the major studios over the past decade. Moving on from superhero movies and campy pirate yarns will require more than commissioning a few new scripts.

The “tent-pole” strategy that has so swept Hollywood in recent years isn’t really a creative enterprise as that term is generally applied to the entertainment industries. It’s about developing and managing IP-based assets — brands — that can be exploited across a wide range of products, from  sequels and spinoffs to theme parks a merchandise.

That’s not to say the movies produced by that strategy can’t exhibit creativity. The appealing freshness of Wonder Woman and the raunchy goofiness of Deadpool  clearly show they can, even within narrow genre strictures.. But its object is something else. The aim of the franchise strategy is to amass a portfolio of IP assets that have global appeal and can be exploited over a long period of time at a more-or-less predictable ROI.

That shift effects more than just the type of movies that get made. It changes everything about how a studio is structured internally to how it raises and deploys capital.

The machinery of production, distribution and marketing the studios have built to support their tent-poles cannot simply be redeployed to produce romantic comedies, at least not easily so. Moving away from a reliance on franchises would require a massive restructuring of their operations and balance sheets.

To be sure, one bad summer at the domestic box office, by itself, does not mean the entire franchise strategy is failing. Some of the movies that have disappointed domestically, in fact, have been able to make up ground overseas, such as Transformers and Pirates of the Caribbean, and the studios still see fertile ground to be exploited in new and growing markets like China.

Still, domestic box office remains important to overall grosses and to establishing films’ value in the ancillary channels. Wall Street also takes note of hits and misses, and too many misses at home can undermine perceptions of a media company’s shares. If American audiences have had their fill of superheros, reboots and sequels the studios could be facing more than just the summer time blues.

Paramount Needs A Strategy, Not a Strategic Investor

Under pressure from investors to “do something” about its plunging share price, Viacom has agreed to sell a minority stake in Paramount Pictures in hopes of boosting Wall Street’s valuation of the studio, which has lagged its peers for much of the past decade. But CEO Philippe Dauman has made it clear he intends for Viacom to remain in firm control of Paramount and is interested only in “strategic” partners.

“We have received indications of interest from potential partners seeking a strategic investment in Paramount Pictures and I have decided to pursue discussions with a select group of potential investors,”  Dauman said in a statement. “In this time of change and enormous opportunity in tom_cruise_MIour industry, a partnership will bring significant benefit to Paramount and Viacom, both strategically and financially, provide new opportunities for Paramount’s employees and talent, and enhance long-term value for all Viacom shareholders.

“Paramount Pictures has been a leading motion picture studio for more than a century and is among a select few that has significant reach and scale, a deep library, a robust pipeline with proven global franchises, and a high potential television production operation,”  Dauman added. “In addition, the value of motion picture content continues to increase with the explosion of screens and the rapid expansion of the global theatrical market. This is the perfect time to explore new strategies to capitalize on Paramount’s content expertise and global platform, maximize opportunities for its continued growth, and unlock the value of the business for the benefit of shareholders.” Read More »

The Fault In Our Stars: Lessons From The 2015 Box Office

Economists have long recognized that the sports and entertainment industries exhibit elements of what University of Chicago economics Sherwin Rosen called the economics of superstars in his classic 1981 study, in which small differences in talent or popularity can lead to outsize differences in returns. Anyone who reaches the NBA, for instance, is by definition an elite athlete. But Star-Wars-Force-Awakens1if the superior skills of a LeBron James or Kobe Bryant added a mere 2 points per game on average to his team’s total, in a league where the average point differential per game is 0.06, over the course of a season they could easily add a half a dozen or more wins to the team’s record, making the difference between first place and missing the playoffs. Given the financial payoff for the team’s owners of reaching the playoffs, James and Bryant are worth almost any price, as in fact their salaries reflect.

Similarly, there are many talented performers in the entertainment industries. But people tend to prefer to listen to the same music and see the same movies as their friends. So if their friends start to listen to Adele or Taylor Swift more than other artists, even by a small amount, that difference in popularity is quickly amplified through network effects to where Adele and Swift tower over others in the charts and can command almost any price for their concerts. Read More »