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5by5 | The Critical Path #21: Negative Costs

Continuing their discussion of the creative side of Hollywood accounting, Dan and Horace take a look at the way income from movies is distributed and why no movies ever make money. The observations sharpen focus on the over-arching influence distribution has on the creative process.

5by5 | The Critical Path #21: Negative Costs.

 The following chart is a visualization designed to accompany the podcast:

Compensation based on “Net income” depends on there being a surplus rather than deficit. The problem is that the Fees and claims on income increase as they are defined as a percent of total income so the goal of break-even is a moving target.

The Negative Costs are approximated by the production costs as discussed and visualized in the previous podcast here.

  • http://www.informationworkshop.org Mark Hernandez

    Here is a short clip from Monday night when Jon Stewart had George Lucas on his show and he talked about “the difficulty of getting the Hollywood studio system to distribute an entirely African American action movie.”  He spent years on the movie, spent tons of his own money, but that still wasn’t enough to get it to the target audience.

    http://www.thedailyshow.com/watch/mon-january-9-2012/george-lucas

  • saviola

    How would decoupling financing from distribution look like? VC funds the project, you make it, and then do you hire distributors to sell rights to theaters, cable, open tv, foreign theaters and tv, etc? How complex is the distribution business? My impression is that it’s a mess of complexity.

    For example, to sell to many tv channels in Latin America, I understand that you need distributors that have borderline corrupt practices with the channel buyers to be able to sell. The channel buyer gets your package of movies (usually some good movies plus a bunch of utter crap to justify a higher price), and there has to be a “mordida” reserved for the representative of the channel. This type of relationship takes years to build.Also Foreign Theatrical/Non theatrical? Is that mostly Foreign theaters, or what exactly?I wished Dan had asked you more questions. It is a really gnarly business.

    • Anonymous

      The primary factor for distribution is “what names can we put on our poster?”  If it comes from a major American studio, or features a major American name, foreign distros eat it up; take a poster with Tom Cruise to the Cannes or the Toronto film market, book a big hotel room, and you can leave the city a week later with $30 million in presales, cash, they’ll find you.  Making a film as a VC is tough because most VCs don’t have track records, and people that have tried to crack the nut, like Mark Cuban, have always tried to do it with films with no-names and limited commercial appeal.

      For distribution, the actual quality of the film is incidental, it’s important for maintaining bankability but it won’t sell your first movie.  Most distributors will pay up-front for the rights to distribute a film based solely on who appears in the film, who is making it, and what the budget is (bigger the better).  They may get to see a script, and only very rarely, but the producers are under no obligation to stick to it.

  • http://feltpresence.com Ryan Singer

    I’m puzzling over that deficit. If the production of the film is a net loss, who takes that hit and why?

    • Anonymous

      Nobody.  All of the positive sums here come from different entities, many of the expense items are in fact paid to the company that put up the money in the first place. The “distribution fee” for example goes straight to Warner Bros’s corresponding distribution channels, which are owned by the same company that put up some of the money to make the thing.  Much of the negative costs were paid to companies owned by Warner Bros. that provided services to the production, as well as ads. Professional writers are aware of the sort of deal, there’s really no trickery going on here, and they always work to get a good up-front payment against any possible (though improbable) backend payout. There’s really no reason for a movie studio to account for the profit of individual films, since they make so much money in the making, the actual selling tickets is really more for the actors and gross participants to profit.

      I haven’t heard the podcast but I assume this chart is based on the writer’s statement that was on Nikki Finke’s website last year sometime?  The idea of a “net income” statement to a writer is to construct a somewhat artificial model of a film’s return that almost never results in a return.  The only people that are guaranteed a share of the film’s income are gross participants, people who get a percentage of each ticket sold, and don’t have to have their share stripped out of the P/L that the studio comes up with.

      Order of the Phoenix actually grossed $900 million, but only $600 mil is here; the remaining 30% was split up-front between the producers, maybe some of the actors, the director, and J.K. Rowling.

      • Wesley Hsu

        I don’t think the thesis here is that the current model is deceitful or unsuccessful, but that in the light of new technologies and consequent new possibilities on the creation and distribution side, the model might be failing to maximize the expansive creative potential of those new technologies. 

        As noted by the show, the development process is slow compared to that of software/hardware/apps/websites/etc, and the studio model means that a much smaller group of people decide which creative ideas to sponsor compared to the VC model. Doesn’t mean the model is bad, it just relies heavily on the collective business and creative vision of a small pool of minds. 

        Disruption could come at the distribution end with a new kind of cinema space; it could come in the funding/control through a VC model; it could be in development, or even in the value chain system that uses movie stars and known properties as assets/collateral in securing deals. Any of those disruptions requires a change in the way we consume movies as well as the way we produce them, which is what makes it seem impossible to the average person.  

        Personally I think television will be disrupted first, because the technology is more ready and the rewards are greater (TV ad revenues > cinema grosses). 

      • Guest

        “As noted by the show, the development process is slow compared to that of software/hardware/apps/websites/etc, and the studio model means that a much smaller group of people decide which creative ideas to sponsor compared to the VC model. ”

        I would say the actual “development,” the writing of a script, takes as long as writing an app does, weeks to months.  “Development” in the film industry takes years because people are trying to find the money to shoot the thing.  Connecting with capital is the part that can take forever.  Making a movie is capital intensive, unlike writing a computer program, and improvements in camera, editing and distribution technology aren’t likely to change that.  Final Cut Pro, Youtube and RED cameras aren’t really disruptors, just as Shoales and Glidden inventing the typewriter didn’t spawn massive disruption in the novel market, just as film didn’t really spawn massive disruption in scenario writing or acting — many of the same people, before and after, were doing approximately the same kind job. 

        “Any of those disruptions requires a change in the way we consume movies as well as the way we produce them, ”

        I don’t see your “as well as” being operative here.  Production and distribution have a very slippery interface.

      • Guest

        “As noted by the show, the development process is slow compared to that of software/hardware/apps/websites/etc, and the studio model means that a much smaller group of people decide which creative ideas to sponsor compared to the VC model. ”

        I would say the actual “development,” the writing of a script, takes as long as writing an app does, weeks to months.  “Development” in the film industry takes years because people are trying to find the money to shoot the thing.  Connecting with capital is the part that can take forever.  Making a movie is capital intensive, unlike writing a computer program, and improvements in camera, editing and distribution technology aren’t likely to change that.  Final Cut Pro, Youtube and RED cameras aren’t really disruptors, just as Shoales and Glidden inventing the typewriter didn’t spawn massive disruption in the novel market, just as film didn’t really spawn massive disruption in scenario writing or acting — many of the same people, before and after, were doing approximately the same kind job. 

        “Any of those disruptions requires a change in the way we consume movies as well as the way we produce them, ”

        I don’t see your “as well as” being operative here.  Production and distribution have a very slippery interface.

      • Anonymous


        Nobody.  All of the positive sums here come from different entities, many of the expense items are in fact paid to the company that put up the money in the first place. The “distribution fee” for example goes straight to Warner Bros’s corresponding distribution channels, which are owned by the same company that put up some of the money to make the thing. ”

        I still don’t understand how this works from a financial perspective.  I understand that the studio gets their fee off the gross, etc.  But what I’m unlcear on is that if the studio is the one financing the production costs in the first place, it would seem that the “negative expense” would just be cutting into their fee.  Even with the movie being an entity unto itself, it would still have liabilities on the books and someone would have to have unpaid receivables on the books.  Does the movie, as an entity just carry these liabilities in perpetuity?  And does the studio simply carry the unpaid receivables?  If that is the case, wouldn’t GAAP dictate the need to convert the receivable into a claim that would eventually have to be written off (I believe 6-12 months is standard)?

        I guess in the end, I’m struggling with the idea that there are massive unpaid expenses and someone is going to be left holding the bag, yet in the podcast, it didn’t sound like this is how the studios portray their financial performance.  

      • Jamiehardt

        There are massive unpaid expenses, only if you look at these statements, and only if you evaluate films on film-by-film basis.  These statements use terms that have been designed by lawyers over the past 70 years, not the FASB.  These statements are not GAAP compliant, and the contracts studios make are explicit about this.  Most of the corresponding parties to these numbers aren’t arms-length from each other and wouldn’t be considered proper creditors under normal rules.

        A movie isn’t a business, it isn’t a sealed black box, it’s only made to look superficially like one for tax and net deal purposes.  There’s the books they keep for paying people who have net deals, and there’s the GAAP books they keep for figuring out if they made money this quarter, and the two books use different definitions for everything.

        “Studios” are a bunch of different entities under a group, one is the physical plant that owns the stages, office space, and runs the post-production services arm.  One entity puts up money.  A bunch of different entities handle distribution.  At my particular studio P/L isn’t show by show but department by department: did editorial make a profit  (billings to projects exceed costs)?  Wardrobe department?  Stages?

      • Jamiehardt

        There are massive unpaid expenses, only if you look at these statements, and only if you evaluate films on film-by-film basis.  These statements use terms that have been designed by lawyers over the past 70 years, not the FASB.  These statements are not GAAP compliant, and the contracts studios make are explicit about this.  Most of the corresponding parties to these numbers aren’t arms-length from each other and wouldn’t be considered proper creditors under normal rules.

        A movie isn’t a business, it isn’t a sealed black box, it’s only made to look superficially like one for tax and net deal purposes.  There’s the books they keep for paying people who have net deals, and there’s the GAAP books they keep for figuring out if they made money this quarter, and the two books use different definitions for everything.

        “Studios” are a bunch of different entities under a group, one is the physical plant that owns the stages, office space, and runs the post-production services arm.  One entity puts up money.  A bunch of different entities handle distribution.  At my particular studio P/L isn’t show by show but department by department: did editorial make a profit  (billings to projects exceed costs)?  Wardrobe department?  Stages?

      • Jamiehardt

        Notice at the deadline link above that all the terminology in the actual report is qualified and nonstandard.  The top line isn’t “revenue,” it’s “Defined gross,” what would be called “Equity” is called “Investment,” and what would be called “profit” is actually “defined proceeds.”  “Defined” is a reference to an addendum in the writer’s contract, where all of the terms on this statement would be defined.

        I’ve had a few net deals for my services on very small indie films — they’re usually called “deferred deals” if you’re below-the-line, and it basically says I have a certain percent claim to a number called “defined adjusted gross points” or somesuch, and there’s a sideletter or amendment to my agreement that itemizes exactly what goes into and out of that number, and the procedure for finding that number has nothing to do with the GAAP profit of the LLP/corp/holding company that’s producing the movie.

        These statements don’t reflect the economics of filmmaking, they are just terms in a contractor’s compensation agreement.

      • Jamiehardt

        Notice at the deadline link above that all the terminology in the actual report is qualified and nonstandard.  The top line isn’t “revenue,” it’s “Defined gross,” what would be called “Equity” is called “Investment,” and what would be called “profit” is actually “defined proceeds.”  “Defined” is a reference to an addendum in the writer’s contract, where all of the terms on this statement would be defined.

        I’ve had a few net deals for my services on very small indie films — they’re usually called “deferred deals” if you’re below-the-line, and it basically says I have a certain percent claim to a number called “defined adjusted gross points” or somesuch, and there’s a sideletter or amendment to my agreement that itemizes exactly what goes into and out of that number, and the procedure for finding that number has nothing to do with the GAAP profit of the LLP/corp/holding company that’s producing the movie.

        These statements don’t reflect the economics of filmmaking, they are just terms in a contractor’s compensation agreement.

      • Jamiehardt

        Just to finish the thought, I don’t know exactly why net deals are like this, I assume it’s historical: studios rarely have to pay on them, and it’s the customary form of compensation for writers, and giving it up wouldn’t necessarily benefit them.

        I assume that the definitions are explicit in order to prevent an Eduardo Severin problem, where someone assumes they have 30% of the movie by holding shares in the holding company but then they get diluted or outmaneuvered — there was a lot of that in the early days in the 20s and 30s, and so most profit participation agreements fix all of their terms relative to box office grosses, which is why they’re such a lodestar.

        In my personal example, I’m much happier with my amendment defining what my net points are, instead of holding 20% of the GAAP profits of the LLP making a movie, because the producer who owns the LLP is probably always going to withdraw cash from the LLP to pay all manner of quasi-legitimate salaries and expenses.  This makes him money and prevents the LLP from ever turning a profit, which works out great for tax liability reasons.  These agreements are structured in a way that (1) almost never makes a profit BUT (2) are much more independent of the producer’s ability to invent new expenses.

        Imagine if when you bought stock, instead of getting a dividend, the company wrote you a check either for a percentage of their revenues that year, or a percentage of their profits, but profits were defined in a way that was sealed off from management’s redefinition.  That’s sortof the benefit.

      • Sharon Sharalike

        So if everybody in the industry knows it, especially the studios making the deals, wouldn’t making a deal in which an “outsider” gets a piece of the net be bordering on outright fraud?

        Everything seems to be structured so that the distributors get money off the top of every deal, taking an enormous percentage, which on average works out to *much much* more than the 35% or so.

        But it has been shown several times now that those who depend on a lock on distribution as a business model are soon to be left wanting. The “movie business” needs to adapt, and it needs to start now, but history shows that will not happen. It will instead cling to its “proven” model until someone else comes along and pulls the rug out from under them.

      • Anonymous

        Well the theaters get the TIPPY TOP along with the gross participants,  all of this income on the statement is ex of that.  That’s why it’s called “defined gross” and not “gross.”

        For outsiders, everything on this statement is specifically defined on the contract the person agreed to.  Never sign a long contract with dollar signs in your eyes unless you have a lawyer, just like you wouldn’t buy a house without a realtor and an inspection.  For the guy who originally leaked this thing it’s hard to shed too many tears, people who do rewrites on movies like “Harry Potter” can make anywhere from $50k-$250k a week for their labor up front (yes, a few screenwriters in LA are able to charge a quarter million a week on rewrites), so he isn’t hurting.

    • Anonymous

      You have to think about this from a FINANCIAL ENGINEERING perspective, not from a “common sense” perspective. 

      I (big hollywood director) want to make a movie. I go to a studio. We sign a contract and create a company called “Harry Potter and the Magic iPad LLC”. (abbreviated to HPMI). The studio puts $x of up-front capital into HPMI, which then hires a bunch of people, pays for film, etc. The film is released and money from the receipts comes into HPMI. HPMI lives for some number of years so some total of money-in accumulates, then let’s say it is wound up — the rights are sold to someone else.
      The NORMAL situation is that HPMI, when it was wound up, had made less money than it spent.

      OK, that’s the accounting. The obvious question one might then ask is “How does this make any sense? How can MGM and Fox and so on keep losing money year after year?” Ahh. Remember I said I and the studio signed a contract. that contract said that I would use the studio for a wide variety of services. I’d use their sets, their cameras, their costumes. I’d use them to make my trailers and to run my advertising campaign. etc etc etc. So many many MANY of the EXPENSES that are accrued by HPMI are money that is transferred to the studio, and so REVENUES for the studio.

      This scheme has many advantages for Hollywood. It allows them to constantly go to Congress and the public and weep about how no movies ever make money and so they need tax breaks and higher ticket prices. It also allows them to gull young and naive actors into silly contracts that pay them the bare minimum of up-front salary, with the rest to be made on the (never-gonna-happen) profit from the movie. While these good things are going on, the studios are actually doing just fine making money from the mundane contract work I discussed in the previous paragraph.

      • Anonymous

        “It allows them to constantly go to Congress and the public and weep about how no movies ever make money and so they need tax breaks and higher ticket prices.”

        When did a movie studio ever go to congress demanding a tax break claiming that movies didn’t make money?  Find me a link.

        They definitely demand tax breaks in order to get a better tax deal than they might get from doing work in the UK, France or China, but that’s different.

  • http://twitter.com/kirkburgess kirkburgess

    Everyone should be aware that Exhibitors (Cinema Chains) take a decent chunk of the stated Box Office earnings.

    Its different depending on the movie, but generally in the US the exhibitors take about 10% of the opening weekend gross for a major studio film, and this percentage increases each week of release, up to 50% or more after approximately 4 weeks of release. In the international market, Exhibitors tend to take a higher %.

  • http://twitter.com/tomsatwicz Tom Satwicz

    Horace, Have you looked into Amazon Studios?  This looks like Amazon is attempting to disrupt how movies are made.

    http://studios.amazon.com/  

    • Tom

      Amazon Studios strikes me as a crowd sourcing platform for developing scripts. The concept is that anyone in the crowd might have an idea to improve a script. So let’s all work together to develop the next great movie. 

      The only problem is that great movies are created by a few people (2-3) with a vision. Whenever a committee of producers and writers try to make a movie and throw all of their ideas in, the end product is just about always a huge flop. There’s a good reason why movie sets are dictatorships. 

  • Guest

    Is the following accurate? (If I had to guess it’s either wrong or trivial.)

    Thinking about disruption in three industries you discuss (mobile computing, movies, financial analysis) I feel I do understand (a bit, at least) your arguments regarding job-hired-to-do, products getting to the “good enough” stage, competing with such “good enough” products along perpendicular dimensions, etc. I’m a neophyte, and I’m not that smart, so I know my understanding is fragile, but I think I learned to think in different and interesting ways by reading your entries, and listening to your 5by5 interviews.

    Listening to yesterday’s 5by5, I seemed to also pick up a pattern (and the fact a pattern is noticed does not imply that it’s either true or relevant, I know). Could one argue that beyond the dimensions discussed above, another issue that makes these industries “disruptable” is that there is a non-trivial dishonesty at their core? By which I mean that, for example, in mobile there is a dishonesty between who the supposed and the actual customers are (users vs mobile operators); in financial analysis, the lie is about what the essence of the job to be done is (fundamentals vs. stock price?); and in movies the lie seems to be about the financials of the projects.

    I’ve learned to be wary of morality tales in finance. That’s not how it usually works. But, is there anything of value in this read?

    • http://www.asymco.com Horace Dediu

      You are noticing something symptomatic. The “lie” is a symptom of a pressure or a fundamental failure. Another way to think about this is to spot inconsistencies, absurdities and other forms of insincerity and try to find the root causes.

      • Anonymous

        I don’t understand where the lie is here.  What you’re looking at here is a essentially a really long paystub, none of these numbers have anything to do with wether the movie made money or not.

        Wether a net deal pays out has nothing to do with wether or not a movie is profitable. Taking a screenwriter’s statement and using it as information on the economics of the film industry is garbage in garbage out

      • http://www.asymco.com Horace Dediu

        It’s not just about this pay stub. Consider the monograph published here: http://www.CreativeMovieAccounting.com/337-reported-business-practices.html

      • Anonymous

        I do not contest that the film industry deals rather… sharply, and that people who make these deals should be well educated. I definitely contest that the film industry lies to itself, in the sense that its accounting is so perverse that Phillipe Dauman or Howard Stringer are incapable of making efficient business decisions, which the original commenter implied by the comparison with high finance.

      • Anonymous

        I do not contest that the film industry deals rather… sharply, and that people who make these deals should be well educated. I definitely contest that the film industry lies to itself, in the sense that its accounting is so perverse that Phillipe Dauman or Howard Stringer are incapable of making efficient business decisions, which the original commenter implied by the comparison with high finance.

      • Anonymous

        I do not contest that the film industry deals rather… sharply, and that people who make these deals should be well educated. I definitely contest that the film industry lies to itself, in the sense that its accounting is so perverse that Phillipe Dauman or Howard Stringer are incapable of making efficient business decisions, which the original commenter implied by the comparison with high finance.

      • Anonymous

        On further reflection, I’ll just say that in my personal experience, after going through a two year process of finding a condo to buy in the Los Angeles county real estate market, I consider film industry business dealing eminently ethical, even clean by comparison :)

  • Anonymous

    I’m guessing the statement comes from: http://www.deadline.com/2010/07/studio-shame-even-harry-potter-pic-loses-money-because-of-warner-bros-phony-baloney-accounting/My takeaway is that this chart looks very wrong at first glance, but things suddenly make sense if you assume the distributor and financier are one and the same (“the studio”).If we assume the studio collects the distribution fee (distributor’s take) and interest (financier’s take) while footing the bill for everything else, we get a more accurate picture of what they’re taking home.  Starting with the bottom line and adding the distribution fee and interest back in:-167mm # Bottom line+212mm # Distributor Fee+ 58mm # Interest______+103mm # Studio’s takeNow if we assume technology will disrupt film distribution (as it has in other industries),  the coupling of financing and distribution may no longer be necessary and we might see the balance of power shift.

    • Anonymous

      Isn’t the 167m the portion of ‘negative costs’ (what I understand to essentially be the cost to produce the movie) only about half  of the total ‘negative costs’?  It seems that ‘negative costs’ are more like 300m.  Thus an overall deficit.

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  • http://twitter.com/WhitScott Whit Scott

    I’m sure this is far more complicated for “Blockbusters”, but I don’t care that much about blockbusters. I’m interested in good movies, with good scripts, hopefully made by good people. 

    What I’m wondering is how this can be put into the hands of the creatives? How the conversations started. My understanding is that Louis CK just made a whole lot of money selling his recent stand up online for download for $5. This seems like it’s touching a model that could work. Obviously the biggest hurdle is being a name that is so well know that people are willing to “risk” their $5 for you. 

    Recently I’ve seen some very good shorts online shot for nothing. Literally $0. Maybe gas, food. Whatever. The point is – A good film can be made for very cheap, but raising that money, then trying to reach out to an audience seems to be the most difficult part. This is what I’d really like to explore.

    • Anonymous

      “I’m interested in good movies, with good scripts, hopefully made by good people.”
      You shouldn’t get too hung up on that, if that’s all you worry about then eventually you end up with an economic model that looks more like modern symphonies, theater and opera companies.  All they worry about are “good” things and they end up dependent on charity and  a highbrow, exclusive audience.

      “Recently I’ve seen some very good shorts online shot for nothing.”
      They were good, but would you pay to see them?  Or better, was it so good that it wouldn’t have been marred by a little product placement or ads down the side?  That’s the two ways people see of making money on these things, I know I hate the second one more, but in a Youtube-driven share-everything system it becomes essential.

      • Tatil

        The limited, exclusive audience is not because those art houses worry about “good” content that most of the public is not willing or able to fund. These art institutions do not mind building palatial concert halls and theaters that cost tens or hundreds of millions of dollars. They are clearly not trying to maximize the reach of their art in ways that would not compromise the wholesomeness of the art they are exhibiting. I doubt those settings are there to serve the benefit of the public, the artists or the artwork itself. They serve the vanity of the foundations (well, more like the people running them) and the patrons who take pride in seeing their names associated with such grandeur. The limited audience is a feature, not an unfortunate consequence.

      • Anonymous

        I completely agree, and forgive my elliptical argument.

        I would say, to be more precise, that in a “disrupted” motion picture economy, where films and television are copied with the ease of MP3s, “patrons” would become the sole source of funding for such ventures.

        The only other source of funding available would be advertisers; dependency on product placement would have the effect of knocking out entire genres of cinema, such as period films and fantasy films. Adversing, as an objective, also tends to be rather incompatible with feature-length motion pictures, and I tend to think these would atrophy into the 20- and 45-minute 5 act product that we see on TV now.

        I personally would prefer an ad-free cinema, to the extent that that’s possible.  I would prefer films be made with cash from the people that are actually enjoying the movies, not just the people that are pushing their products (advertisers) or their parochial social values (patrons).

        Unfortunately, the “Kickstarter” model for making movies has been being tried for nearly five years now and has little to show, leaving only the awful, awful alternatives.

      • Anonymous

        (I just got another letter from my union today telling me to pimp SOPA on the social nets, and I’ve been reading Jaron Lanier, which is probably why this message is taking a dark turn…)

  • Garyb513

    The old adage in Hollywood is never use our own money in a project. If you don’t get paid up front you may never get paid.

    I remember on the Psycho DVD that the making of special feature mentioned that Hitchcock had observed that a small production company was making schlocky movies (in the horror genre) very cheaply and making money. Hitchcock wondered what would happen if a really good director (himself) were to make an inexpensive thriller cheaply. The result was the 1960 smash hit Psycho that made Hitch very wealthy and changed movie going habits permanently. Only an ‘A’ list director could that. The potential for disruption is definitely there and has been for some time.

    In your podcast you say that you don’t watch many movies but you might want to check out the Psycho DVD just for the making of video. Your podcasts on this subject make me think of this.

    • http://www.asymco.com Horace Dediu

      I read about Psycho and know its history.

    • http://www.asymco.com Horace Dediu

      I read about Psycho and know its history.

    • http://www.asymco.com Horace Dediu

      I read about Psycho and know its history.

  • Garyb513

    The old adage in Hollywood is never use our own money in a project. If you don’t get paid up front you may never get paid.

    I remember on the Psycho DVD that the making of special feature mentioned that Hitchcock had observed that a small production company was making schlocky movies (in the horror genre) very cheaply and making money. Hitchcock wondered what would happen if a really good director (himself) were to make an inexpensive thriller cheaply. The result was the 1960 smash hit Psycho that made Hitch very wealthy and changed movie going habits permanently. Only an ‘A’ list director could that. The potential for disruption is definitely there and has been for some time.

    In your podcast you say that you don’t watch many movies but you might want to check out the Psycho DVD just for the making of video. Your podcasts on this subject make me think of this.

  • Garyb513

    The old adage in Hollywood is never use our own money in a project. If you don’t get paid up front you may never get paid.

    I remember on the Psycho DVD that the making of special feature mentioned that Hitchcock had observed that a small production company was making schlocky movies (in the horror genre) very cheaply and making money. Hitchcock wondered what would happen if a really good director (himself) were to make an inexpensive thriller cheaply. The result was the 1960 smash hit Psycho that made Hitch very wealthy and changed movie going habits permanently. Only an ‘A’ list director could that. The potential for disruption is definitely there and has been for some time.

    In your podcast you say that you don’t watch many movies but you might want to check out the Psycho DVD just for the making of video. Your podcasts on this subject make me think of this.

  • berult

    From genesis scaffolding, to work- in- progress, to the closure experience of generic-reading afterthoughts, films secrete the panacean hormones of life metaphorical proxies. No more, no less inspired than any other art form, it stands out less for its evocative dimension than for its ‘middleman’ approach to imagination. Ensue the qualitative scaling of the encapsulation process, the quantitative scaling of the audience’s access.

    Film- making can be pictured as an estuary of epidermal credibility feeding off creative tributaries and affluent affluents. You know …epidermal as where the nerves end up feeling the sand-paper, the out-of-this-world flavor, the forget-me-not aroma, the whistling cross-winds of reality…? The perennial flow of arrayed emotions has carved out star system, moguls and oligopolistic studios into a river bed where money juxtapose as a sediment. To the audience, a wholesome estuary; to the hydrographic basin, …clinking tributary; to the weaver of story, a thread of parlance, fictive …moral claim on the estuary.

    • Anonymous

      “Gee Mr. Lamarr, you use your tongue better than a Kansas City whore!”

  • Neil Taylor

    Where does the income from product placement go? After watching MI:4 it is clearly a big part of the movie…

  • http://www.facebook.com/christian.peel Christian Peel

    I thought this article in the NY Times was very apropo: http://www.nytimes.com/2012/01/14/movies/spike-lee-and-stephen-frears-return-to-sundance.html

    One thing I noted is that 40 films were sold after being shown at Sundance last year. This indicates that there is a market for films that are independently made and financed, rather than being created by big film companies that then distribute them.  In fact the article indicates that the reason that significant directors like Spike Lee go to Sundance is because they are confident that they can sell their film there. 

    Is the disruption already in process?

    • Anonymous

      People have been selling moves like this at Sundance for over 20 years. Sundance was a reaction to the last disruption, namely, the collapse of foreign investment in the wake of the Japanese recession, coupled with the rise of premium cable TV distribution, and the “problem” of overhanging supply in distribution/exhibition caused by a decade of 80s blockbusters.  Also it wasn’t all just technological or economic, the Weinsteins also probably deserve a lot of the credit, personally: there had always been a strong second-teir of production from outfits like Cannon, AIP, New World, and Dino de Laurentiis, but the Weinsteins were the first people to try applying the B-picture model on star-driven arthouse films and a certain kind of classy, broadly-appealing post-exploitation film (viz. anything Tarantino ever made).

      I don’t think you can chalk up the rise of Sundance to technological change in production: the production workflow for Kevin Smith’s Clerks was basically identical to something Romero would have used on Night of the Living Dead 30 years before.

      The film industry’s had several disruptive events since the collapse of the Edison Trust, first there was sound, color, television coupled with the antitrust settlement, home video, digital photography, several flirtations with 3-D; this has iteratively created a system of production where the creative people at the top of the chain outright own very little of the physical capital of filmmaking, so the people in production, the actors and directors and producers and technicians can be extremely agile.  The question is how they’re going to get their money in the first place, if we accept that piracy or the mere fact of the Internet poses a big challenge to the way people pay for and consume movies.  People buying and selling movies at festivals are just buying product to feed into the old model, the one that’s supposed to be getting disrupted.

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  • Matthew Gunson

    Jumping on the wagon a few days late here, but how much of the costs or which costs entirely would be removed by creating a “film” and distributing it directly through the App store as an app? Apple’s 30% cut is probably less in value than the cost to traditionally distribute a film.

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  • Dan

    Interesting anecdote: I was listening to this podcast on the subway this morning.  As Horace described the notion of artists and creative workers in the film industry becoming “made men” in the sense that they only truly benefit from the value of their work when they become part of the studio system — at that very moment, I noticed an advertisement for a new ABC big budget TV show, “The River.”  This show was created by Oren Peli.  Oren Peli is also the creator of the film, “Paranormal Activity,” which I believe Horace referred to earlier in the podcast but couldn’t recall the title.  This film was allegedly produced for less than $15k and when on to gross over $400M worldwide (making it by some accounts the most profitable film ever).  Just another example of a disrupter, given the opportunity, moving over to the established side of the industry.  

    Makes you wonder if a disrupting distribution system (…YouTube…) will ever replace the status quo.