Still looking to mouthwash from last night's Hollywood love fest?
March 26, 2001 9:37 AM Subscribe
Still looking to mouthwash from last night's Hollywood love fest? How about the appetizing possibility of a strike?
yeah, notice they reconciled before anyone went broke.
posted by bliss322 at 10:56 AM on March 26, 2001
posted by bliss322 at 10:56 AM on March 26, 2001
More tellingly, look at SAG's strike of the producers of commericials (which is still going on, isn't it?). That has dragged on for months, and it's mostly because SAG doesn't want to show any weakness prior to the negotiations mentioned in this article.
This situation has been building for a year, among all three groups (writers, actors, producers), and no one's budged an inch. Even though the economically optimal strategy would be to have settled long ago.
Hollywood is notoriously a place where rational business decisions go out the window because somebody's ego has been bruised. Each of the three groups think the other two have no respect for them.
I strongly recommend renting the movie Swimming With Sharks if you want to get inside studio executives' heads. If it has a fault, it's that the characters are too tame, too rational.
But remember, 19 out of 20 movies lose money. 19 out of 20 actors are unemployed. If these were "rational economic actors" who really gave a damn about money, none of them would be in the business they're in.
It's ego all the way, baby. And everybody thinks their ego is hurting.
(Same as most American business, actually, but in movies people wear their fragility more openly. Or something.)
posted by aurelian at 12:49 PM on March 26, 2001
This situation has been building for a year, among all three groups (writers, actors, producers), and no one's budged an inch. Even though the economically optimal strategy would be to have settled long ago.
Hollywood is notoriously a place where rational business decisions go out the window because somebody's ego has been bruised. Each of the three groups think the other two have no respect for them.
I strongly recommend renting the movie Swimming With Sharks if you want to get inside studio executives' heads. If it has a fault, it's that the characters are too tame, too rational.
But remember, 19 out of 20 movies lose money. 19 out of 20 actors are unemployed. If these were "rational economic actors" who really gave a damn about money, none of them would be in the business they're in.
It's ego all the way, baby. And everybody thinks their ego is hurting.
(Same as most American business, actually, but in movies people wear their fragility more openly. Or something.)
posted by aurelian at 12:49 PM on March 26, 2001
Just checked SAG's website. The new contract for commercials has been finalized, but internal language indicates SAG's strike went on for 3-1/2 months.
posted by aurelian at 12:56 PM on March 26, 2001
posted by aurelian at 12:56 PM on March 26, 2001
19 out of 20? Are you counting only Hollywood movies or all movies produced out of artistic whimsy of some sort? I don't know: That percentage certainly sounds high.
I agree with the egos though. The article makes a good point about Hollywood being a "publicity complex."
If this strike materializes for even a day, it should be interesting to watch Letterman that night. The SAG seems intent on banning publicity appearances.
posted by lowblow at 1:02 PM on March 26, 2001
I agree with the egos though. The article makes a good point about Hollywood being a "publicity complex."
If this strike materializes for even a day, it should be interesting to watch Letterman that night. The SAG seems intent on banning publicity appearances.
posted by lowblow at 1:02 PM on March 26, 2001
Plus SAGs demand to get residuals for internet commercials was completely ignored. Their spinning it well though...
posted by owillis at 1:20 PM on March 26, 2001
posted by owillis at 1:20 PM on March 26, 2001
Good lord! This isn't going to delay Tomb Raider, is it?!?
posted by Shadowkeeper at 2:03 PM on March 26, 2001
posted by Shadowkeeper at 2:03 PM on March 26, 2001
19 out of 20? Are you counting only Hollywood movies or all movies produced out of artistic whimsy of some sort? I don't know: That percentage certainly sounds high.
That's Hollywood, studio-financed movies.
You can find all kinds of estimates, but a consensus figure for the average production budget of a movie is $40 million. The standard estimate to add to that budget is 100% for marketing and distribution. That means the average studio movie needs to make $80 million to be profitable.
OK, now look at this week's box office chart. 2 out of 12 movies are above $80 million cumulatively, but both have had long runs because of Oscar consideration. If you were to look at that chart in, say, September or October, it'd be much more dismal.
This is why studios wet their pants when a cheapie like Blair Witch comes along that provides a huge ROI.
But on the other hand, expensive "tent-pole" movies like Pearl Harbor, with budgets above average into the $100-120 million range, have to make a correspondingly larger amount of money to break even: $200-250 million.
There aren't many of those.
The bottom line is, Hollywood makes money in spite of itself, not because of any rational business planning. The sky is raining money, and they hold out buckets. People want fantasy so badly that even with 95% of your movies not making money, you can still be profitable.
Just. :)
posted by aurelian at 3:03 PM on March 26, 2001
That's Hollywood, studio-financed movies.
You can find all kinds of estimates, but a consensus figure for the average production budget of a movie is $40 million. The standard estimate to add to that budget is 100% for marketing and distribution. That means the average studio movie needs to make $80 million to be profitable.
OK, now look at this week's box office chart. 2 out of 12 movies are above $80 million cumulatively, but both have had long runs because of Oscar consideration. If you were to look at that chart in, say, September or October, it'd be much more dismal.
This is why studios wet their pants when a cheapie like Blair Witch comes along that provides a huge ROI.
But on the other hand, expensive "tent-pole" movies like Pearl Harbor, with budgets above average into the $100-120 million range, have to make a correspondingly larger amount of money to break even: $200-250 million.
There aren't many of those.
The bottom line is, Hollywood makes money in spite of itself, not because of any rational business planning. The sky is raining money, and they hold out buckets. People want fantasy so badly that even with 95% of your movies not making money, you can still be profitable.
Just. :)
posted by aurelian at 3:03 PM on March 26, 2001
Actually, it is very hard to loose money on a film. Aurelian, don't forget that those are box office returns for the US. If you factor in worldwide box office returns, promotional product placements, first run TV rights, pay per view, cable, video and DVD revenues, you end up with a pretty nice amount. A movie could do so so business in the US and do better overseas.
For example, let's take Ishtar, which was considered one of Hollywood's biggest flop. At a budget of $60 million, it wasn't cheap to make. It ended up making only about $14 million at the US box office. However, for some odd reason, it ended up making $21 million in Europe, $12 million in Latin American, $18 million in Asia, and $6 million in Africa. That's $71 million on its first run. And that's not even including all the TV rights and video rights after that. Bottom line, the flop still pulled in a few millions. Granted, it didn't make HUGE bucks but even as a flop, it returned a few extra cents on the dollar... and we're talking about a film that was considered the biggest flop at the time (1987).
posted by TNLNYC at 3:45 PM on March 26, 2001
For example, let's take Ishtar, which was considered one of Hollywood's biggest flop. At a budget of $60 million, it wasn't cheap to make. It ended up making only about $14 million at the US box office. However, for some odd reason, it ended up making $21 million in Europe, $12 million in Latin American, $18 million in Asia, and $6 million in Africa. That's $71 million on its first run. And that's not even including all the TV rights and video rights after that. Bottom line, the flop still pulled in a few millions. Granted, it didn't make HUGE bucks but even as a flop, it returned a few extra cents on the dollar... and we're talking about a film that was considered the biggest flop at the time (1987).
posted by TNLNYC at 3:45 PM on March 26, 2001
For example, let's take Ishtar, which was considered one of Hollywood's biggest flops. At a budget of $60 million, it wasn't cheap to make. It ended up making only about $14 million at the US box office. However, for some odd reason, it ended up making $21 million in Europe, $12 million in Latin American, $18 million in Asia, and $6 million in Africa. That's $71 million on its first run.
Yup... For a loss of $49 million, since with a budget of $60 million it needed $120 million to break even, as I explained above.
There's no question foreign and subsidiary rights help. Figures I've seen suggest that video sales and rentals are actually bigger revenue streams than raw ticket sales, these days.
But I think you're being overly optimistic.
posted by aurelian at 4:08 PM on March 26, 2001
Yup... For a loss of $49 million, since with a budget of $60 million it needed $120 million to break even, as I explained above.
There's no question foreign and subsidiary rights help. Figures I've seen suggest that video sales and rentals are actually bigger revenue streams than raw ticket sales, these days.
But I think you're being overly optimistic.
posted by aurelian at 4:08 PM on March 26, 2001
I may be overly optimistic because I think that those figures are spread out over a long time. When a movie like Ishtar still plays in the middle of the afternoon on a third rate local TV station, it's still generating revenue. As a result, over a certain period of time, a movie can completely recoup all the investment. In the case of Ishtar, it's been out for now Since it's showing again this Thursday on Bravo, it's still generating revenue. Let's say that it has now peaked and generates only about $10k per TV showing. I think we can safely assume that it is showing on TV somewhere around the world at least once a week. That totals to about $520k a year. If you think of it that way, a movie almost becomes an annuity and once made, continues to generate revenue ad infinitum. While the rate at which it is generating revenue may not necessarily show a great return, it might be enough to cover all the costs over a 20-30 year time (and that's for flops).
posted by TNLNYC at 4:55 PM on March 26, 2001
posted by TNLNYC at 4:55 PM on March 26, 2001
Unfortunately, there's no such thing as a free lunch.
Which, in this instance, means you've left out inflation.
Ishtar cost $60 million in 1987. It needed $120 million 1987 dollars to break even. Using an inflation calculator, it turns out that's $176 million 1999 dollars (the most recent year they have adjustments for). I'll take as read that Ishtar made $71 million 1987 dollars in its first year. That's $104 million 1999 dollars. So between 1987 and 1999, Ishtar needed to make $72 million 1999 dollars to break even.
The thirteen-year period in question, while low in inflation, still had some -- 3.3% per year, on average. That means Ishtar had to make just shy of $4 million 1987 dollars per year, or $5.8 million 1999 dollars per year, just to tread water -- that is, with zero effect to its bottom line.
That outdoes your back-of-the-envelope guess for Ishtar's current revenue by a factor of 11, or more than a full order of magnitude -- just to tread water, and not make a dent against Ishtar's loss.
To have fully made back its money by now, Ishtar needed $5.8 million a year to keep even with inflation, and $5.6 million a year to retire its loss over 13 years, for $11.4 million a year. For thirteen years. On average. (in 1999 dollars)
Make the period for repayment longer, and all you'll do is slide more deeply into the inflation pit.
As Tommy Lasorda once said about next-day kibbitzers of baseball, "This fuckin' job ain't that fuckin' easy!" :)
posted by aurelian at 10:19 PM on March 26, 2001
Which, in this instance, means you've left out inflation.
Ishtar cost $60 million in 1987. It needed $120 million 1987 dollars to break even. Using an inflation calculator, it turns out that's $176 million 1999 dollars (the most recent year they have adjustments for). I'll take as read that Ishtar made $71 million 1987 dollars in its first year. That's $104 million 1999 dollars. So between 1987 and 1999, Ishtar needed to make $72 million 1999 dollars to break even.
The thirteen-year period in question, while low in inflation, still had some -- 3.3% per year, on average. That means Ishtar had to make just shy of $4 million 1987 dollars per year, or $5.8 million 1999 dollars per year, just to tread water -- that is, with zero effect to its bottom line.
That outdoes your back-of-the-envelope guess for Ishtar's current revenue by a factor of 11, or more than a full order of magnitude -- just to tread water, and not make a dent against Ishtar's loss.
To have fully made back its money by now, Ishtar needed $5.8 million a year to keep even with inflation, and $5.6 million a year to retire its loss over 13 years, for $11.4 million a year. For thirteen years. On average. (in 1999 dollars)
Make the period for repayment longer, and all you'll do is slide more deeply into the inflation pit.
As Tommy Lasorda once said about next-day kibbitzers of baseball, "This fuckin' job ain't that fuckin' easy!" :)
posted by aurelian at 10:19 PM on March 26, 2001
« Older "Ah, the vibrant interaction of electronic... | Newer »
This thread has been archived and is closed to new comments
posted by bliss322 at 10:26 AM on March 26, 2001