Adam Davidson writing for the NY Times:
I’ve been trying to come to terms with two seemingly irreconcilable facts. First, “Men in Black 3” has made more than $550 million worldwide. Second, while a representative from the parent company of Columbia Pictures told me that the movie is now “in the win column,” it seemed until recently as if Columbia might actually losemoney on it. How could that be? It’s not so complicated. Its production costs were close to $250 million; worldwide marketing most likely added at least that much; and a big chunk of the ticket sales go to theaters and distributors.
In recent years I've become more and more fascinated by the business aspect of Hollywood, specifically how many movies actually lose money. Statistically, it's the majority of films. Hence why the summer brings what are referred to as "tent-pole films." These are the films that are expected to prop up all the movies that have lost money. Or to put it another way, these are the main poles that hold up the tent known as Hollywood film making. If these poles (i.e. movies) flop then the studio has the potential for serious losses that year. However, becaue of the major studios shotgun approach to movies it's unlikely that they'll ever suffer a catastrophic loss from which they can't recover. Because Warner Bros. makes an action movie, a comic-book based movie, a romantic comedy, and a horror movie they can satisfactorily hedge all their bets against any major loss.
However, all that is now becoming more challenged by higher quality TV programming and production quality (Breaking Bad, Mad Men, The Walking Dead, Lost, House, etc.), as well as the struggle Hollywood faces in understanding and adequately harnessing the internet. Hollywood has long employed "windowing" to create a long run of income. So a typical film may start its first in a all the major theaters. After a few weeks (months?) depending on how it does that movie gets moved to a second window - dollar theaters, drive-ins. After that's exhausted Blockbuster, Hollywood video, iTunes, Amazon, Redbox, and other VOD services will get their crack at renting the movie. Once that window is closed the studios turn to a Blu-ray/DVD release to conjure up additional income. But they aren't done yet. Then come the TV distribution rights, Netflix, and any other contractual outlet they find to pay them more for the rights to the re-transmission of the movie. And keep in mind this sample trajectory doesn't even factor in any ancillary income from things like video games, clothing, collector sets, theme park rides, etc.
You can't often spend $200-$300 million and fail to make it back. That business model won't last long. So ultimately, Hollywood plays it safe. They turn to movies that already have an established fan base (comic books, or NY Times best selling books - Hunger Games, Harry Potter, and yes 50 Shades of Grey), or sequels. Often times these areas overlap. If X-Men (comic book) is good, X-Men 2 (comic book sequel) is probably a safe bet, and why not an X-Men 3.
While I'm not a believer that Hollywood is doomed, I do think given today's (and tomororw's) technology the business model may have to be updated (reimagined?). The extreme windowing that is done may not be the best approach. Do I have a better solution? Not currently! I do, however, see a major disrubtion in distribution as more film makers are able to take their films directly to their audience from the start (see Kickstarter). Distribution is spurred on through Internet delivery which continues to open avenues for simpler distribution models for many short-stories, documentaries, and feature-length movies. Will Hollywood go away? I don't think that will ever happen. Will they have to change or adapt? Hopefully so.
Adam Davidson concludes his article:
People have predicted the demise of the film industry since the dawn of TV and, later, the appearance of VHS, cable and digital piracy. But Fabrizio Perretti, a management professor at the Università Bocconi in Italy, says that Hollywood is now actually destroying itself. Because it’s harder to get financing and audiences, companies are competing to make bigger, costlier films while eliminating risk, which is why ever-more movies are based on existing intellectual property. Eighteen of the all-time 100 top-grossing movies (adjusted for inflation) were sequels, and more than half of those were released since 2000.
Predictability might win the weekend, Perretti says, but it could eventually make people weary. Meanwhile, Lieberman, from PricewaterhouseCoopers, sees significant growth in another entertainment business that’s constantly experimenting with different models, distribution methods and ways of telling stories. Maybe TV is finally going to kill movies after all.